You Pay For Social Media, AI and Crypto Via Your Utility Bills

Households consume the most electricity in the UK. That's why the huge surge in global energy prices following the expansion of Russia's invasion of Ukraine in February 2022 prompted the government to invoke price caps and handouts to protect consumers (and businesses) from bankruptcy, along with private energy providers who failed to manage their market exposures. Yet few have noticed that the world's computing data centres, including those hosting artificial intelligence platforms, already consume enough energy to power entire countries and compete with humans for vast amounts of fresh water. Crypto-currencies also require huge amounts of energy to 'mine'. So, not only are you paying for many 'free' online services with your personal data, you're also paying through your energy and water bills. And based on the advertising and other revenues from your participation, Big Tech can afford to outspend you. To illustrate the challenge, the UK government just announced a massive new Microsoft AI facility in London, even as Thames Water circles the drain and lack of capacity in the UK's national grid is delaying the construction of new homes, renewable energy projects and electric vehicle charging points. Given these costs and shortages, should we be speculating in bitcoin and using generative AI (either for fun or to do things we could do for ourselves)?

How much power does the latest consumer technology use?

While consumer electronics only account for 6% of household usage, that doesn't account for the centralised data processing among digital media and gaming platforms, for example, when you participate online. As a result, households are responsible for 35% of electricity usage, services 29% and industry 30%. You might argue that much of this data centre capacity is used by businesses, but many of them do so ultimately to serve consumers - from online search, shopping and social media services to powering giant credit card networks. 

Artificial intelligence, however, operates at a whole new level above the more traditional digital media. A Netflix fan would have to have watched 1,625,000 hours of content to use the same amount of power it took to train OpenAI's ChatGPT 3.0 during 2022, according to a Dutch researcher. Generating a single image from text on other AI platforms costs the same amount in energy as charging your smartphone.

The same Dutch researcher has estimated that the AI sector alone will use as much power as the Netherlands by 2027, while the International Energy Agency predicts that the world's data centres (including AI and other digital media) will consume the double the amount of electricity in 2026 that they consumed in 2022 - about as much as Japan (the 5th largest electricity consumer in the world, behind China, the US, India and Russia).  

Bitcoin mining - an activity whose sole purpose is to feed the world's first and largest distributed Ponzi scheme - absorbed nearly 1% of the world's electricity in 2023 - enough to power Greece or Australia. That's up to 5 times the cost of legacy payment systems that process vastly more transactions (though they also use enough to electricity to power Portugal or Bangladesh).

How much water does the latest consumer technology use?

Data centres also consume vast amounts of water (not counting what they recycle) to cool the computers and humidify the internal air. But even the process of generating the electricity they use also consumes water. 

In 2021, for example, Google's data centers consumed approximately 4.3 billion gallons of water (16.3 billion litres), an average of 450,000 gallons (1.7m litres) of water per data centre each day. Microsoft reckoned that it consumed 1.7 billion gallons (nearly 6.5 billion litres) in 2022.

Gridlock

The surge in energy and water usage by future-gazing tech providers comes at a time when Britain's infrastructure is already failing to support the construction of new and more energy efficient homes, renewable energy sources and the switch away from diesel and petrol vehicles.

“Nationally, we’ve got an absolute ­crisis in all infrastructure.” Plans by Michael Gove, the housing secretary, to build 150,000 homes in Cambridge to create a British Silicon Valley were already being hampered by lack of water... “And where’s the power coming from? Something fundamental has to change...”

"...90 new homes in the Littlemore district had been meant to have heat pumps. “The National Grid basically said ‘we won’t have enough power to connect them’ so half the houses are going to have to have gas boilers instead – it’s so frustrating. 

Great Britain’s power stations together generate 75 gigawatts of electricity, and the mainland is expected to need about twice as much by 2050 as people switch to ­electric vehicles and heat pumps.” The Guardian

Dissatisfaction with Britain's electric vehicle charging network is running at about 70% of EV drivers, citing a lack of public charging stations and unreliability. The government is targeting 300,000 charging stations by 2030, with only 53,677 available at the start of 2024 (an increase of 45% in 12 months) and the majority to be provided by private investors.

