As Europe grapples with the dual challenge of advancing in artificial intelligence while maintaining its leadership in climate initiatives, the continent stands at a pivotal juncture.
“It’s like a fork in the road moment for Europe,” Dan Ives from Wedbush Securities shared with CNBC. The decision involves either embracing future technological advancements or potentially missing out on a significant technological surge.
Europe’s commitment to environmental mandates adds complexity to this scenario. Globally, energy constraints pose a significant barrier to the expansion of AI-centric data centers. Unlike the U.S., which relies on fossil fuels to power these expansions, Europe enforces stringent requirements for developers, demanding transparency in energy and water efficiency. This approach introduces bureaucratic hurdles that potentially delay project implementations.
The European Union is often lauded for its trailblazing environmental policies, like the upcoming carbon border tax. However, some critics argue these initiatives might hinder business operations, with Ives noting that Europe is perceived as “anti-entrepreneur,” pushing tech companies and startups to seek more favorable conditions elsewhere, such as the U.S., Middle East, or Asia.
As Europe’s AI ambitions grow, the demand for energy-intensive infrastructure rises, creating a palpable tension. The initial aim of transitioning to renewable energy to supplant more polluting sources is now under scrutiny, with concerns that the reality might deviate from this goal.
“You can see in the U.K. that we’re already rowing back on some of our commitments,” remarked Paul Jackson, Invesco’s regional Global Market Strategist, with the anticipation that Europe might adopt a similar stance.
“This is a fairly regular process that when times are good, it’s easy to persuade individuals, businesses, governments, to move in the right direction on things like climate change, and to take some of the cost associated with doing that,” Jackson added. However, when faced with challenging times and competing priorities, downgrading the climate agenda often becomes a legislative shortcut.
The U.K. boasts an energy grid devoid of coal, which is notoriously more polluting than gas—a contrast to Europe’s reliance. “I’m worried that, at a certain stage, coal power plant closures might get actually postponed,” expressed Jags Walia, head of global listed infrastructure at Van Lanschot Kempen, to CNBC.
Shutting down fossil fuel plants in favor of renewables works under stable energy demands, but current conditions challenge this balance. Data centers necessitate a constant power supply, making the intermittent nature of wind and solar energy a potential challenge.
“Electricity wise, we might not be able to afford to close down coal power plants, which is going to be a real headache for the energy transition and energy security as well,” Walia noted.
This year has seen Europe relax several environmental commitments. On December 16, the EU moderated its prohibition on new combustion-engine cars set for 2035. A week earlier, it delayed the rollout of a new emissions trading system for certain sectors by a year, while also pledging to cut emissions by 90% by 2040.
Earlier, directives like the Corporate Sustainability Due Diligence (CSDDD) and Corporate Sustainability Reporting (CSRD) were also revised and postponed.
A ‘pragmatic’ approach
Some view these adjustments as necessary pragmatism rather than a retreat. Nick de la Forge, a general partner at venture capital fund Planet A Ventures, commented on CNBC’s “Europe Early Edition” on Dec. 11, “We are always at the edge of navigating into a position where it becomes so unattractive to be present in Europe that it doesn’t make sense anymore. And on the other hand, a lot of the regulation is direly needed.”
“And luckily, what we are seeing is a pretty healthy revamp,” de la Forge added, referring to the overhaul of directives like the Sustainable Finance Disclosure Regulation (SFDR), which is under review. This revision is “quite pragmatic,” he noted, deeming it an improvement.
Advocates of AI highlight its potential to enhance energy efficiency and promote sustainability, portraying it as both a challenge and a solution to mounting grid demands, potentially justifying the investment.
“As AI rapidly advances, its potential to strengthen Europe’s energy resilience and accelerate the clean transition is becoming increasingly clear. At the same time, the growing electricity needs of AI technologies call for smart, forward-looking planning,” a European Commission spokesperson relayed to CNBC.
The spokesperson emphasized that the economic bloc is “fully prepared to seize these opportunities while safeguarding the stability and reliability of Europe’s energy system.”
Specific inquiries about the rollback of sustainability legislation due to the AI drive went unanswered. Instead, the spokesperson pointed to plans for an AI roadmap in the energy sector, aligning with the broader Apply AI Strategy aimed at accelerating tech deployment.
‘We’re sort of toast’
If sustainability standards remain stringent, AI infrastructure developers might resort to offsetting emissions using carbon credits or renewable energy certificates, representing the removal or prevention of one metric ton of CO2 from entering the atmosphere.
AI hyperscalers “do still have their headline decarbonization target” but are leveraging such measures to achieve them, as Jim Wright, manager of the Premier Miton Global Infrastructure Income Fund, pointed out. “Because, in reality, they will use some gas, and they may even use some coal,” he added, referring to variations in energy grid compositions.
This reality was recognized in the EU’s Dec. 9 agreement, incorporating carbon removal credits to achieve the new reduction target. This shift has ushered in an era of energy addition rather than transition—a concept embraced by oil industry leaders—as AI-driven energy demands surpass clean energy supply.
The challenge encompasses energy security, not just supply abundance. The data center and AI race “puts a lot more strain on our energy infrastructure, and as we have seen in recent years, we’re not terribly resilient when it comes to that,” said Jackson. This could lead to volatile pricing and potential energy rationing.
Climate change poses an infrastructure and business risk—a concern that isn’t fading, experts have informed CNBC.
For Kokou Agbo Bloua, global head of research at Société Générale, it’s “a massive elephant in the room” and one of his primary concerns. Speaking on CNBC’s “Squawk Box Europe,” he stated: “We’re sort of toast … pun intended, actually, because we’re on the path of two-and-a-half, three degrees [of warming above pre-industrial levels]. And if you look at green technologies, [they’re] being used for data centers, as opposed to replacing fossil fuels.”
Despite these challenges, it might take time before Europe formally relinquishes its environmental targets. “Sometimes on sustainability goals, what countries do is, if they are going to walk away from a goal, they try to leave it till the last minute,” Walia commented.
Original Story at www.cnbc.com