Global Trade Tensions Threaten the Future of AI: IEA Report

The International Energy Agency (IEA) has issued a report warning that escalating global trade tensions could significantly impede the growth of the artificial intelligence (AI) sector, particularly by affecting the energy-intensive data centers that underpin AI technologies.

The IEA projects that the United States, China, and the European Union will collectively account for 80% of the anticipated growth in data center demand by 2030, primarily driven by AI applications. However, in a scenario influenced by trade conflicts—termed the "headwind scenario"—electricity consumption by data centers could decrease to 670 terawatt-hours (TWh) from the projected 945 TWh.

In the United States, data centers are expected to contribute nearly half of the electricity demand growth through 2030. This surge has led tech companies to overwhelm power utilities with capacity requests, potentially overestimating future power needs. Additionally, the IEA notes that 20% of planned data center projects face delays due to grid strain and shortages of essential infrastructure. Notably, 50% of U.S. data centers under development are clustered in existing hubs, raising concerns about localized bottlenecks.

Laura Cozzi, the IEA's Director of Technology, highlighted the potential impact of current trade policies on AI growth. She stated that the "headwind scenario" encompasses many of the current trade dynamics, including slower economic growth and increased tariffs, which could lead to slower AI growth than projected in the base case.

The IEA aims to collaborate with tech firms to better understand and manage the electricity needs crucial for AI expansion. Cozzi emphasized the importance of working with the industry to make sense of the real queue for data centers, which is essential for AI to get the electricity it needs.

The report also addresses environmental concerns associated with the energy consumption of AI-focused data centers. While acknowledging that some AI data centers may use as much electricity as 2 million households, the IEA concludes that fears about AI accelerating climate change are overstated. The report points out that although AI consumes substantial energy—much of it powered by fossil fuels—it also has the potential to significantly reduce emissions through efficient applications. However, the overall impact of AI on climate change remains uncertain due to unknowns around future energy sources, growth in AI infrastructure, and the effectiveness of AI-driven emission reductions.

The IEA's findings underscore the complex interplay between global trade policies, technological advancement, and energy infrastructure. As AI continues to permeate various sectors, addressing these challenges through coordinated efforts involving technology companies, energy providers, policymakers, and international stakeholders becomes imperative.