Meanwhile, Britain's water problems flow partly from the risk of drought and party from its combined sewage system which takes rainwater through the same pipes as the grey water from sinks and baths, as well as the raw sewage from toilets. Any excess of rainwater simply overloads the sewerage system of pipes that normally takes sewage to local treatment works, and the overflow goes directly into the waterways... 

Crisis? What Crisis?

Who's to blame for Britain's sagging infrastructure involves lots of finger-pointing and misinformation. 

When challenged over delays to connect new systems to the electricity grid, the National Grid's system operator complains that the queue of projects waiting to connect would add 800 gigawatts of electricity - "more than more than four times as much as the country would ever need." There are even delays in the time it takes to get an estimate of when a project will be connected, as well as 'zombie projects' that were approved but have been abandoned due to connection waiting times of 5 to 15 years.

Yet this hides the fact that more renewable projects/systems will be necessary to reduce Britain's reliance on fossil fuels, since energy systems that generate electricity from solar and wind don't all contribute to the grid at the same time, unlike a gas-fired or coal-fired power station where the energy source to create the electricity is under human control. 

As for water - well, none of England’s rivers is classified as being in good ecological health and Britain is already failing to produce enough fresh water to meet its needs year round. The country's 'combined sewage system' should be replaced by separate systems for rainwater and sewage, yet modernisation efforts have merely doubled-down on the combined system.

UK Government Distracted by Culture Wars

Britain's energy sector is self-evidently poorly prepared for the future. Here is a good description of the alphabet soup of bodies involved and the problem of every additional significant energy system creating the need for some change in part of the network. Here's a good overview of the challenges facing sewerage reform and here is a discussion of drought risk.

There is undoubtedly a need for reforms and there are plenty that have been announced with targets of, say, 2035 and 2050, but where are the plans that had a target of, say, 2023? And if we had them, why weren't they being updated?

It's hardly surprising that a country with 5 prime ministers in 8 years and as many Cabinet reshuffles has failed to find the time or dedication required to overhaul the energy sector and water industry. Too much control over the maintenance and renewal of Britain's creaking infrastructure has been left to private interests. Had the income from customer bills gone into public coffers instead of draining into investors' pockets, it might have been a different story - or at least the money might have been used to bolster the many other public services that are in such a dire state. 

Choices, Choices

All this brings us back to scarcity and the need to make careful choices over how we develop, protect and deploy our energy and water resources. This is largely a question of politics and intervention by a responsible government to balance out the many competing interests. Areas in which Brexit Britain has been - and continues to be - very poorly served. 

It must be doubted that a new government will be able to make much progress after 15 years of under-investment and poor decision-making by its predecessors.

In these circumstances, it seems unwise to devote enormous amounts of power and water to mine bitcoin for speculative purposes or to support generative AI systems that are either used merely for entertainment or to render people jobless (if the hype is to be believed). 

Certainly cash-strapped consumers should think about their utility bills and water shortages before speculating in bitcoin, playing online games or using open AI systems for entertainment or to do things that they could do for themselves. 

 

How Britain's Economic Future Still Depends On Brussels

Britain has a services-based economy: 80% of our output and employment is in services. Professional services, finance, travel, telecoms/computing are all key areas, as is degree to which retail sales are online. This is clearly an advantage for a set of islands when it comes to exports, because services don't need to be shipped. But services may be subject to other trade barriers, such as licensing requirements when offered in other countries, as well as unfair trade practices by local competitors and suppliers. Rules and how well they're enforced are important issues. About half our trade is with the EU, because it's closer than the rest of the world. The EU is also a market of 448m people, 412m of whom are internet users, with 288m online shoppers. That makes enforcement of the EU's new Digital Markets and Digital Services Acts all the more critical, regardless of the fact that the UK no longer sits at the regulatory table.

Scale of UK services exports to the EU

While we generally import more than we export, that overall trade deficit being £33bn in 2023. That's the result of a deficit of £187bn in goods imported over exports, offset by a surplus of £153bn in exported services (including services that overseas customers bought here in the UK, as well as services performed by UK firms working abroad). 

