Climate Stress and AI Collide

With many municipalities already stretched to the brink by climate impacts, the rise of data centers poses a new threat.

What once felt like a distant menace is now a daily disruptor. “Hundred-year storms” arrive every other season. Wildfire smoke blankets entire regions. Brutal heat waves scorch cities that never needed air conditioning before. Climate stress is now baked into everyday life.

While wildfires, superstorms, and flooding are certainly cataclysmic, drought is proving to be the most dangerous—and expensive—climate threat: quiet, creeping, and financially devastating.

According to First Street Foundation, the projected climate risk to U.S. municipal bonds for drought is $760 billion, compared to $660 billion for extreme heat, $435 billion for flooding, $190 billion for hurricanes, and $75 billion for wildfires.

Grist recently reported the story of Clyde, Texas, illustrating the high stakes of drought. Years of punishing heat and dwindling reservoir levels didn’t just strain the town’s water supply—it fractured its finances. Reduced consumption meant lower municipal revenue. Cracked ground ruptured core infrastructure. Emergency water imports came at a premium. Within months, Clyde was missing bond payments, cutting services, raising taxes, and pleading with residents who were already choosing between groceries and utility bills.

Clyde is one of many communities facing this reality. Climate impacts are turning into fiscal emergencies. There is no longer a “season” for damage, only a volatile new normal. As finance and insurance systems buckle under the weight of compounding disasters, local governments are increasingly exposed. We’re no longer just experiencing environmental risk; economic, social, and civic stability are now front-line casualties.

AI Exacerbates the Problem

Despite the proliferation of climate solutions, the near-term outlook for communities remains deeply challenging. Climate stress is colliding with an infrastructure boom driven by the AI revolution, which is driving up demand for energy and water at a staggering pace, pushing municipalities further into uncharted territory.

A recent Western Resource Advocates report notes that by 2035, data centers are expected to drive a 55% surge in U.S. electricity demand—enough power to run 25 cities the size of Las Vegas. Utilities are warning this unchecked growth could delay fossil plant retirements and raise household energy bills by 30–50% or more.

And the strain isn’t limited to power. Some proposed data centers could consume 7 billion gallons of water per year, even as drought pushes many communities toward crisis.

Which begs a litany of important questions: who will ultimately shoulder the cost of massive infrastructure upgrades? What happens if projects stall midstream? How do communities plan for reliability when megawatt-scale industrial loads appear seemingly overnight? How do we protect ratepayers from subsidizing industrial loads and private data demands? Will there be enough political courage to require these new projects to use renewable energy? Where will the water come from?

Just as climate impacts strain public budgets, this new industrial demand is testing the fairness, transparency, and resilience of local systems. In both cases, unchecked development without foresight is a liability we simply can’t afford.

The Pathway Forward

The weight of this moment mandates true leadership, which now requires moving beyond incrementalism toward integrated, intentional planning across the energy, water, transportation, communications, and housing sectors.

That means:

• Designing, constructing, and renovating homes that maintain livability during outages and protect homeowners from escalating utility bills.
• Accelerating electrification paired with onsite renewable energy generation and storage.
• Prioritizing whole-home water efficiency, reuse, and drought-smart systems and landscaping.
• Partnering with municipalities and utilities on community-level solutions, including rebates and incentives for energy and water conservation measures.
• Planning for—and pricing—climate risk with honesty and urgency.

When cities, utilities, builders, and technology providers align, the results can be transformational: microgrid neighborhoods, circular-water communities, net-positive homes, climate-adaptive streetscapes, and digital infrastructure designed to strengthen, not strain, local systems.

Publisher’s Note: Green Builder's 20th Anniversary celebration is sponsored by: Carrier, Trex, and Mohawk.