The AI boom has triggered a wave of investment into data centres – and a groundswell of opposition in the process. Realising the promise of considerable economic benefits will require further action to address the infrastructure’s impacts on energy resources, the environment and local communities.
AI’s rapid growth has significantly increased demand for computing power and, in turn, large-scale data centres. Despite investment in infrastructure more than doubling in recent years, data centre projects are hindered by a variety of barriers, such as national planning rules, connectivity inconsistencies and issues in the hardware supply chain.
However, energy constraints have become one of the greatest obstacles to data centre development, with speculative applications saturating the pipeline and delaying the execution of fully planned and funded projects. Some policymakers are seeking to address this challenge through costly deposit schemes for data centres looking to use the national grid.
The most material environmental impacts of data centres relate to their high energy and water consumption, potentially posing risks to tech firms’ sustainability targets. Governments and regulators have begun to adopt a range of measures to mitigate these concerns, from pausing data centre development altogether to setting renewable energy requirements.
Data centres are often concentrated in certain areas, and although this can drive economic growth and create employment, it also comes at a price. Impacts on local communities have galvanised voters in the recent US midterms to deliver resounding defeats for pro-data centre candidates, while providing the catalyst for protests in 15 European countries.
Policymakers must navigate a fine line between lowering the barriers to data centre development and mitigating the associated risks. Amid heightened opposition to infrastructure deployment, enforcing environmental standards and meaningful community engagement could help transform individual operator initiatives into industry-wide practices.
Demand for data centres has risen significantly, fuelling investment and expectations of economic growth
The rapid development of AI has significantly increased demand for computing power and, therefore, data centres. Global investment into data centres more than doubled between 2022 and 2025 (see Figure 1), pushing foreign direct investment (FDI) up by 14% in 2025, according to the UN Conference on Trade and Development (UNCTAD). Such investment is expected to be a catalyst for economic growth, with one estimate forecasting that the UK alone could see a £44bn boost in gross value added (GVA) by 2035 from the construction and operation of data centres. The prospect of macroeconomic benefits has encouraged policymakers to prioritise infrastructure development, including through new legislation. In the EU, the EC’s June 2026 proposal for a Cloud and AI Development Act (CADA) would require Member States to designate data centre acceleration zones, reflecting somewhat the UK Government’s own AI Growth Zones (AIGZ) strategy.
Despite the potential positive economic impacts of the ongoing AI and data centre boom, criticism of the industry has become widespread, while projects have encountered a number of delivery challenges:
Planning rules: In the UK, a fragmented system that relies on local planning authorities (LPAs) to make key decisions about planning permissions has extended project timelines. In August 2026, the Government’s National Planning Policy Framework (NPPF) reclassified data centres as essential digital and economic infrastructure, stating that more weight should be given to data centres’ importance for growth in LPAs’ considerations over whether to grant planning permission;
Network proximity and connectivity: According to a January 2026 study from the Body of European Regulators for Electronic Communications (BEREC), 40% of stakeholders considered that a faster deployment of fibre across Europe remains a prerequisite to data centre expansion. Similarly, in Japan, the Ministry of Economy, Trade and Industry (METI) and the Ministry of Internal Affairs and Communications (MIC) have launched a public-private advisory council (the Watt-Bit collaboration) to encourage fibre deployments to ensure that the low latency requirements of data centres outside of Tokyo and Osaka (where 90% of the country’s data centres are located) can be met; and
Hardware supply chain restrictions: Increasing demand for AI chips, geopolitical tensions, import and/or export controls, and a global dependence on just a few suppliers have together created challenges for countries’ supply chains. For example, BEREC’s study highlights that surging demand for AI chips could require production by a handful of manufacturers to expand by over 30%.
The extent to which these issues hinder deployment differs internationally, with regulatory frameworks in some countries so far being relatively more amenable – such as the US (see Table 1), which has one of the highest rates of data centres per million people anywhere in the world.
