The connection between AI growth and carbon market demand is one the UK is well positioned to act on, writes Chris Hayward
AI is growing rapidly, and the UK has a clear interest in being part of that growth. The AI Opportunities Action Plan reflects an ambition to position Britain competitively in AI infrastructure and adoption. That is the right instinct.
But ambition comes with trade-offs worth examining. Electricity demand from data centres rose by 17 per cent in 2025 and demand is only going one way: AI’s global energy use is expected to double by 2030. As compute scales, emissions tend to follow. At the same time, many of the largest technology companies have made net zero commitments – as have governments, including our own.
The growth-sustainability tightrope
This tension between growth and sustainability is not abstract; it is already shaping investment decisions, infrastructure planning and public expectations around responsible AI deployment. How the UK navigates this balance will influence both its economic competitiveness and its credibility on climate leadership in the years ahead. We must get this balance right.
The primary response should be reducing emissions at source – through the transition to renewable energy, infrastructure efficiencies and procurement choices. Carbon credits are not a substitute for reductions. But for residual emissions that cannot yet be eliminated, high-integrity carbon markets play a legitimate and increasingly important role. Companies including Meta, Amazon and Google are rapidly increasing their use of carbon credits to address residual emissions; Microsoft increased its carbon credit purchases by 337 per cent between 2023 and 2025. As we witness the inevitable advance of AI, that demand will only intensify.
Carbon markets are among the most effective tools available to address emissions at scale. They direct capital to projects that reduce or remove carbon from the atmosphere and, crucially, create a bridge between global demand and local supply. That matters for the UK, which, as a global leader in carbon markets today, is well placed to capture the benefits of a growing and global carbon credit market driven in part by AI.
How UK carbon markets stand to benefit
Carbon markets currently contribute £1.2bn in gross value added to the UK economy and support more than 11,000 jobs, according to new research from the City of London Corporation and the UK Carbon Markets Forum. UK-based institutions provide much of the legal, financial and insurance infrastructure that underpins global carbon finance.
The UK has significant natural capital assets such as peatlands, woodland and farmland. Existing projects could generate substantial returns across regions well beyond London: nearly £788m over project lifetimes in Scotland, and more than £100m in the Northwest. This is what a genuinely national growth agenda looks like – global capital flowing into UK regions, supporting land use, agriculture and rural economies.
Several other jurisdictions like the EU, Singapore and the United States are working to establish themselves as leading centres for carbon market activity. In an increasingly competitive world, the UK cannot afford to drift.
What we need is policy clarity: a consistent framework for how carbon credits interact with corporate net zero strategies, quality standards that give investors’ confidence and support for domestic supply. The commitment to link the UK and EU Emissions Trading Systems demonstrates what is possible when economic evidence is used to drive decisive policy action.
The connection between AI growth and carbon market demand is one the UK is well positioned to act on. Whether it does will depend on the choices government makes in the near term.
Chris Hayward is policy chairman at the City of London Corporation
