The ‘Green Swap’ – Mobilizing Climate Finance for Maximum Global Impact
Note: This is the first in a multi-part series on the impact of artificial intelligence on climate change.
Despite the dominant narrative regarding the rapid and widespread adoption of artificial intelligence (AI), data centers currently are not the leading consumers of power in the United States or even in most of the world. Today, electric vehicles, heating and air conditioning, and heavy industry all consume as much or more power globally than data centers.[1]
Energy Consumption and AI Growth
While there is a documented correlation between AI adoption and energy scarcity, according to the International Energy Agency (IEA), in large economies like China, the European Union, and the United States, data centers today only account for roughly two to four per cent of total electricity consumption.[2] (Geographic dispersion within sovereign boundaries is an obvious factor in this calculation. For example, over 20% of all electric energy consumption in Ireland comes from data centers.[3])
Resource Scarcity
Energy consumption shows no sign of abating. Last autumn, Dominion Energy (NYSE: D) said that it was rationing power to some new data centers in northern Virginia, the world’s largest data center market, while at the same time, American Electric Power (NASDAQ:AEP) has stated that there are “three New York Cities worth of data centers waiting to connect to the grid after 2028.”[4]
As the adoption of AI continues to drive data center demand, shortages of power, water, and real estate will increasingly dictate where and when new data centers can be built. Developing economies vying for data center market share will in turn struggle to keep up with industrialized economies who have easier access to both green energy and plenty of cheap capital.
Continued Investments in Research and Development (R&D)
While ongoing investments in research and development will lead to more energy efficient data center products[5], at global scale the progress associated with green investments in industrialized nations will likely be offset by developing countries’ continued reliance on fossil fuels.[6] (This is not strictly a ‘developing economies’ issue: The temptation to consume cheap and dirty energy for the sake of expediency is proving irresistible in the face of energy scarcity in the United States.)[7]
To make measurable progress in the fight against climate change, we must address the way capital flows to projects in developing countries.
The Need for a New Financial Instrument
Free market dynamics suggest that new capital investments will flow to the most efficient solution with the highest return on investment (ROI). The challenge here, however, is that the ROI on the preservation of scarce resources is not quantifiable in any customary sense. (What is the monetary value of globally reduced greenhouse gas emissions? Hint: It’s priceless. What is the impact of a sustained wet-bulb temperature above 35 degrees Celsius over a sustained length of time?[8] Hint: It can be fatal.)
Additionally, an overall lower cost of capital globally does nothing to help emerging economies where the cost of capital can be twice as high due to distribution challenges, political risks, and regulatory issues.[9]
When markets don’t run efficiently, creativity takes over. Enter Akash Deep, faculty chair of the Infrastructure in a Market Economy executive program and faculty co-chair of the International Finance Corporation executive program at Harvard Kennedy School.
Deep’s “Green Swap” concept is a potentially revolutionary idea in capital markets whereby carbon credits (which are tradeable across international markets) are passed on to global investors with deeper pockets who in turn invest in emerging economies to “fund the incremental costs associated with converting dirty power projects into clean ones.”[10]
At the heart of the matter is this conflicting dynamic: Development investment is designed to spur local growth regardless of negative externalities, while climate investment seeks ROI from green growth and the reduction of harm associated with fossil fuels at a global scale.
“The tradeoff between enabling development and curtailing climate impact has created divergent policy goals and erected significant impediments to mobilizing climate finance. Yet investment in infrastructure tie the two together. Advanced economies increasingly require that all infrastructure investment be climate friendly; [Emerging Markets and Developing Economies] EMDEs prefer to reap infrastructure’s positive externalities for development first, shifting a reckoning of its negative climate impact to others, or for a later stage in their development trajectory. Diplomatic efforts and policy initiatives to reconcile these two goals have had limited success. Development finance institutions (DFIs), straddling the climate priorities of donor countries and the development priorities of recipient countries, often bear the brunt of this tradeoff.”[11]
Deep et al continue: “[T]he Green Swap bridges the gap between development and climate goals, creating a scalable financing framework for sustainable infrastructure investment.”
The disentanglement of these two economic drivers can course correct the flow of capital for maximum benefit so that, in theory at least, projects can be completed with expediency and without jeopardizing stated and mutually agreed upon climate goals.
When we consider that new investments in dirty energy require decades to amortize, we are entitled to feel a sense of urgency when it comes to securing green power for data centers globally. Furthermore, as many EMDEs pursue aggressive timelines for sovereign AI (the codification of AI models and resources based on national identity, language, and culture), the need to incentivize climate investment is more critical today than ever before.[12]
Ensuring global investors are motivated to fund green projects when local authorities have no viable green alternatives (or none that are financially attractive or fesible), may be the key rebalancing climate finance for maximum global benefit.
