---

Artificial intelligence may be built in the cloud, but the infrastructure behind it is increasingly becoming a very physical urban challenge. Data centers require land, electricity, water, transmission capacity and investment at a scale that can directly affect the cities and communities where they are built.

During Climate Week NYC 2026, mayors, investors, lenders and infrastructure leaders gathered in New York around a question that is becoming increasingly relevant as demand for artificial intelligence accelerates: how can cities capture the economic benefits of digital infrastructure without transferring its environmental and financial costs to residents?

The conversation is being shaped by the Global Urban Data Centres Pact, a city-led initiative supported by 49 cities representing more than 110 million people. Twenty-two of those cities are in the United States, where the rapid expansion of data centers has made energy availability, water consumption and community acceptance increasingly important parts of development decisions.

Data Centers Are Becoming an Urban Planning Issue

For much of the digital era, data centers remained largely invisible to the consumers and businesses relying on them. The rapid expansion of cloud computing and artificial intelligence is changing that relationship.

Large facilities can require significant amounts of electricity and cooling infrastructure, placing additional pressure on power grids and water systems already serving homes, businesses and industrial users.

That means decisions about where and how data centers are built increasingly extend beyond technology companies and developers. Local governments can influence land use, permitting, infrastructure requirements and environmental standards, giving mayors a growing role in determining what responsible digital expansion should look like.

The C40 initiative establishes four broad principles for future development: data centers should be strategically integrated into cities, use resources efficiently, be developed with local communities and contribute to lowering costs and creating shared economic benefits.

The Economics of AI Meet the Economics of the Grid

The scale of investment surrounding artificial intelligence has turned data centers into one of the most important infrastructure categories of the decade. Yet the economic opportunity can become more complicated when new facilities compete with existing consumers for electricity.

Rapid increases in demand may require additional generation, transmission infrastructure and grid upgrades. The central question for cities is who ultimately carries those costs.

For local governments, attracting technology investment while allowing electricity prices or infrastructure pressures to increase for residents can create political and economic tension. The emerging approach discussed during Climate Week therefore focuses on integrating data center development with clean-energy expansion and long-term infrastructure planning rather than treating individual facilities as isolated projects.

That could also change how developers select future sites. Access to inexpensive land may matter less if electricity, water or transmission capacity becomes the limiting factor.

Water Is Becoming Part of the Digital Economy

Electricity is only one side of the infrastructure equation.

Many data centers require substantial cooling systems to manage the heat generated by servers. Depending on the technology and location, this can create additional demand for water, making resource efficiency particularly important in regions already experiencing drought or population growth.

Phoenix offers a relevant example. The city is experiencing investment in advanced manufacturing, technology and infrastructure while simultaneously operating in a region where water management has long been a strategic priority.

Phoenix Mayor Kate Gallego, who co-founded the Pact with Melbourne Lord Mayor Nick Reece, has argued that communities should benefit from digital investment while infrastructure, health, safety and resource management keep pace with development.

That perspective reflects a larger shift in how cities evaluate technology infrastructure. Economic development is increasingly being measured not only by capital investment or construction activity, but by the long-term demands a project places on public systems.

Clearer Rules Could Actually Help Investors

Environmental standards are sometimes framed as obstacles to development. C40's argument moves in a different direction: clear expectations can potentially reduce uncertainty for investors.

When cities establish requirements around energy, water, air quality and community impact before projects reach the permitting stage, developers can incorporate those expectations into site selection and financing decisions earlier.

During Climate Week, C40 Cities and sustainability benchmarking organization GRESB convened cities alongside real-asset investors, asset managers, commercial lenders and developers to examine how environmental and social risks associated with data centers can be identified and financed.

For institutional capital, those risks are becoming increasingly material. A project that cannot secure community support, adequate electricity or predictable regulatory approval may face delays that affect development costs and returns.

Sustainability, in that sense, is becoming part of infrastructure risk management rather than simply an environmental consideration.

Community Acceptance Could Determine Where AI Infrastructure Gets Built

Public attitudes may become another decisive factor.

C40 cited polling indicating significant skepticism toward data center expansion in the United States. The organization also noted that support improves when clean energy is incorporated into projects, suggesting that opposition is not necessarily directed toward digital infrastructure itself, but toward the way certain developments affect local resources and communities.

Some jurisdictions have already responded to rapid expansion by temporarily pausing new developments while regulations are reviewed.

For technology companies and investors, this creates a new requirement: community engagement may need to become part of data center strategy much earlier in the development process.

Projects capable of demonstrating cleaner power, responsible water use, local employment and tangible economic benefits could encounter a very different public response than developments perceived primarily as consuming resources while exporting their benefits elsewhere.

The Next Generation of Data Centers Could Look Very Different

The growth of artificial intelligence is unlikely to reduce demand for digital infrastructure. The more important question may be what kind of infrastructure receives permission, capital and public support to expand.

Cities are increasingly signaling that future data centers will be expected to operate as part of the urban systems surrounding them rather than as independent technology assets.

That could mean facilities connected with renewable generation, advanced cooling technologies, more efficient use of water and electricity, stronger transparency around environmental performance and infrastructure designed to provide benefits beyond the boundaries of the data center itself.

For developers, those expectations create additional complexity. They may also create opportunity. Companies capable of building facilities that meet stricter urban standards could gain access to communities where less efficient competitors face resistance.

Cities Are Becoming Gatekeepers of the AI Infrastructure Boom

The artificial intelligence economy is frequently discussed through models, chips and software. Climate Week NYC 2026 highlighted another layer that may prove equally important: the cities responsible for hosting the physical infrastructure behind those technologies.

Mayors cannot determine how quickly AI evolves, but they can influence where data centers are built, what resources they consume and what communities receive in return.

That gives local governments an increasingly strategic position in the digital economy.

The next phase of the AI boom may therefore depend on more than computing capacity or capital. It may also depend on whether technology companies, investors and cities can agree on a model of growth that allows digital infrastructure to expand without asking communities to absorb its hidden costs.

```