Muireann Lynch: Do data centres pay their own way? The answer is not straightforward

Ireland’s energy decarbonisation policy relies on a rapid shift from fossil fuels to electricity generation, in tandem with a major roll-out of renewable electricity. Our electricity demand has indeed increased, by 13 per cent since 2010, and Ireland has moved from the 13th highest electricity demand per capita across the EU 27 in 2010 to 7th in 2025. Unfortunately, this increase has very little to do with electrification, and far more to do with the massive increase in data centres. Our demand per capita comes from a historically low base: electricity usage tracks economic activity, and a country with a higher-than-average GDP per capita should therefore expect to use more electricity per capita, all else equal. In this context, could the explosion in data centres merely be the industrial revolution Ireland never had? And if so, should we not recognise that this is the price a modern country pays to enjoy the benefits of industry-driven economic activity, and build the infrastructure necessary to serve our energy demands?To answer this question, we need to understand the benefits of the economic activity enabled by the industry in question. The Department of Enterprise, Trade and Employment commissioned a study by KPMG to that very end.The study contains a lot of very valuable data and information, and is worth reading in full and in detail. However, the benefits attributed to data centres operating in Ireland appear to conflate different, sometimes unrelated, impacts.READ MOREFrom 2010 to 2024, the report estimates that data centres in Ireland contributed more than €22 billion to the economy, as measured by “Gross Value Added”. However, more than half of that was attributed to the construction of the data centres. Ireland’s construction sector does not lack demand, and so new construction projects rearranges rather than adds activity. Substitution between the construction of data centres and other infrastructure is not perfect, but it is simply not the case that all construction activity associated with data centres would never have happened otherwise.The report also attributes various technology-enabled economic activity to data centres. This is a stretch, as it again implies that this economic activity would simply disappear should the underlying technology disappear. Furthermore, such economic activity does not require data centre presence in Ireland specifically – it merely requires access to services enabled by data centres.My reading of the report suggests that many, if not most, of the economic benefits attributed to data centres in Ireland would accrue via alternative channels in the absence of data centre activity. However, the elephant in the room is the link, if any, between the presence of data centres in Ireland and economic activity related to the tech sector. These economic benefits are real, and substantial.Multinational firms contribute massively to corporation tax revenue in Ireland, but also to other sources of tax. The Irish Fiscal Advisory Council estimates their contribution to VAT and payroll taxes at nearly 20 per cent – an enormous figure. Of course, multinational firms are not limited to firms with data centre activity, but firms that own and operate data centres here still contribute significant amounts of tax, and stimulate broader economic activity.[ Ireland can’t be a dumping ground for data centres other countries don’t wantOpens in new window ]Ireland’s failure to meet many of our climate goals is not news to anyone, but the substantial progress that has been made was only possible thanks to substantial investment by the State. Further investment, and therefore further expenditure, is required if we are to have any hope of delivering on our climate commitments. And this massive expenditure simply would not be possible without our record levels of tax take. In other words, if you think it’s hard meeting our climate goals with the tax paid by multinationals, try meeting those goals without those funds.All energy users should cover their costs. Any failure to do so simply shifts their costs onto other customers, which is neither efficient nor fairThe best-case scenario would of course be to keep all multinational activity, with the associate tax, without needing to accommodate more and more data centres. The problem is that this is not a choice that is within Irish policy-makers’ gift. No one knows what decisions are being, or will be, made by these companies. If it is simply the case that the tech sector and data centres are a package deal, policy-makers must choose between the alternatives available, rather than the alternatives they might like to have available.[ Data centre electricity demand could exceed entire power usage of RepublicOpens in new window ]In this context, some key questions remain outstanding. We know that, all else being equal, more demand means more generation, higher prices, or both. We also know that more generation means more emissions. However, this is true for any source of demand. While moratoriums on new large energy users are of course a valid policy option, they should be seen as a last resort. Power systems, in general, should be able to accommodate new, foreseeable demand. Any suggestion that we cannot is a red flag.Microsoft’s Grange Castle data centre campus in west Dublin, supporting cloud and AI services for customers across Europe, in February 2026. Photograph: Naoise Culhane Data centres can and do manage their demand in a flexible manner. They reduce demand at times of system stress, which protects other electricity users from blackouts. They invest in renewable electricity from their own resources, which suppresses electricity prices for all users with no associated subsidy. They can provide waste heat for district heating systems. And finally, they pay a lot of money for the electricity they use.The real question is not what data centres contribute to the economy, but what they contribute to the power system. An essential requirement for the provision of any service is that each user covers their costs. Data centres impose massive costs on the power system, of that there is no doubt – but do they pay enough to cover their costs? If so, then the responsibility for higher prices or increased probability of blackouts from data centres lies with our planning and regulatory system. If, on the other hand, data centres do not pay their way, then our market structures, tariffs and charging mechanisms need reform.[ Data centre expansion policy prolongs reliance on fossil fuelsOpens in new window ]All energy users should cover their costs. Any failure to do so simply shifts their costs onto other customers, which is neither efficient nor fair. It is everyone’s responsibility to pay their bill, no matter what economic activity you enable – but it is not anyone’s responsibility to ensure their bill is fair. That responsibility lies, ultimately, with policy-makers.Muireann Lynch is a senior research officer in the economic analysis division of the Economic and Social Research Institute (ESRI)