Whether individually or in combination, these factors have also not presented insurmountable hurdles to date to the scale and pace of data centre development witnessed over recent years. Instead, three further current and/or intensifying barriers are likely to reflect the most significant challenges to the industry’s future ambitions: i) energy availability; ii) environmental concerns; and iii) the local impacts of, and opposition to, infrastructure build-out.
Speculative grid applications have amplified existing energy constraints faced by planned and funded data centre projects
Energy constraints are one of the most significant barriers to the initial building of data centres. Electricity grids have finite capacity, yet the energy demand that would be generated by new infrastructure builds would exceed the supply available, with projects usually needing to join a waiting list before connecting. The UK Government stated that “timely connections to the electricity grid for AI data centres is the single biggest blocker” for its AIGZ strategy. In October 2026, Microsoft pulled the plug on a deal to lease computing capacity from Nscale, a UK-headquartered data centre builder, after learning that the relevant project would be unlikely to acquire a power supply until after 2030. The deal was originally part of Microsoft’s wider £22bn investment into the UK. In Australia, data centre operator NextDC recently cut its 2027 earnings by more than a third due to delays to securing power for its Melbourne campus, which subsequently caused its share price to drop by around 40%.
Waiting lists for grid connections are often saturated with a combination of genuine and speculative data centre projects. The lead time between joining the waiting list and actually having plans approved encourages these speculative projects, with data centre operators essentially given the option to reserve a place in line without fully committing to their plans. This lack of commitment can create uncertainty around potential future investments into data centre infrastructure and, of course, further delays to real, fully planned projects that are also queuing for the grid.
However, regulators are starting to tackle this problem. In the UK, Ofgem has consulted on requirements for data centre projects to pay a deposit fee to join the grid queue, which would not be repaid if they do not meet proposed “queue management milestones”, e.g. demonstrating procurement of equipment as well as financial and technical capabilities. Ofgem’s proposals aim to enable energy network operators to continually check whether a data centre project is on track, giving them the option to impose penalties if it is not. The scheme would only apply to projects of 40 megawatts (MW) or more, requiring them to pay a per-MW price for the deposit. Therefore, the larger a proposed project, the more costly its deposit would be to lose, discouraging speculation. Ofgem stated that 99% of the waiting list’s projects are over 40MW, meaning that the reach of the new scheme would be significant. The Spanish Government has a similar deposit scheme in place that was updated in March 2026, but the fees it requires pale in comparison to Ofgem’s proposals. For example, under Ofgem’s proposals, a 100MW data centre would have to pay a deposit between £23.8m-£71.3m, while the deposit for the same project in Spain would be unlikely to exceed ~€4m (£3.4m). Although there is a disparity in the deposits required, other regulators should look to adopt similar approaches to free up grid waiting lists and lower the barrier to building new data centres.
These power constraints have encouraged some of the firms looking to build data centres to explore how to circumvent the need for a place on the grid, including by adopting a “bring-your-own power” (BYOP) approach. In the US and Finland, Google has invested heavily in nuclear power as a means of supporting its data centres. Its $13bn (£9.8bn) investment in Finland included a 22-year contract with state-owned Finnish energy company Fortum, in which Google is buying up half of the power created by one of its nuclear plants. However, since the announcement of this investment in October 2026, the Finnish police have opened a criminal investigation into Google over suspected breaches of environmental law in relation to one of its data centres. Separately, while BYOP may be an approach that could help mitigate energy constraint problems, it is likely to be a solution limited to capital-rich firms, such as Google or other big tech companies.
Water consumption and rising carbon emissions are the two main environmental concerns linked to data centre growth
Data centres are incredibly resource-intensive, which has (somewhat inevitably) raised significant environmental concerns. According to the International Energy Agency (IEA), data centres consumed around 415 terawatt-hours (TWh) of electricity in 2024 (or 1.5% of global electricity consumption). Carbon dioxide equivalent (CO2e) emissions from this electricity use reached 180m tonnes in 2024, with renewables (e.g. wind, solar, hydro) currently supplying only 27% of the electricity consumed. Alongside emissions, UNCTAD has also reported that increases in data centre investment have weakened investment in the broader economy, especially in renewable energy (greenfield renewable energy project values fell by 28% in 2025). The US accounted for the largest consumption of energy related to data centres, followed by China (see Figure 2), which has fewer but much larger data centres in comparison.