Brexit has obviously made the EU market less accessible for UK firms, so the loss of the free movement in goods, services, people and capital makes earlier comparisons unreliable. But based on trade data for 2022: 

• the EU accounts for 36% of Britain's total services exports;
• we have a trade surplus in services with 14 EU countries and a deficit of trade in services with 13 countries, our closest neighbour being the largest surplus (Ireland at £14 billion) and Spain the largest services deficit (£11 billion); 
• our single largest type of exported service was £55bn worth of “other business services”, being legal, accounting, advertising, research and development, architectural, engineering and other professional and technical services, representing 38% of all UK service exports to the EU. 
• exports of financial, travel and telecoms/computing/data services are also very significant.  

The Importance of Digital Platforms

You can see from the nature of our most successful services exports that their marketing and supply depends on digital platforms and related services, including search engines, cloud/hosting, app stores, browsers, e-commerce marketplaces and messaging services. 

While most of the services exported by British businesses will be supplied electronically to EU businesses of varying sizes, the online consumer markets are obviously also very important. In the retail sector, over a third of British business is now online, making the UK the third largest country in terms of the share of retail that is e-commerce, after the US and China. By contrast, about 15.4% of retail sales across all EU countries occur online. In absolute terms, however, the UK only has a domestic market of 66m internet users, while the EU has 412m (92%) of its population using the internet, 70% of whom (288m) buy stuff online. 

At that scale it becomes very important that the EU's digital markets are well regulated, and that businesses and their customers are shielded from unfair competition and trade practices.

How Does the EU Ensure Fair Digital Markets?

The Digital Markets Act (DMA) builds on existing competition law by rooting out unfair practices of very large digital platform operators (“gatekeepers”) when providing services that other businesses use to reach their own customers online. Alphabet, Amazon, Apple, ByteDance, Meta and Microsoft have all been designated as gatekeepers, since they effectively act as private rule-makers who could potentially create ‘bottlenecks’ and ‘choke points’ that limit access, unfairly exploit personal and business data for their own purposes and/or impose unfair conditions on market participants. All face exploratory investigations under the DMA by the European Commission in connection with search services, app stores, browsers and messaging services, to see if they might be luring away customers from other businesses who use those platform services. 

The EU's Digital Services Act (DSA), on the other hand, protects EU-based users of online communication, e-commerce, hosting and search services, by exempting intermediary service providers (“ISPs”) from certain liability for performing certain duties. There are extra requirements for ISPs with at least 45m average monthly active EU users (known as ‘very large online’ (or 'VLO') platforms and search engines). Even UK providers may be caught, where it has an entity based in the EU or has a 'substantial connection' with the EU (i.e. a significant number of users as a proportion of the EU population or by targeting its activities at one or more EU countries). Services such as Bing, Google Search, Facebook, Instagram, Snapchat, TikTok, YouTube, X/Twitter, AliExpress and LinkedIn already face exploratory investigations under the DSA. Basically, the European Commission wants to know how these businesses: 

• mitigate the risks of creating and spreading information using generative AI and risks to electoral processes; 
• block illegal content; 
• protect users' fundamental rights; 
• avoid promoting gender-based violence; 
• protect children; 
• protect users' mental well-being; 
• protect users' personal data; 
• protect consumers; and 
• avoid the infringement of copyright and other intellectual property rights.

How Do British Businesses Benefit From the DMA and DSA?

British businesses will not want to spend heavily to acquire and deal with customers via gatekeepers' services, only to see the gatekeepers take those customers on directly. That's where the DMA comes in. It should not matter that a foreign business is among those who suffer any violation, since that will also affect EU businesses and customers that the DMA is primarily designed to benefit. 

More widely, British businesses trading online the EU customers should also be reassured that the DSA regime is designed to ensure those customers are treated well and fairly in the intermediary environments. Otherwise, they risk losing both the channels through which they attract and deal with EU customers and/or the EU customers who are unwilling to engage with those channels. Equally, businesses will want to know that they are taking on genuine customers and dealing with reputable service providers online, rather than risking exposure to fraud and intellectual property rights infringement via their EU sales and marketing channels.

Either way, it's clear that Britain's service exporters are highly dependent on the EU trade bloc and its regulatory regime, regardless of Brexit.

Whether they can expect the same protection at home is another matter...

EU Countries To Offer Their Citizens Digital Identity Wallets From 2026

The EU is finally pushing forward with aRegulation that requires member state governments to offer their citizens a voluntary European digital identity wallet from 2026.

Under the new law, member states will offer citizens and businesses digital wallets that will be able to link their national digital identities with proof of other personal attributes (e.g., driving licence, qualifications, bank account). Citizens will be able to prove their identity and share electronic documents from their digital wallets simply, using their mobile phones. 

