Europe at ‘fork in the road’ between AI competition and climate

Europe stands at a crossroads: Compete meaningfully in the AI ​​race or commit to world-leading climate targets.

“This is like a crossroads for Europe,” Dan Ives of Wedbush Securities told CNBC. The bloc can either “play in the future” or risk “missing out on a big part of this technology wave.”

This dilemma is compounded by the region’s mandate for green energy.

Globally, energy is the biggest bottleneck in building AI-related data center projects. While the United States is firing up fossil fuel plants to power its own construction, Europe is demanding developers disclose energy and water efficiency measures, increasing red tape that can slow project launches.

The European Union is often celebrated for its agenda-setting environmental policies and how it is moving forward with new mechanisms such as the upcoming carbon border tax. But some critics argue that this is getting things done. Ives said the continent was seen as “anti-entrepreneurial”, prompting European tech names and startups to look to the US, the Middle East or Asia in pursuit of more favorable policies.

As Europe tries to catch up in the AI ​​race, the need for power-hungry infrastructure is increasing, the demand for electricity is increasing, and this friction is becoming difficult to ignore. The additional renewable energy capacity was intended to displace more polluting sources, but there are now concerns this will play out differently.

“You can see in the UK we’ve already fulfilled some of our commitments,” Paul Jackson, Invesco’s regional Global Market Strategist, told CNBC, and Europe will likely follow suit.

“This is a pretty orderly process where, when times are good, it’s pretty easy to persuade individuals, businesses and governments to move in the right direction on issues like climate change and take on some of the costs that come with it,” Jackson said. But he added that pushing the climate agenda further down the priority list is one of the easiest things lawmakers can do when faced with tougher times and conflicting interests.

Britain’s energy grid is coal-free. significantly dirtier than gas — But Europe’s is not like that.

“I worry that at a certain stage the closure of coal plants may actually be delayed,” Jags Walia, head of global infrastructure at Van Lanschot Kempen, told CNBC.

He said switching off fossil fuels as renewables come online worked when energy demand was stable, but that’s no longer the case. Data centers also require constant connectivity, so the intermittency of wind and solar power can be tricky.

“In terms of electricity, we may not be able to afford to shut down coal plants, which will be a real headache in terms of energy transition and energy security,” Walia said.

During the year Europe rolled back a number of environmental commitments.

On December 16, the EU relaxed its current ban on new internal combustion engine cars from 2035. On 9 December, it approved a one-year delay to the implementation of a new EU emissions trading system for buildings, road transport and small industries; but has also pledged to reduce emissions by 90% by 2040.

Earlier this year, the Corporate Sustainability Due Diligence (CSDDD) and Corporate Sustainability Reporting (CSRD) directives were also narrowed and withdrawn.

A ‘pragmatic’ approach

Some welcomed these moves as much-needed pragmatism rather than a retreat.

“We’re always on the verge of moving towards a position where being in Europe is so unattractive that it no longer makes any sense. On the other hand, a lot of regulation is sorely needed,” Nick de la Forge, general partner at Planet A Ventures, a venture capital fund that backs climate-related technology startups, told CNBC’s “Europe Early Edition” on Dec. 11.

“And luckily, we’re seeing a pretty healthy regeneration.”

De la Forge said the reshaping of directives, including the Sustainable Finance Disclosure Regulation (SFDR) currently under review, “is quite pragmatic and we think it’s an improvement.”

Artificial intelligence advocates praise the technology’s ability to make energy systems more efficient and increase sustainability, positioning it as both a problem and a solution to increasing demands on the grid and Maybe it will make it worth the investment.

“As AI advances rapidly, its potential to strengthen Europe’s energy resilience and accelerate the clean transition becomes increasingly clear. At the same time, the growing electricity needs of AI technologies require smart, forward-looking planning,” a European Commission spokesperson told CNBC.

They added that the economic bloc was “fully prepared to seize these opportunities while preserving the stability and reliability of Europe’s energy system.”

The commission did not specifically address questions posed by CNBC about the rollback of sustainability legislation as a result of the AI ​​push or how it plans to achieve the new legally binding target.

A spokesman for the bloc instead touched on preparations for a roadmap for the use of AI in the region’s energy sector, in line with its broader AI Application Strategy designed to accelerate the deployment of the technology.

‘We’re kind of like toast’

If policymakers strictly adhere to sustainability requirements, AI infrastructure developers could instead offset their emissions with carbon credits or renewable energy certificates. One credit represents the removal of one metric ton of carbon dioxide or the prevention of one metric ton from entering the atmosphere.

According to Jim Wright, manager of Premier Miton’s Global Infrastructure Income Fund, AI hyperscalers “still have decarbonization goals” but are turning to such measures to achieve those goals. “Because they will actually use some gas, and they might even use some coal,” he said, referring to differences in the structure of power grids.

This fact was also acknowledged in the 9 December agreement, which included the use of carbon removal credits to achieve the EU’s new reduction target. The result is an era of energy addition rather than transition, a dynamic embraced by oil CEOs, as AI-driven energy demand outstrips supply from clean sources.

This is also a matter of energy security, not just abundance. Jackson said the data center and AI race is “putting a lot more strain on our energy infrastructure, and as we’ve seen in recent years, we’re not very resilient when it comes to that.” This means adding almost baseline energy demand to existing grids, which could make pricing more variable and lead to energy rationing, he said.

Climate change is an infrastructure and business risk, and it’s not going away, experts told CNBC.

According to Kokou Agbo Bloua, Société Générale’s global head of research, this is a “huge elephant in the room” and one of his biggest concerns going forward.

Speaking on CNBC’s “Squawk Box Europe” on Monday, he said: “We’re kind of fried…pun intended actually, because we’re on a two-and-a-half, three-degree path.” [of warming above pre-industrial levels]. And if you look at green technologies, [they’re] It is used for data centers instead of fossil fuels.”

However, it may take several years for Europe’s environmental targets to be officially revoked. “What countries sometimes do with sustainability goals is if they are going to move away from a goal, they try to leave it to the last minute,” Walia said.