Keywords: Green Swap, climate finance, energy crisis, clean energy, green energy, dirty energy, climate crisis, legislation, regulation, wet-bulb temperature, extreme heat-humidity event, population exposure, artificial intelligence, data center, datacenter, energy shortage, scarce resources.
[1] “Nvidia CEO Says Power-saving Optical Chip Tech Will Need to Wait for Wider Use” - https://www.reuters.com/technology/nvidia-ceo-says-power-saving-optical-chip-tech-will-need-wait-wider-use-2025-03-19/.
[2] “Greening Global Finance.” Harvard Magazine, (May-June 2025), 9–10. Retrieved May 13, 2025 - https://www.harvardmagazine.com/2025/05/harvard-capital-investments-green-energy
[3] “AI Needs So Much Power That Old Coal Plants Are Sticking Around” - https://news.bloomberglaw.com/esg/ai-needs-so-much-power-that-old-coal-plants-are-sticking-around.
[4] “Increases of extreme heat-humidity days endanger future populations living in China” – https://iopscience.iop.org/article/10.1088/1748-9326/ac69fc
[5] “Greening Global Finance.” Harvard Magazine, (May-June 2025), 9–10. Retrieved May 13, 2025 - https://www.harvardmagazine.com/2025/05/harvard-capital-investments-green-energy
[8] “What is ‘sovereign AI’ and why is the concept so appealing (and fraught)?” - https://www.weforum.org/stories/2024/11/what-is-sovereign-ai-and-why-is-the-concept-so-appealing-and-fraught/.
[9] “‘Three New York Cities’ Worth of Power: AI Is Stressing the Grid” - https://www.wsj.com/business/energy-oil/ai-data-center-boom-spurs-race-to-find-power-87cf39dd.
[10] “What the data centre and AI boom could mean for the energy sector’ -https://www.iea.org/commentaries/what-the-data-centre-and-ai-boom-could-mean-for-the-energy-sector.
[11] Ibid.
[12] Ibid.
Sources:
Chen, H., He, W., Sun, J., & Chen, L. (2022, May 19). “Increases of Extreme Heat-humidity Days Endanger Future Populations Living in China.” Environmental Research Letters. https://iopscience.iop.org/article/10.1088/1748-9326/ac69fc.
Deep, A., Lee, H., Tahir, W., & Doyle, J. (2025, February). “The Green Swap: Disentangling Climate and Development Impact to Mobilize Climate Finance.” Belfer Center for Science and International Affairs. http://www.belfercenter.org.
Hausfather, Z. (2021, October 11). “Explainer: How “Shared Socioeconomic Pathways” Explore Future Climate Change.” Carbon Brief. https://www.carbonbrief.org/explainer-how-shared-socioeconomic-pathways-explore-future-climate-change/.
Hiller, J. (2024, September 28). “‘Three New York Cities’ Worth of Power: AI is Stressing the Grid.” The Wall Street Journal. Retrieved May 13, 2025, from https://www.wsj.com/business/energy-oil/ai-data-center-boom-spurs-race-to-find-power-87cf39dd.
Kishan, S., & Saul, J. (2024, January 25). “AI Needs So Much Power That Old Coal Plants are Aticking Around.” Bloomberg Law. Retrieved May 13, 2025, from https://news.bloomberglaw.com/esg/ai-needs-so-much-power-that-old-coal-plants-are-sticking-around.
Leitzing, J. (2024, November 13). “What is “Sovereign AI” and Why is it So Appealing?” World Economic Forum. https://www.weforum.org/stories/2024/11/what-is-sovereign-ai-and-why-is-the-concept-so-appealing-and-fraught/.
Nellis, S. (2025, March 19). “Nvidia CEO Says Power-saving Optical Chip Tech Will Need to Wait for Wider Use.” Reuters. Retrieved May 13, 2025, from https://www.reuters.com/technology/nvidia-ceo-says-power-saving-optical-chip-tech-will-need-wait-wider-use-2025-03-19/.
Shaw, J. (2025, May). “Greening Global Finance.” Harvard Magazine, (May-June 2025), 9–10. Retrieved May 13, 2025, from https://www.harvardmagazine.com/2025/05/harvard-capital-investments-green-energy.
Spencer, T., & Singh, S. (2024, October 10). “What the data centre and Ai Boom could mean for the energy sector.” The International Energy Agency. https://www.iea.org/commentaries/what-the-data-centre-and-ai-boom-could-mean-for-the-energy-sector.