The environmental impact of data centres also depends on the electricity source. The US and China’s electricity grids largely rely on fossil fuels, for example. Other countries with a high number of data centres, such as Germany, Ireland and the UK, use at least 50% renewable energy to power their national grids – see Figure 3. Nuclear power is increasingly being seen as a viable option for data centres as it can generate electricity with minimal CO2e emissions while providing a continuous energy source, unlike wind and solar, which are dependent on weather conditions. However, there are clear limitations to nuclear power, such as safety risks regarding nuclear waste management, the environmental impact of mining the minerals required (such as uranium) and the substantial upfront investment required. If a nuclear meltdown occurs, the consequences can be severe and long-lasting, which continues to underline political wariness about promoting investment in nuclear power.
Operating data centres generates a lot of heat, and equipment must be kept cool in order to prevent damage. Most operators use water to cool their data centres, which is resource-intensive in two ways: 1) energy is required to cool the water; and 2) the water itself is lost as it evaporates. Intense water consumption can be particularly problematic when data centres are built in water-stressed regions, and the impact is heightened during periods of drought or peak demand. The European Environment Agency (EEA) has identified Southern Europe and densely populated areas as “high-risk zones” for water availability and has urged the diversification of industrial resources to better prepare for the needs of data centres. As temperatures rise due to climate change, water consumption concerns will likely escalate, with the future development of more data centres requiring even more water for cooling. In the UK, trade body Water UK has claimed that the Government’s water consumption forecasts for 2025-2030 were “fatally flawed” because they “explicitly exclude” data centres, stating that any new developments “may be impossible” without policy intervention to relieve pressure on the network.
Environmental concerns could have significant consequences for corporate sustainability targets, such as Google and Microsoft’s aims to cut emissions by 50% by 2030 compared to their 2019 baseline. In their 2026 sustainability reports, both Google and Microsoft reported a 25% year-on-year increase in emissions, primarily due to data centre developments. Similarly, while Microsoft has a commitment to becoming “water positive” by 2030 (i.e. returning more water to the environment than it consumes), its total consumption more than doubled between 2020 and 2025, from 3,990 megalitres (ML) to 8,170ML. As the AI boom continues to drive data centre expansion over the near-term, companies’ emissions and water consumption will likely increase at the expense of their sustainability targets, unless they take material, company-wide action. Limited, isolated initiatives that focus on single data centres are unlikely to be sufficient to counteract the overall environmental impact.
Regulatory approaches to mitigate environmental concerns range from enhanced transparency to complete moratoriums
Internationally, an increasing number of regulators and governments are taking steps to manage the environmental impacts of data centres. Following previous moratoriums in Denmark and Singapore, and in cities such as Amsterdam and Dublin, the Thai Government has moved to temporarily restrict data centre developments while it establishes environmental rules. In September 2026, the Government paused 166 data centre projects (46 of which were already under construction) due to concerns over pressure on electricity supply, water resources and local infrastructure.
Other interventions taken so far include efficiency standards, renewable energy requirements, grid-access controls and transparency systems. In Germany, the Energy Efficiency Act (EnEfG) 2023 legally mandates energy-saving measures. Data centres must meet specific Power Usage Effectiveness (PUE) levels, a metric used to measure how efficiently a data centre uses energy (i.e. with minimal energy wasted on cooling or lighting). Operators are also encouraged to reuse waste heat from data centres and must report information such as electricity consumption, renewable-energy share, waste heat, cooling efficiency, PUE and water-use efficiency. However, after pushback from some operators who saw these measures as too strict, the deadline to use 100% renewable energy has been extended from 2027 to January 2030.
