Introduction

The data center market is experiencing rapid growth driven by the rise of artificial intelligence (AI) and cloud computing. This is apparent in Indiana, where data centers are being constructed at a rapid pace, thanks in part to Indiana’s sales tax exemption enacted in House Bill 1601. Data centers have been constructed and are in the planning stages of construction across the state, with clusters focused in Northwest and Central Indiana.

Data centers require a substantial amount of reliable electricity to power and cool the servers and networking equipment that comprise the facilities. Data centers that rely on the local grid for electricity often require many fossil fuel-fired emergency generators to ensure that the facility’s power needs are met during grid outages. Combusting the fuel in these generators results in criteria pollutant [i.e., volatile organic compounds (VOC), nitrogen oxides (NO_x), carbon monoxide (CO), sulfur dioxide (SO₂), and particulate matter (PM)] emissions. As a consequence, most data centers are required to obtain an air permit from the Indiana Department of Environmental Management (IDEM) to install and operate the generators and other emission units at the facility (e.g., cooling towers).

Air quality due diligence and permitting are crucial steps in the design process of a data center which can impact all phases of a project, as discussed below.

Air Permitting Considerations for New Indiana Data Centers

With the exponential growth of the data center market across Indiana, air quality permits in this sector have grown increasingly complex. Emissions limitations and operational restrictions imposed in these air permits have the potential to significantly impact the operational flexibility of a data center. Therefore, it is imperative that data center developers and operators strategize effectively when embarking on the air permit application process. The following sections discuss opportunities and challenges to consider when devising a permitting strategy.

Air Permitting Exemptions

Categorical permit exemptions outlined in Title 326 of the Indiana Administrative Code (IAC) Rule 2-1.1-3(e) exempt certain insignificant activities from permitting requirements. Categorical permit exemptions only apply to the specified insignificant activities provided that the source-wide potential to emit (PTE) does not exceed the exemption thresholds in 326 IAC 2-1.1-3(e)(1). The exemption thresholds are only 5 tons per year (tpy) of particulate matter, 10 tpy of VOC, NO_x, and SO₂, and 25 tpy of CO. There are limited available categorical permit exemptions for engines in Indiana. The two exemptions that apply to engines are found at 326 IAC 2-1.1-3(e)(5)(B) for engines not exceeding a specified capacity, and 326 IAC 2-1.1-3(e)(25)(B) for emergency generators not exceeding specified horsepower ratings. However, the potential emissions from engines or stationary turbines easily exceed the exemption thresholds and can very easily approach Title V permitting thresholds. Therefore, it is unlikely for data centers in Indiana to meet the applicability of a categorical exemption, meaning air permitting is required.

Nonattainment Areas

The requirements of Nonattainment New Source Review (NA NSR) are evaluated for proposed projects that result in an emission increase of a pollutant for which the area is in nonattainment with the National Ambient Air Quality Standards (NAAQS) per 326 IAC 1-4. The attainment status of an area refers to how the ambient pollutant concentrations in that area compare to the NAAQS for that pollutant.

Many locations across the United States are considered “nonattainment areas” (NAAs) for ozone, including the northern townships of Lake and Porter Counties. As of January 16, 2025, these two areas were reclassified from “Moderate” to “Serious” NAAs for the 2015 ozone NAAQS, resulting in stricter regulations surrounding emissions of NO_x and VOC — both of which are considered precursors to ozone formation.

The threshold to trigger NA NSR for a new data center constructed in the referenced ozone NAAs is only 50 tpy for NO_x or VOC, compared to 250 tpy if constructed in an attainment area. As a result, sources seeking to avoid major permitting requirements typically find themselves limited to fewer maximum runtime hours than those in attainment areas. However, there are strategies that can be undertaken to ensure maximum operational flexibility for the data center while avoiding complicated NA NSR permitting.

