Policy Spotlight: Data Centres, AI Expansion, and the Environmental Impacts Governments Face

AI’s rapid growth is turning data centres into major energy and water consumers. In this analysis, our policy analyst team examines how governments in Latin America and Europe are pushing new regulations, green incentives, and grid upgrades to keep AI from becoming a climate liability.

AI requires large amounts of computing power and energy for data storage, leading to the need for more efficient energy solutions. Data centres have been consistently demanding power, leading to estimates that their power consumption could increase by 160 percent by 2030. 

However, the rapid expansion of data centres, driven by the growing need for AI, is also raising concerns regarding water usage and environmental sustainability, especially concerning water consumption. This trend poses environmental risks, especially in regions where water scarcity is becoming a more pressing issue.

Latin America

With a total estimated value of 1.4 percent of the global market, Brazil is Latin America's biggest market for data centres, with 40 percent of the investment received by the region. From 2013 to 2023, the sector grew 628 percent and is expected to maintain growth as demand soars with the impact of AI. The fifth biggest data centre in the world is located in the metropolitan area of São Paulo.

The Brazilian government sees the sector as an opportunity. Data centres are a key part of the country's last plan for AI. The federal government explicitly mentions the development of 'green' data centres as a goal. Congress is not far behind; bills were proposed to regulate and create incentives for the sector. The aim seems to be to use the national energy matrix as a differential in a “powershoring” strategy.

The most important initiative, however, is an upcoming provisional measure to be published by the presidency. Expected for May 2025 and still not published as of the time of this post’s publishing, the MPV is supposed to grant several benefits to the industry to facilitate the establishment of data centres in the country to reposition Brazil to a global position. The concern, however, is the same in other countries of the region: water. While Brazil might have an abundance of this resource, distribution within the country is unequal. Data centres can still establish themselves in dry areas, as recent negotiations between companies and local governments of Ceará point to. 

Similar to Brazil, the main challenge impeding Chile’s data centre expansion is the country’s ongoing issue with water scarcity. Implementation of policies driving the sector towards a more sustainable use of this resource has proven challenging, and the expansion and growth of the industry are already pressuring government and communities. Last year, after a court ruling concerning its environmental permits for a project on data centres, the construction of one in Cerrillos in Santiago de Chile, the country's main hub for the sector, was halted due to environmental concerns. 

On the other hand, Colombia has become an attractive market for data centres. The capital city of Bogotá offers sufficient energy for the industry’s demand, and almost 70 percent of the national energy production comes from hydroelectric and other renewable sources. Additionally, energy prices are favourable for the industry, as Colombia is the country in the region with the third-lowest electricity costs. This similarly positions the country to Brazil, only on a smaller scale.

Mexico is the second largest data centre market in Latin America, in terms of area and energy power, after Brazil. The centrally located state of Querétaro currently represents more than half of the market’s installed capacity, largely due to its strategic location (between Mexico City and other important cities like Monterrey and Guadalajara), low risk of natural disasters, and cheaper land costs. Following this boom, the industry is expecting significant growth in the following years.

European Union

The rapid expansion of AI, cloud computing, and digital services is driving a surge in data centre construction across the European Union. These facilities fuel everything from streaming platforms to advanced AI training, but their continuous and intensive energy consumption needs could threaten the EU’s energy and sustainability strategies.

Under the EU Energy Efficiency Directive (EU) 2023/1791, in force since October 2023, owners and operators of data centres with an installed IT power demand of at least 500 kW are required to make various sustainability-related information publicly available. Building on this, the Commission adopted Delegated Regulation (EU) 2024/1364 as the first step towards establishing an EU-wide scheme to rate the sustainability of data centres. 

Under this act, data centre operators are required to submit annual reports to the European database on key performance indicators (KPIs) such as energy demand and consumption, total water use, waste-heat reuse, cooling systems, renewable energy share, and data traffic, with initial deadlines of September 15, 2024 and May 15, 2025, and the May deadline recurring annually from 2025 onwards.

In July 2025, the Commission published its first Technical Report based on inaugural KPI submissions from roughly 36 percent of eligible facilities. The findings revealed both progress and persistent gaps, as average renewable energy use is high at 87 percent, and the weighted average power usage effectiveness was 1.36, similar to the limits set by the Climate Neutral Data Centre Pact. 

However, performance varied across data centres, with some facilities still exceeding the threshold. Water consumption patterns also varied widely across data centres, and only about 1.9 percent of all heat generated is currently reused. Notably, the report highlighted that achieving climate-neutral, highly efficient data centres by 2030 will require not only technical optimisation and investment, but also better data quality, harmonised reporting standards, and higher participation rates across Member States. 

Germany 

Germany’s data centre sector has become one of Europe’s fastest-growing and most energy-intensive industries. The country hosts over 2,000 data centres and has become the leading hub for digital infrastructure in the region. 

In 2024, German data centres consumed nearly 4 percent of national electricity demand, and it is expected to rise considerably in the coming years. Several measures have been taken to address this, such as the Energy Efficiency Act, which is projected to save 7.5 percent of consumption compared to a ‘no policy’ scenario by 2030, according to the Federal Ministry for Economic Affairs and Climate Action, and further aims to cut the total final energy consumption by 2 percent annually.

As most data centre capacity is concentrated in a small number of regions, local grids are being strained, especially in Hesse and Berlin-Brandenburg. This is happening as Germany transforms its power system under the energy transition strategy, although keeping up with rising data centre demand in a grid dominated by renewables could require significant upgrades to the electricity system to ensure capacity, stability, and reliability. 

Germany’s data centre regulations are shaped by both EU legislation and stricter national measures. Alongside the Energy Efficiency Directive (EU) 2023/1791 and the Delegated Regulation (EU) 2024/1364, Germany adopted the Energy Efficiency Act in November 2023, creating one of the most demanding regulatory environments for data centres in Europe. The EnEfG sets legally binding renewable electricity targets, requiring a 100 percent renewable sourcing by January 2027 for large-capacity IT facilities. It also establishes increasing and binding waste heat reuse quotas starting at 10 percent from July 2026, exceeding EU-level obligations, and mandates the certification of energy or environmental management systems. 

While the Energy Efficiency Act remains in force, the German government committed to simplifying it in its coalition agreement, aligning it with EU law, and introducing more practical approaches such as using waste heat in district heating. On August 15, it introduced a bill to fast-track large heat pumps that capture waste heat from industry and data centres, helping meet reuse quotas and mitigate their emissions impact. While still in the legislative process, the bill suggests a move towards a more implementable framework for operators while maintaining Germany’s climate and energy goals.

Balancing Growth and Sustainability

The rapid buildout of data centres is reshaping economies from São Paulo to Berlin, but it’s also testing the limits of power grids, water resources, and regulatory frameworks. Governments see opportunity, but ambition alone won’t prevent environmental costs from mounting. 

Real progress will depend on coordinated action among policymakers, operators, and industry leaders to ensure an environmentally responsible future for data centres worldwide.