The Nebius AI UK data centre in Chertsey, Britain. Some Canadian provinces are starting to think more critically about how to handle a potential influx of data centres.Toby Melville/Reuters
Technology companies are throwing around extraordinary numbers as they race to build data centres. OpenAI and Meta alone have promised to sink US$1-trillion into these facilities. Other companies are pledging to spend hundreds of billions more.
Although the bulk of the spending will happen in the United States, many Canadian politicians are hoping to get a piece of the action. Alberta is dreaming of $100-billion in data centre investment and Quebec wants to put out the welcome mat for these projects. They should be cautious.
These centres use huge amounts of power and water. They provide few local jobs once they are built. And if rising fears of an artificial intelligence bubble prove accurate, communities could be left with white elephant facilities.
This is not to say that data centres should be blacklisted or banned. It would be hypocritical to do so considering how much of Canadians’ life is online. But governments should also not dangle incentives such as tax breaks to attract them.
OpenAI eyes artificial intelligence data-centre capacity in Canada
Canada and Ontario’s recent woes with subsidizing electric-vehicle battery production is an example to avoid.
In that case, the governments eagerly offered billions to companies, in the hopes of creating a local EV economy that has proved elusive. One glimmer of a silver lining is that, in some cases, the proposal failed before serious money began to flow. But the whole saga suggests governments too eager to hitch their wagons to the hot new idea.
It’s good that some Canadian provinces are starting to think more critically about how to handle an influx of data centres, even if their approaches raise questions.
In Ontario, the government is seeking input on a proposal that would prioritize electricity requests based on how well the use would serve the province’s economic interests. In a worrying indicator that the province is buying into tech hype, though, the idea comes dressed up with some highly speculative language about how data centres “could anchor new high-tech ecosystems” in northern and rural communities.
British Columbia, meanwhile, announced last month that priority for power would go to natural resource and manufacturing projects. Data centres, AI and other users would be further down the list when applying for electricity supply. This attempt at preserving local industries could result in rewarding lower-productivity businesses at the expense of more productive ones.
It’s understandable to want to prevent a situation in which new data centres put enormous additional demand on the power supply, pushing up costs for everyone. But if the companies are willing to pay the true marginal cost of providing additional power then there is no reason to refuse them. Long term, building out the electrical grid to maximize economic development is a good thing.
In the same way, provinces and municipalities should look more closely at how much large-scale users are paying for water. Too often, the heaviest consumers pay the least per litre. That can’t be allowed to continue, especially if new demand forces costly expansion of water infrastructure.
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There are also questions about the federal approach. Fortunately, Ottawa’s promise last year to provide up to $15-billion for loans and equity stakes in data centre projects was missing from this month’s budget. It did pledge, however, to change the Canada Infrastructure Bank’s mandate to allow it to invest in these facilities. The government is also developing a new AI strategy, and is considering whether there should be new incentives.
As well, the budget promised nearly $1-billion towards data sovereignty. This issue is on a lot of minds, understandably, given the drumbeat of threats from United States President Donald Trump. But the term itself is not easily defined and Ottawa risks being captured by tech prophets spinning an alluring web.
The history of industrial policy is littered with embarrassing examples of government largesse that didn’t pan out. Hydroponic cucumber cultivation in Newfoundland springs to mind, as does the ill-fated Bricklin sports car.
Governments shouldn’t get starry eyed about data centres. Instead, make sure the appropriate regulations are in place and then let the market take over.
The Sunday Editorial: The airport of the future has arrived – just not in Canada. Landing tomorrow morning at globeandmail.com