AI Growth Demands Sweeping Infrastructure Reforms, Warns Economist

AI Data Centers Projected to Exceed California's Power Needs by 2028, Driving Urgent Calls for Permitting Reform and Grid Modernization

Economist Samuel Hammond has underscored the critical need for significant infrastructure overhauls, including permitting reform, grid modernizations, and broader supply-side liberalization, to sustain the rapid advancement of artificial intelligence (AI) in the medium term. His remarks, shared via a tweet by James Pethokoukis, highlight growing concerns about the foundational requirements for continued AI development.

"We will need permitting reform, grid modernizations, and a broader supply-side liberalization to stay ahead in AI over the medium term," Samuel Hammond stated in the tweet.

The urgency of these reforms is amplified by projections indicating that global AI data centers could require more electricity than the entire state of California (117 gigawatts) as early as 2028. This burgeoning demand is placing unprecedented strain on existing energy infrastructure.

Recognizing this challenge, the White House issued an Executive Order on July 23, 2025, titled "Accelerating Federal Permitting of Data Center Infrastructure," alongside an "America’s AI Action Plan." These initiatives aim to streamline federal permitting processes, which are currently seen as significant impediments to the rapid construction of necessary AI infrastructure. The order targets "Qualifying Projects," such as data centers requiring over 100 megawatts of new load or involving substantial capital expenditure, for expedited review.

Industry groups echo these concerns. The National Association of Manufacturers (NAM) released a roadmap emphasizing that "America’s environmental permitting system and other regulations make it almost impossible to build this infrastructure in the United States with the speed that is required." According to NAM, 80% of manufacturers believe the current permitting process hinders investment, and 94% advocate for reforms to energy infrastructure buildout. These reforms are crucial not only for new energy generation but also for modernizing the electrical grid to handle the fluctuating and immense power demands of AI.

Grid modernization efforts are essential to ensure a reliable and resilient power supply for AI operations. This involves upgrading transmission lines, enhancing energy storage, and integrating diverse energy sources to prevent bottlenecks and ensure stability. Simultaneously, supply-side liberalization seeks to reduce regulatory burdens and foster a more competitive and innovative environment, encouraging investment and development across the technology and energy sectors to meet AI's escalating needs.