Dan Romito, Pickering Energy Partners

Unfortunately, the Biden administration has clearly set its goal to permanently codify decarbonization into the United States’ regulatory fabric.

Decarbonization is generally considered a reasonable goal when presented within the context of a trend, as opposed to an absolute. However, the controversy lies with how the regulatory environment prescribes decarbonization in the form of net zero or bust.

The existing regulatory landscape fails to recognize that the U.S. represents only 14% of total global emissions, so it is not practical to prioritize net zero above our country’s long-term economic well-being. In other words, a new set of costly consequences arise if the U.S. sacrifices economic efficiency solely for net zero. 

This dynamic becomes increasingly complicated when we deliberate what the global economy will look like over the next two decades. At this point, the emergence of artificial intelligence (AI) is already overdiscussed, but it is critical to reinforce just how expansive AI technology will become.

By 2030, the AI industry is anticipated to experience a 20-fold increase, which equates to roughly a $2 trillion industry. Forbes expects AI will contribute a 21% increase to U.S. GDP by 2030. The regulatory market fails to acknowledge the exponential growth in power and energy the AI ecosystem will demand. 

Ironically, the push for electric vehicles (EV) is partly responsible for the rise in AI. Forbes reported that 10% of vehicles will be driverless by 2030, a capability facilitated almost entirely by AI.

Overall, 64% of businesses believe that AI will help increase productivity. What is commonly left out of consideration is how energy, power and AI are directly connected. As of March, U.S. officials have earmarked nearly $30 billion in subsidies for advanced semiconductor manufacturing, aiming to bring cutting-edge AI chip development and manufacturing to American soil. 

A single data center can consume the equivalent electricity of 50,000 homes. The U.S. will need more than one additional data center to facilitate that anticipated boom in AI. According to research firm Data Bridge Market Research, spending in the global AI infrastructure market—including data centers, networks and other hardware that support the use of AI applications—is expected to reach $422.55 billion by 2029, growing at a compound annual rate of 44% over the next six years.      

The U.S. government actively subsidizes AI technologies, which directly conflicts with our administration’s efforts to achieve net zero. Herein lies a very confusing, yet fascinating dynamic. It is clear these goals will not go away, so the market must identify a solution that allows policymakers to have their cake and eat it, too. Luckily, this solution already exists, although it is currently nascent. 

Research suggests it would be foolish for the U.S. not to foster the economic prowess that derives from AI. That is not a controversial statement. Controversy continually enters the fold once the regulatory market overlaps a push to attain net zero.

Given the exponential increase in power demand, we also must remain intellectually honest about net zero-aggregated operational net zero, which is largely in direct conflict with a growing economy. While many companies are making headway, most global industries will never be adequately positioned to achieve true net zero.

This dynamic represents the foundational premise for the rise of carbon credits. Reducing economic prowess does not serve shareholders or society at large. Simultaneously, the call to attain net zero, at least in some form, will likely not wane in the foreseeable future.

This forms the perfect recipe for the carbon credit markets. Several thought leaders anticipate a rapid maturation in this space. A high-quality, verified credit provides a management team wishing to expand economic output with a financial instrument that mitigates its carbon footprint. 

Since the AI revolution will require vast incremental energy, the energy sector must increasingly understand how to participate in the carbon markets efficiently.

This focus also accomplishes two distinct adjacent capabilities. Companies can be more realistic and practical with their environmental goals, i.e., utilizing carbon credits to “fill the gap,” thereby reducing greenwashing accusations. The impending carbon markets will also facilitate an expedited research and development curve in AI, i.e., less apprehension to pursue specific R&D and growth strategies associated with higher carbon emissions.

Though the carbon markets are in their early stages and remain far from perfect, they offer the proverbial “silver bullet” that mitigates the need to sacrifice economic output because of potential emissions implications.

Dan Romito is consulting partner for Pickering Energy Partners.