In May, Brazil’s Finance Minister Fernando Haddad flew to the U.S. to meet with executives from Amazon, Google, Nvidia, and Meta. His agenda: to pitch his country as the newest, most attractive data center hub in the region.

Haddad’s biggest selling point was sustainability. “We want the digital economy in Brazil to be simultaneously digital and green,” he said during a presentation at the Milken Institute Global Conference in Los Angeles.

The timing of Haddad’s tour was no coincidence: The country had just introduced its national data center policy, intended to lure Big Tech with tax breaks and renewable energy alternatives. Even before Haddad’s U.S. trip, tech giants like Microsoft and Amazon Web Services had signed multimillion-dollar contracts to build data centers in Brazil to meet the growing demand for artificial intelligence and cloud computing in Latin America’s biggest economy.

But with the new policy expected to draw more interest from global tech companies, environmental regulators and experts are raising the alarm about their potential impact, especially in fragile areas, including a city that was hit by record floods last year.

Data centers are “putting significant pressure on our energy system and could have a major environmental impact, especially considering the locations where they’re being installed,” Andréa Santos, an engineering professor at the Federal University of Rio de Janeiro, told Rest of World.

Brazil is home to more than 180 data centers, putting it ahead of other large economies in the region: There are nearly 60 data centers in Mexico and fewer than 40 in Argentina. About one-third of Brazil’s data centers are located in São Paulo, the biggest city, which suffered an acute water crisis about a decade ago. At least 41 of the data centers are considered either large or hyperscale, meaning they occupy enough space to house thousands of servers and other equipment. 

Brazil’s data center market is expected to be worth nearly $6 billion by 2030, according to a recent study from Arizton Advisory & Intelligence, a market research and consulting firm. The country’s geography lends itself to the particular demands of data centers, Luis Tossi, vice president of the Brazilian Data Center Association, an industry body, told Rest of World.

“We have available land, abundant electric and renewable energy, and a skilled workforce,” he said. “We are in a condition as a country to attract this kind of investment.”

Since 2024, the federal government has intensified its efforts to attract tech infrastructure, introducing the Brazilian Artificial Intelligence Plan, which outlines $4.2 billion in targeted investments. Also last year, the national development bank, BNDES, rolled out a $367 million credit line to support the expansion of data centers.

The efforts have paid off. Last year, AWS announced an investment of $1.8 billion to expand its data center infrastructure in Brazil through 2034. In September, Microsoft pledged to invest $2.7 billion in Brazil over three years to boost its cloud and artificial intelligence infrastructure.

The tax break proposed in the new national data center plan could attract around $356 billion in investment over the next decade, according to some estimates, with the country’s installed capacity rising to 8 gigawatts from around 1 gigawatt currently.

“We came to understand that Brazil’s greatest potential lies in positioning itself as a hub for clean data centers,” Igor Marchesini, special adviser to the Ministry of Finance, which is involved in the drafting of the national data center policy, told Rest of World. “No other country in the world has the conditions to compete at scale on this front.”

But environmental advocates say the plan to turn Brazil into a data center hub does not consider the long-term impacts on the country’s ecosystem.

While the draft legislation for the national data center plan has not yet been submitted to Congress, over 80 meetings involving at least 200 federal officials have already taken place, according to an investigation by The Intercept Brazil. No officials from the environment ministry were present at any of these gatherings.

The Ministry of Environment is “taking part in the ongoing discussions within the federal government regarding the forthcoming national data center policy,” a spokesperson told Rest of World. Asked about environmental safeguards, the spokesperson said data centers “are subject to the current environmental regulatory framework, including the National Environmental Policy, which requires environmental licensing for activities that are potentially polluting or that use natural resources.”

Industries considered to be polluting, such as oil, energy, and metal, have a special licensing regulation. Data centers are currently not on this list.

In May, the nongovernmental group Brazilian Institute for Consumer Protection requested a copy of the data center policy that Haddad presented to U.S. investors, from both the Ministry of Finance and the Ministry of Development, Industry, Trade and Services. Both ministries refused, saying the document wasn’t finalized yet.

“We’ve been watching with great concern how this process has been unfolding, how it often masks greenwashing practices, and how these narratives are being used in the name of a so-called energy transition,” Julia Catão, coordinator of the sustainable consumption program at the Brazilian Institute for Consumer Protection, told Rest of World.

The Ministry of Finance will make the plan public once it is final, Marchesini said. The Ministry of Development, Industry, Trade and Services did not respond to queries from Rest of World.

Meanwhile, Brazilian company Scala Data Centers has set its sights on Eldorado do Sul, in the south of the country — a region that suffered widespread destruction last year from unusually powerful floods. With an initial investment of $550 million, the project is expected to become the largest digital infrastructure complex in South America.

Scala Data Centers and the local government have framed the project as an example of resilience and innovation. But environmentalists are concerned it will exacerbate the environmental devastation of the region, which has yet to fully recover.

“We have to take into account that we’re living in the midst of a climate crisis, which leaves us with very little room for error,” Heverton Lacerda, president of the Gaúcha Association for the Protection of the Natural Environment, told Rest of World. Data centers could strain the fragile power grid in Eldorado do Sul, he said.

The Scala Data Centers infrastructure is expected to operate at a capacity of 4.75 gigawatts initially — equivalent to the energy requirements of around 40 million people. The state of Rio Grande do Sul, where it is slated to be built, has a population of around 11.2 million.

Scala Data Centers did not respond to an interview request from Rest of World.

Worldwide, there is growing pushback against the large quantities of water needed to cool data centers, as well as their broader environmental impact. The International Energy Agency estimates that electricity consumption from global data operations — including storage facilities and machine learning clusters — could more than double by 2026. 

About 89% of Brazil’s electricity now comes from renewable sources — primarily hydropower — though recent droughts in the southeast region have stretched the system. The cooling systems in large data centers, especially those relying on older air-liquid hybrid technologies, can consume millions of liters of water per day, particularly in hot climates.

The national data center policy is set to be submitted to Congress in the coming weeks. Meanwhile, uneasiness over the lack of transparency around it is growing.

“Many of the debates are taking place behind closed doors,” said Catão. “We had hoped that civil society would be heard, but that’s not what’s happening.”