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18 min ago 5 min read
The Global Urban Data Pact has been launched at London Climate Action Week, outlining a shared vision for how data centres should be developed in urban areas.
Cities are facing new challenges around energy demand, water consumption and land use as the AI and digital revolution accelerates.
Urban areas have not featured much in the development debate to date. Generative AI and hyperscale facilities require sprawling campuses up to 10 million square feet, which takes most cities out of the equation.
Yet while around two-thirds of the upcoming 1,500 data centres currently in development in the US are planned for rural areas, the remaining third (totalling 495 facilities) are slated for urban locations.
The pact was unveiled by Nick Reece, the Lord Mayor of Melbourne, and Kate Gallego, Mayor of Phoenix – underlining the common challenges facing cities worldwide.
Phoenix has established health-and-safety reviews targeting data centre noise and emergency access which must be addressed before granting permits while Melbourne is actively balancing rapid data centre development with strict resource limits; projections show they could consume up to 20 billion litres of water (about 4% of the city’s drinking water) and place massive strains on local electricity grid.
Across the C40 cities climate leadership network, there are more than 1,700 data centres, with many more planned as AI drives rapid growth. So technically the pact unites 40 cities and covers 90 million residents.
Renewable energy focus
The framework calls for facilities to be integrated into city planning; to prioritise renewable energy; minimise pressure on water resources; and engage transparently with local communities.
Energy demand, for both primary and backup power, should ideally be met without building new, extending the operation of existing, or reopening decommissioned fossil fuel plants.
Cities should not use fossil fuels for on-site power and securing new and additional renewable energy generation and/or storage to meet, at a minimum, equivalent power demand and consumption.
It also calls for the reduction in the environmental impact and reliance on shared resources by achieving ‘best-in-class’ sustainability standards for emissions and water use (avoiding reliance on non-renewable water resources, including potable water) and actively capturing and using waste heat for community benefits.
Reconciling the pact’s renewable goals with commercial realities will not be easy, especially as soaring demand from data centres continues to cause broader energy challenges.
Gas-fired generation for data centres could expand and in high-growth scenarios, nearly double by 2035, equal to 60 bcm of incremental supply, according to a report from the International Gas Union.
Data centres are significantly driving up energy demand and causing renewable energy power purchase agreements (PPAs) and overall power prices to rise, due to intense demand for 24/7 clean power, in tandem with broader support for decarbonisation – even if coal remains the largest single source of electricity for data centres globally, adding another climate challenge.
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AI-driven data centre growth is creating new competition for renewable electricity, raising concerns about rising power prices for green hydrogen producers.
Raffi Garabedian, CEO of electrolyser maker Electric Hydrogen, told a that competition for clean power from data centres has become a “significant headwind” for US hydrogen projects. However, the effect may moderate in the coming years.
Ultimately, green hydrogen is likely to remain a constrained and high-value resource – better prioritised for hard-to-abate sectors such as steel, chemicals and aviation fuels, rather than power-hungry data centres competing for the same renewable electricity.
On a practical note, there remain substantial hurdles to meeting such “gargantuan” demand data centre growth, according to research consultancy Wood Mackenzie, including supply chain bottlenecks, policy uncertainty, long project lead times, and grid constraints.
“While the technology sector moves quickly and a data centre can be operational in two to three years, the broader energy system requires longer lead times to schedule and build infrastructure, which often requires extensive planning, long build times and high upfront investment,” it notes.
This growing competition comes as the US clean hydrogen production tax credit (45V), widely viewed as the key policy driver for the sector, is now set to expire earlier than expected. The credit will now only be eligible for projects that start construction before 2028, five years earlier than originally legislated.
The workability of the pact depends heavily on local regulatory translation and industry buy-in, as it is a voluntary framework rather than a legally binding international treaty.
Nonetheless, the fact that it received a prominent platform at a leading sustainability-come-climate event shows that issues between data centre development and energy consumption are increasingly coming to a head.
Mayors hold the keys to municipal zoning and building permits. While they cannot dictate grid rules, they can flatly deny applications to developers who refuse to align with the framework.
In Europe, the EU is aiming to aggressively triple its data centre capacity over the next five-to-seven years to support its AI ambitions. However growth in dense urban areas is restricted by severe local grid constraints, water-efficiency concerns, and rising local opposition.
Ultimately real workability requires cooperation from regional power utilities, independent energy grids, and higher government officials who often prioritise economic growth over local climate goals.
How we accommodate the boom in data centres promises to be a hot topic as the AI bandwagon powers on.