For example, applicants can request operational restrictions in the form of fuel usage limitations instead of runtime hours. Doing so often results in higher overall allowable runtime since fuel usage during routine periods of operation (e.g., maintenance and testing) is lower relative to operational capacity. Note that in Indiana, potential emissions from emergency generators for permitting applicability include emergency operation. If a limitation on fuel usage or operating hours is taken, the limitation will include fuel usage/time for emergency operation. Data center developers should therefore use caution when taking limitations on emergency generators, as a limitation could potentially be exceeded during an emergency event.

Another strategy facilities may take is to proactively install Tier 4 engines or add-on air pollution control [e.g., selective catalytic reduction (SCR)] to lower pollutant emission rates and accommodate increased runtime hours before triggering applicable major source thresholds.

Data center developers should review the attainment status for potential site locations during the due diligence phase of the project to avoid unanticipated permitting hurdles during the application phase. If a source cannot avoid triggering NA NSR permitting requirements, this would require significant additional steps to obtain a permit, including (but not limited to) purchasing emissions offsets, identifying and achieving the lowest achievable emission rates (LAERs), and conducting an alternatives analysis.

IDEM is proposing to add rules at 326 IAC 10-7 concerning NO_x Reasonably Available Control Technology (RACT) requirements for the northern townships of Lake and Porter Counties. The proposed rule will implement stricter requirements on NO_x-emitting units at major stationary sources in these ozone nonattainment areas (i.e., with potential facility-wide emissions of 100 tpy or more of NO_x). The new requirements include more stringent emissions limitations and increased recordkeeping and reporting requirements, including those for stationary internal combustion engines and combustion turbines that developers should be aware of. While the rule is still in the proposed stage, it could be finalized by the end of the year.

Once the NO_x RACT rule has been finalized, it is anticipated that IDEM will initiate a rulemaking to institute a NOX RACT analysis for sources with a PTE of more than 50 tons of NO_x per year for the portions of Lake and Porter counties that are currently designated as serious NAAs for ozone.

Air Dispersion Modeling

Air dispersion modeling would be required if the PTE from the new data center exceeded major Prevention of Significant Deterioration (PSD) permitting thresholds. For a site proposed in an attainment area, the PSD threshold is 250 tpy for any single criteria pollutant. Similarly, a site proposed in the referenced ozone NAAs would be subject to the PSD threshold (i.e., 250 tpy) for CO, NO₂, PM/PM_2.5/PM₁₀, and SO₂.

IDEM’s current policy is to require air dispersion modeling to demonstrate if the proposed project has a significant impact on the ambient air [i.e., exceed the significant impact levels (SILS)], and if so, that the proposed project (in conjunction with background concentrations and surrounding sources) does not negatively impact the NAAQS, which requires an evaluation demonstrating the area remains below the NAAQS for each applicable pollutant. This can be challenging to pass and require several iterations of the model, potentially with stack height adjustments or run time restrictions.

Air dispersion modeling requirements for data center projects have the potential to significantly delay application preparation and agency review timelines, which in turn affects the overall project schedule. It is therefore critical that data center applicants have a complete understanding of the air dispersion modeling requirements of the proposed site during the site selection process and engage in the required modeling as early as possible during development of the air permit application.

Recommendations

Given the considerations and challenges discussed in this article, the following best practices are recommended to minimize risk in the development and permitting of new data centers:

1. Consider local air permitting requirements, modeling requirements, and challenges in the due diligence process. This process should be conducted on a site-by-site basis, but ozone NAAs typically indicate a more challenging or time-consuming air permitting process for data centers with onsite power generation.
2. Begin the due diligence process early to allow for evaluation of different scenarios in emission calculations and air dispersion modeling, if required (e.g., SCR, multiple site configurations, or alternative stack parameters).
3. Evaluate permit applicability and type of permit required (e.g., minor operating permit, Title V, NA NSR, or PSD).
4. As data centers continue to gain public interest, comments are likely to be submitted by the public during the permit’s public comment period. Plan for additional time during the public comment period for IDEM to address comments.
5. Engage local experts to identify requirements and challenges specific to IDEM or site location (e.g., attainment status, proposed regulations, inclusion of emergency hours in potential to emit, and/or permit issuance timeline).

For more information, please contact Kayla Reiser of Trinity’s Indianapolis Office at 317.451.8105.