Similarly, in Ireland, the Commission for Regulation of Utilities (CRU) rolled out a new grid policy for data centres in December 2025 with various environmental requirements. The CRU has stated that electricity demand for data centres increased from 5% of national electricity demand in 2015 to 22% in 2024, with projections that this could reach 31% by 2034. The regulator’s new policy requires data centres to provide onsite energy generation matching what they use from the grid, which must participate in the Single Electricity Market. Data centres that use over a specified amount (above 1 megavolt-ampere (MVA)) are also required to meet at least 80% of their annual demand with additional renewable electricity projects generated in Ireland within six years (they cannot use existing Irish wind farms, for example). Under this approach, data centres are no longer just consumers of electricity, but must act as energy infrastructure developers as well. In August 2026, the Spanish Government proposed a similar measure through a draft Royal Decree, which would also require data centre operators to ensure that 80% of their energy is generated from renewable sources. The proposal has led to unintended consequences, however, with Google reportedly suspending plans to build several large data centres in Spain until the Government adopts its final decision.
At the EU-level, the EC’s Energy Efficiency Directive, which was revised in 2023, takes a slightly different approach to Member States by mandating strict energy and resource transparency, reporting and rating schemes for data centres over a defined size, rather than enforcing renewable energy requirements. In September 2026, the EC published a proposed common EU rating scheme for data centres, which builds on the reporting system established under the directive and is intended to make facilities easier to compare on energy and environmental performance. The scheme would assess how energy and water efficient data centres with an installed IT power demand of at least 500 kilowatts (kW) are, as well as whether they are powered by renewable energy. With the CADA formalising the aim to triple the bloc’s data centre capacity by 2035, the EC’s approach is therefore focused not on restricting data centre growth but rather on transparency regarding their environmental impacts.
The concentration of data centre infrastructure has led to rising temperatures and bills for some local communities
Data centres tend to be clustered in certain areas, including “Data Centre Alley” in Loudoun County, Virginia, in the US, where there are around 150-200 data centres – and around 600 in the broader Northern Virginia region. These facilities have created jobs and fostered economic growth in the area, with data centres now contributing to around 40% of the local government’s budget through tax revenue. Data centres can also benefit communities by redirecting waste heat, with Meta’s data centre in Odense, Denmark providing free heating to around 11,000 nearby homes. The EC’s proposed rating scheme could support incentives for operators to launch similar initiatives. The EC has stated that reusing roughly half of all European data centre waste heat could match the total heating demand of around 4m (2%) of the region’s households.
However, a concentration of infrastructure can lead to a multitude of costs, such as noise pollution, reduced air quality, excess water consumption and the loss of green space. Locals in the state of Georgia have claimed that one of Meta’s data centres has caused their drinking water to become cloudy and filled with sediment, while in Slough, UK, temperatures have reportedly soared by as much as 9°C due to the town’s concentration of data centres. In the US, newly-constructed facilities are also increasingly being built in less affluent areas where land is cheaper, impacting communities by increasing the demand for electricity, straining local power grids and causing electricity bills to surge in the surrounding area. Research suggests that, in areas of the US located near significant numbers of data centres, electricity costs as much as 267% more for a single month in 2025 than it did in 2020. Price rises for energy are a greater concern in the US relative to many other countries, as its power grid is managed through regional wholesale markets, which means that a surge of demand in a local area drives up prices for all consumers in the vicinity.
Residents’ concerns have triggered responses from some policymakers, with the Danish Government introducing new rules in October 2026 regarding the prioritisation of access to the country’s electricity grid, placing data centres in the lowest of four defined categories. While this is not intended to stifle data centre deployment, when energy capacity is limited, households and critical infrastructure must be prioritised. In the same month, the UK Government announced a new Data Centre Covenant, which sets out specific guidelines that all data centres are encouraged to meet, and “strategic” data centres must meet to qualify for additional government support. The guidelines include covering any energy costs they create, investing in clean power, improving local communities and using energy and water efficiently. However, the Government is yet to define which projects will qualify as “strategic” data centres, making it currently unclear how impactful the Covenant will be and the extent of support (e.g. on planning and power) those projects will receive post-designation.
