Economic Impact of AI on Global Output

(Reuters) – The International Monetary Fund (IMF) reported that economic gains from artificial intelligence (AI) are projected to boost global output by approximately 0.5% annually between 2025 and 2030. This increase is expected to outweigh the costs associated with rising carbon emissions from the data centers required to operate AI models.

Unequal Distribution of Gains

While the report, released during the IMF’s annual spring meeting in Washington, highlights positive GDP growth from AI, it also warns that these benefits will not be evenly distributed worldwide. Policymakers and businesses are urged to address the broader societal costs associated with these changes.

Emissions vs. Economic Growth

The IMF states, “Despite challenges related to higher electricity prices and greenhouse gas emissions, the gains to global GDP from AI are likely to outweigh the cost of the additional emissions”. The report, titled “Power Hungry: How AI Will Drive Energy Demand”, discusses that while the social cost of these emissions is relatively minor compared to the anticipated economic benefits, they still contribute to an increasing emission trend.

Energy Demand Surge

As AI adoption rises, demand for energy-intensive data processing power is expected to surge. The report notes that the server space in northern Virginia, home to the largest concentration of data centers globally, is comparable to eight Empire State Buildings. AI-driven electricity needs could potentially more than triple to about 1,500 terawatt-hours (TWh) by 2030, equivalent to India’s current electricity consumption and 1.5 times the expected demand from electric vehicles during the same timeframe.

The Path Forward for Carbon Emissions

The increase in emissions related to AI will depend significantly on whether tech companies can fulfill their commitment to reduce emissions through greater renewable energy use and other strategies. The IMF estimated that under present energy policies, global greenhouse gas emissions could rise by 1.2% from 2025 to 2030, while greener policies might limit this increase to 1.3 gigatonnes (Gt). The calculated social cost of these emissions ranges from $50.7 to $66.3 billion, which is still smaller than the $500 billion boost to global GDP anticipated from AI.

The Role of AI in Energy Efficiency

Independent analysts note that the economic and environmental impact of AI will largely depend on its application, specifically whether it facilitates energy efficiency gains or promotes more sustainable consumption patterns. The Grantham Research Institute on Climate Change suggests that AI could potentially reduce overall carbon emissions by accelerating advancements in low-carbon technologies in sectors like power, food, and transport.

However, market forces alone may not guide AI towards beneficial climate actions. Grantham policy fellow Roberta Pierfederici emphasizes that governments, tech companies, and energy firms must actively ensure that AI is used in a way that is intentional, equitable, and sustainable, highlighting the need for research funding and policies to mitigate inequalities exacerbated by AI advancements.