Do Not Europe (or California) My AI Image By Dan Romito The European Union consistently defaults to overregulation, and its approach to managing the AI world is no different. Worse, its energy policies exacerbate the challenges posed by overregulation. It is an ill-advised strategy, and one that unfortunately has found favor in California and threatens to spread further across the U.S. These overburdensome regulatory frameworks threaten to stifle innovation, increase compliance costs and undermine economic competitiveness, and the effects are compounded by energy policies that forsake affordability, reliability and reality. It’s a model that other states should observe and recognize for what not to do. Take two specific legislative examples, the Digital Services Act (DSA) and the Artificial Intelligence Act, which are prime examples of EU regulatory overreach. The DSA grants unprecedented power to European governments to censor online content, compelling regulators to run point on shaping public discourse. The absence of adequate constraints on political authority raises concerns about free speech and democratic integrity. The EU AI Act introduces a risk-based classification system that imposes stringent requirements on “high-risk applications,” particularly in healthcare, education, and public safety sectors, which serves to discourage investment and delay deployment of AI solutions. One of the most significant consequences of EU overregulation is the exorbitant compliance costs that burden businesses. Companies must invest heavily in legal counsel, data protection officers, and regulatory audits, diverting resources from innovation and growth. Moreover, complex and unnecessary bureaucratic procedures delay the time-to-market for new products, hindering competitiveness in fast-paced global markets. Unnecessary energy crisis The EU's energy policies exacerbate the challenges posed by overregulation, and the consequences of the EU’s self-induced energy crisis are evident in the surge in electricity prices across Europe. In some EU countries, household electricity prices for high-consumption users have risen by over 50% since 2021. The inflation rate for energy commodities spiked, with some experiencing rates as high as 88% in mid-2022. In comparison, electricity prices in the United States are significantly lower. U.S. households pay around 0.12 USD per kilowatt-hour, while virtually all consumers in the EU pay almost double per kilowatt-hour. This disparity is primarily due to the EU's high taxes, reliance on fossil fuel imports, the costly transition to renewable energy sources, and incompetent political leadership. This disparity is magnified by the fact that the median disposable household income in the United States is approximately $50,000, whereas the median disposable household income in the EU is around $20,000. In other words, the U.S. boasts nearly triple the disposable income and experiences energy costs about half of the European Union. And the dynamic in California increasingly resembles the EU more than the U.S. Identifying inefficiencies If the current trajectory of overregulation and restrictive energy policies continues, economic stagnation is likely. American states would do well to guard against four key inefficiencies that have become hallmarks of counterproductive policymaking: Consistently prioritizing overregulation and compliance over innovation: This inefficiency stifles entrepreneurial activity and discourages investment, delaying capitalization of economic opportunities. Disproportionately catering to climate rhetoric instead of economic realities: While environmental sustainability is crucial (when executed pragmatically), an unbalanced focus on climate goals without considering economic realities results in energy shortages and inflated prices. Underinvestment in AI and emerging technologies: Without strategic investment in digital transformation and emerging technologies, states and nations risk falling behind in the global technological race. Ignoring economic decline: A decline in productivity, decreased industrial output and diminished global competitiveness can lead to lower GDP growth rates and reduced economic influence. California’s EU mimicry Unfortunately, California faces many challenges that mirror the EU’s. Political ideology often supersedes economic pragmatism in California, where a strict regulatory environment, high taxes, political incompetence, and energy dependence have resulted in a declining business climate, driving companies and residents to more economically favorable states. In 2021 alone, 153 companies relocated their headquarters out of California, compared to 75 in 2020 and 46 in 2018. Notable companies that have moved include Tesla, Oracle, Hewlett Packard Enterprise, and Charles Schwab, all relocating to Texas. Competent political leadership must prioritize economic well-being, energy independence, defense, and a practical regulatory environment. To remain competitive in the race to lead the generative artificial intelligence race, American states must: Expand natural gas and nuclear energy production to ensure energy security and affordability. Upgrade electricity transmission infrastructure to support the growing energy demands of digital industries. Implement pragmatic regulations that balance safety with economic growth, avoiding overregulation that stifles innovation. Prioritize safety, affordability, and reliability over ideological ambitions. Institute a little more of a Texas and Florida mindset and a whole lot less of California Or, to put it more simply, states could look to see what California and the EU are doing and promptly implement the opposite. Dan Romito is managing director overseeing the Consulting & Advocacy practice at Pickering Energy Partners. He previously worked at Nasdaq, and his writing has been published in Harvard Business Review, Bloomberg and CNBC. *The opinions expressed in this column are those of the author and do not necessarily reflect the views of EnergyPlatform.News.