Data centres have become a non-negotiable for voters at the ballot box
The local impacts identified have made data centres a political issue, especially in the US, where several contests within the November 2026 midterm elections were defined by candidates’ views on the matter. In Texas, Democrat Gina Hinojosa beat incumbent Republican Governor Greg Abbott after promising a data centre moratorium in the state. Sitting US politicians have similarly made efforts to restrict the development of new data centres via moratoriums, with over 100 being considered across the country. At an even more local level, decisions over whether or not to allow data centre deployments appeared on different ballots 45 times, and were rejected on all but one occasion.
This vehement opposition to data centres has stretched further than the US too, with protests against the infrastructure taking place in 15 European countries in November 2026. The backlash against data centres is indicative of the difficult balance many policymakers are seeking to strike between realising potential macroeconomic benefits of data centres while minimising any negative local and environmental impacts.
With voters and activists mobilising on the issue of data centres internationally, the challenge does not look set to subside anytime soon. In the US, the upcoming presidential election and further Congressional elections in 2028 will undoubtedly see data centres, and the role of big tech in the economy more widely, come into even sharper focus. As data centre opposition grows in Europe, similar debates will likely emerge, particularly in countries with higher concentrations of data centres, for example Ireland and the Netherlands. BEREC’s study also notes that data centres in drought-prone or water-stressed regions tend to be particularly challenged by community opposition, suggesting that local concerns may emerge in Southern Europe, where Spain and Italy will hold general elections in 2026 and 2027, respectively.
Data centres’ full economic benefits cannot be realised without adequate local and environmental protections
Data centres are essential to technological developments such as AI and, therefore, to economic growth. However, regulators must reasonably balance lowering the barriers to data centre development with the need to ensure environmental and local protections. Regulators should avoid both blanket restrictions that deter investment and overly permissive rules. Instead, they should establish clear requirements and safeguards that enable projects to proceed, with recent interventions at the EU and Member State levels offering promising examples of efforts to lower deployment barriers while reducing potential harms to citizens and natural resources.
Data centre operators have an equal responsibility to mitigate environmental risks throughout the development and operational lifecycle. They can select sites with adequate grid and water infrastructure or invest in their own energy sources, avoid protected or sensitive land, and consult local communities to identify potential concerns early. During operation, they can optimise cooling, use renewable electricity, reuse waste heat where possible and adopt circular-economy practices to extend the life of IT equipment. Encouragingly, operators have begun to implement such measures – see Table 2.
However, these efforts remain sparse and have alone not been sufficient to curb data centres’ overall environmental impact, as evidenced by some firms’ rising carbon emissions. As a result, more rigorous environmental standards may be needed to turn these isolated initiatives into industry-wide behaviours. Operators have also failed to combat the negative perceptions of data centres held by some politicians and their constituents, and need to do more to tackle the increasing backlash against the construction of facilities. Going forward, operators will likely be expected to adopt a more community-oriented mindset, not only to raise awareness of the importance and tangible benefits of data centres to enable most digital services, but to understand and account for concerns of residents whose local areas host critical digital infrastructure.
At the same time, regulators should tackle specific barriers such as energy constraints, hardware supply chain challenges, connectivity and planning rules, which unnecessarily limit data centre deployment. Unlike the stronger rules that may be needed to limit environmental and local impacts, these barriers need to be lowered – which in some cases can be done rather straightforwardly. Approaches to grid waiting list rules in Spain and the UK, for instance, are a progressive way of easing energy constraints and should be considered internationally. Ultimately, if regulators can successfully balance stronger requirements on the impacts of data centres and a lowering of barriers to their initial development, delays and bottlenecks to investment could be prevented. In turn, the economic opportunity provided by data centres could be fully met by more resilient and sustainable infrastructure that drives investment and growth in the AI sector.
