The environmental footprint of data centers is rapidly increasing, especially with the recent diffusion of artificial intelligence. While firms can reduce emissions by locating data centers in regions with low ambient temperatures and low-carbon electricity, governments compete to attract these facilities for economic, strategic, and digital infrastructure reasons. This paper studies the determinants of data center location in the European Union and the implications for environmental regulation. Using data on data centers across EU NUTS2 regions, we estimate the relative importance of economic and environmental factors in location choices. We find that climate-related variables, including temperature and the carbon intensity of electricity, play a limited role compared to economic incentives. In particular, a trade-off between low corporate tax rates and low-carbon electricity reduces the effectiveness of EU carbon pricing in influencing data centers toward cleaner locations choice. We then develop a theoretical framework to compare the optimal allocation of data centers under cooperative and non-cooperative contexts, in which heterogeneous countries implement different profit tax policies. The aim is to understand how public policy instruments influence location choices in the two contexts.