 The new European digital identity wallets (EDIWs) will enable all citizens to access online services with their national digital identification, which will be recognised throughout the EU, without having to use private identification methods or unnecessarily share personal data. User control ensures that only information that needs to be shared will be shared.

For the past 20 years, various players have pushed the idea that you could have a digital identity issued by any number of certified 'trust providers' based on certain agreed standards. This would go hand-in-hand with concepts of 'personal data stores' and access to your transaction data in machine-readable form ('midata')that would allow you to control how your data is monetized. There was speculation that the trust providers would likely be banks and telecoms companies, or perhaps dedicated new entities; but there were always concerns about whether they really had the core competencies required - or the risk/liability appetite - as well as issues relating to security and privacy.

The European Commission explains that:

• by 2026, each member state must make a digital identity wallet available to its citizens and accept EDIWs from other member states according to the revised regulation 
• sufficient safeguards have been included to avoid discrimination against anyone choosing not to use the wallet, which will always remain voluntary 
• the wallet’s business model: issuance, use and revocation will be free of charge for all natural persons 
• the validation of electronic attestation of attributes: member states are required to provide free-of-charge validation mechanisms only to verify the authenticity and validity of the wallet and of the relying parties’ identity 
• the code for the wallets: the application software components will be open source, but member states are granted leeway so that, for justified reasons, specific components other than those installed on user devices need not be disclosed 
• consistency has been ensured between the wallet as a form of eID and the scheme under which it is issued...

Qualified website authentication certificates (QWACs) will ensure that users can verify who is behind a website under well-established eID security rules and standards (which enable open banking service providers to authenticate each other's systems, for example).

There's Nothing Intelligent About The Government's Approach To AI Either

Surprise! The UK government's under-funded, shambolic approach to public services also extends to the public sector's use of artificial intelligence. Ministers are no doubt piling the pressure on officials with demands for 'announcements' and other soundbites. But amid concerns that even major online platforms are failing to adequately mitigate the risks - not to mention this government's record for explosively bad news - you'd have thought they'd tread more carefully.

Despite 60 of the 87 public bodies either using or planning to use AI, the National Audit Office reports a lack of governance, accountability, funding, implementation plans and performance measures. 

There are also "difficulties attracting and retaining staff with AI skills, and lack of clarity around legal liability... concerns about risks of unreliable or inaccurate outputs from AI, for example due to bias and discrimination, and risks to privacy, data protection, [and] cyber security." 

The full report is here.

Amid concerns that the major online platforms are also failing to adequately mitigate the risks of generative AI (among other things), you'd have thought that government would be more concerned to approach the use of AI technologies responsibly.

But, no...

For what it's worth, here's my post on AI risk management (recently re-published by SCL).

SuperStupidity: Are We Allowing AI To Generate The Next Global Financial Crisis?

I updated my thoughts on AI risk management over on The Fine Print recently and next on my list to catch up on was 'the next financial crisis'. Coincidentally, a news search prompted an FT article on remarks about AI from the head of the SEC. 

While Mr Gensler sees benefits from the use of AI in some efficiencies and combating fraud, he also spots the seeds of the next financial crisis lurking not only in the various general challenges associated with AI (e.g. inaccuracy, bias, hallucination) but particularly in: 

• potential 'herding' around certain trading decisions; 
• concentration of AI services in a few cloud providers;  
• lack of transparency in who's using AI and for what purposes; and
• inability to explain the outputs. 

All familiar themes, but it's the concentration of risk that leaps out in a financial context, though it was also a wider concern identified in hearings before the House of Lords communications committee and by the FTC, as explained in my earlier post. 

The fact that only a few large tech players are able to (a) compete for the necessary semiconductors (chips) and (b) provide the vast scale of cloud computing infrastructure that AI systems require is particularly concerning in the financial markets context because the world relies so heavily on those markets for economic, social and even political stability - as the global financial crisis revealed. 

We can't blame the computers for allowing this situation to develop.

So, if 'superintelligence' is the point at which AI systems develop the intelligence to out-compete humans to the point of extinction, is 'superstupidity' the point at which we humans seal our fate by concentrating the risks posed by AI systems to the point of critical failure?