Nobel Laureate Abhijit Banerjee Calls for Water Tax on AI Data Centers

Economist Abhijit Banerjee, a 2019 Nobel laureate in Economics, urged the introduction of a tax on the water used by artificial‑intelligence (AI) services, especially data‑center operations. He noted that AI workloads consume considerably more water than typical data‑center applications; a study by the University of California estimates that generating 10–50 text responses from a generative AI tool requires about half a litre of water. Banerjee argued that, similar to existing carbon taxes, a water‑use levy could help correct pricing distortions, especially where data centres are built in arid regions.

He emphasized the need for policy that prices all resources employed by AI, citing potential labour market impacts and the fiscal burden on governments that may have to compensate displaced workers. The proposal also referenced a notice from the Spanish platform Maldita, which highlighted the higher water and energy demands of AI services, including image generation. Banerjee’s call seeks to prompt regulators to consider water pricing as part of broader resource‑pricing reforms for emerging technologies.