Europe at the crossroads between AI competition and climate

Europe finds itself at a crossroads: compete meaningfully in the AI ​​race or stick to its world-leading climate goals.

“It feels like a crossroads moment for Europe,” Dan Ives of Wedbush Securities told CNBC. The bloc can either “play with the future” or risk “missing a big part of this technological wave.”

The dilemma is compounded by the region’s green energy mandates.

Globally, energy is the biggest bottleneck for delivering AI-related data center projects. As the United States fires up fossil fuel plants to power its construction projects, Europe requires developers to disclose energy and water efficiency measures, adding paperwork that can slow down the project spear.

The European Union is often celebrated for its series of landmark environmental policies and for how it has progressed through new mechanisms, such as the next carbon tax at the borders. However, some critics say it hurts business. The continent is seen as “anti-entrepreneur,” Ives said, pushing European tech names and startups to set up shop in the United States, the Middle East or Asia to implement more favorable policies there.

As Europe tries to catch up in the AI ​​race, the need for energy-intensive infrastructure is growing, demand for electricity is increasing – and these frictions have become harder to ignore. Additional renewable energy capacity was intended to replace more polluting sources, but there are now fears this could play out differently.

“You can see in the U.K. that we’re already walking back some of our commitments,” Paul Jackson, regional global markets strategist at Invesco, told CNBC — and Europe will likely follow suit.

“It’s a pretty 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 on some of the costs associated with that,” Jackson said. However, moving the climate agenda down the priority list is one of the easiest things lawmakers can do in the face of tougher times and competing interests, he added.

The UK’s energy network is coal-free, which is significantly dirtier than gas — But that of Europe is not.

“I fear that at some stage the closures of coal-fired power plants will actually be postponed,” Jags Walia, head of listed global infrastructure at Van Lanschot Kempen, told CNBC.

Taking fossil fuels offline in favor of renewable energy works when energy demand is stable, but that’s no longer the case, he said. Data centers also require constant connection, so the intermittency of wind and solar power could prove tricky.

“When it comes to electricity, we may not be able to afford to close coal-fired power plants, which will also be a real headache for energy transition and energy security,” Walia said.

Over the year, Europe abandoned a number of environmental commitments.

On December 16, the EU eased its effective ban on new combustion engine cars from 2035. On December 9, it approved a one-year postponement for the implementation of a new European emissions trading system for buildings, road transport and small industries – but simultaneously commits to reducing its emissions by 90% by 2040.

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

A “pragmatic” approach

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

“We’re still on the cusp of navigating a position where it becomes so unattractive to be present in Europe that it no longer makes sense. And on the other hand, a lot of the regulation is absolutely necessary,” Nick de la Forge, general partner at venture capital fund Planet A Ventures, which backs climate-related tech startups, told CNBC’s “Europe Early Edition” on Dec. 11.

“And fortunately, we’re seeing a pretty healthy overhaul.”

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

Proponents of AI tout the technology’s ability to make energy systems more efficient and drive sustainability, positioning it as both a problem and a solution to intensifying demand on the grid. it might be worth the investment.

“As AI rapidly advances, 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 “is fully prepared to seize these opportunities while preserving the stability and reliability of the European energy system.”

The Commission did not specifically respond to questions posed by CNBC regarding a rollback of sustainability legislation following its AI efforts, or how it plans to achieve the new legally binding target.

Instead, a spokesperson for the bloc pointed to the region’s preparations for a roadmap for the use of AI in the energy sector, in line with its broader Apply AI strategy, designed to accelerate the deployment of the technology.

“We’re kind of toast.”

If policymakers stick firmly 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.

AI hyperscalers “still have their primary goal of decarbonization,” but are looking to such measures to achieve them, according to Jim Wright, manager of the Premier Miton Global Infrastructure Income Fund. “Because in reality, they will use gas, and they might even use coal,” he said, referring to variations in the composition of energy networks.

This reality was recognized in the European agreement of December 9, which provided for the use of carbon removal credits to achieve the new reduction target. Overall, this has created an era of energy addition rather than transition – a dynamic adopted by CEOs of the oil sector – as AI-driven energy demand exceeds supply from clean sources.

It is also a question of energy security, not just abundance. The race for data centers and AI “puts a lot more strain on our energy infrastructure, and as we’ve seen over the last few years, we’re not very resilient to that,” Jackson said. That means adding almost minimal energy demand to existing grids, which could make prices more volatile and lead to energy rationing, he said.

Climate change is an infrastructure And business risk – which don’t go awayexperts told CNBC.

For Kokou Agbo Bloua, global head of research at Société Générale, it is “a huge elephant in the room” and one of his biggest concerns for the future.

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

But it could be a few years before Europe’s environmental targets are officially abandoned. “Sometimes when it comes to the Sustainable Development Goals, what countries do is if they want to move away from a goal, they try to leave it until the last minute,” Walia said.