Data centers are gushing out in Southeast Asia as China and the US compete for AI hegemony. The High-Tech Giants are aiming to Johor, a Malaysian manufacturing hub, from Baitedance and Alibaba to Google and Microsoft, across the straits from Singapore. A rich agricultural nation, Johor is now home to a vast data centre park.
Since 2023, Malaysia has announced MYR 99 billion (US$23.4 billion) in data centre investments.
With cheap electricity, labor and ample land, Malaysia has proven to be an attractive alternative to land-constrained neighbours and is set up to be Southeast Asia's fastest growing data center hotspot.
Like many of its local neighbours, Malaysia has established itself as a mediator between the US and China amid the trade war. However, this tightrope walk is more difficult to walk. Chinese companies have recently been accused of renting Malaysian data centers via third parties, gaining indirect access to highly US-designed microchips that are restricted by US export controls.
A few weeks after the investigation into the incident began, the US announced that Malaysia would face 25% tariffs from August, but talks over the trade contract are ongoing between the two countries.
“We can expect a continuous, sensitive balance of Malaysia trying to avoid taking critical action against either the US or China,” says Ewan Lusty, director of Flint Global, who provides policy and regulatory advice to businesses.
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Targeted incentives can accelerate the adoption of clean technology. [but] It is also important to establish a clear sustainability framework from the start. When the data center operates, retrofitting becomes much more difficult.
Shabrina Nadilla, Southeast Asian Energy Analyst, Ember
Counting carbon
Surges strengthen Malaysia's role in the global data centre supply chain, but also raises environmental concerns. Shabrina Nadhila, Ember's Southeast Asian energy analyst, warns that the rise of energy-hungry server farms is at risk of rising emissions and “locking fossil fuel infrastructure that could become stuck.”
AI data centers require advanced computing to train and run large machine learning models, and consume significantly more energy than traditional data centers.
The main sustainability measure used in the industry is power usage (PUE). This ratio compares the energy used for facility operations such as cooling, lighting, and ventilation with the energy of computing. A perfect PUE score of 1.0 means that every watt only powers the calculations.
Hyperscale data centers hosting tens of thousands of servers are more efficient and can achieve a score as low as 1.1. But Pue tells only part of the story. “This is an indicator of internal sustainability,” says Wei Yang Khoo, a researcher at the Khazanah Research Institute (KRI) in Malaysia. He points out that PUE overlooks where electricity comes from, the amount of money it is spent overall, and the amount of emissions associated with that generation.
Even the most technically efficient data centers can have a critical environmental footprint when run on fossil fuels. Khoo emphasizes that hyperscale data centers consume between 20 and 100 megawatts (MW) of power. “A sufficient energy to power a small city.” Half of the total energy consumption is due to cooling computer systems using enormous air conditioning and cooling setups that use large amounts of water and energy.
In 2024, 81% of Malaysia's electricity came from fossil fuels. With corporate sustainability, its trust bottles are a challenge to the government's national energy transition roadmap targeting 70% renewable capacity by 2050. Ember is a project in which data center electricity demand will skyrocket from 9 terawatt hours (TWH) in 2024 to 68 TWH by 2030.
Malaysia's fossil fuel-rich grid makes renewable energy integration expensive and slower. It is common for data centers to offset emissions by purchasing renewable energy certificates (RECS), but “you can use very dirty coal fired power in Malaysia before you buy cheap RECs elsewhere,” says Khoo. Without standardized accounting, double counting is a real risk, he adds.
Last year, Malaysia launched a Corporate Renewable Energy Supply Scheme (CRESS). This allows large-scale business consumers to source renewable energy directly from independent electricity producers. However, the scheme ingestion was slower as the additional fees charged to producers to access and maintain the network. That is, companies are currently paying premiums for the transition to renewables.
Can data centers facilitate migration?
Some industry voices argue that data centers could become part of the solution. “Datacenters play a key role in accelerating the transition to renewable energy by driving demand for clean power and investing in innovative energy solutions,” says Lusty.
He points out that it will help Cress coordinate energy-intensive sectors like data centers with national decarbonization goals. Facilities operators may face pressure from investors and clients around the world to meet environmental, social and governance (ESG) targets.
However, not all renewable efforts are created equally. Australian Data Infrastructure Company Airtrunk recently announced its rooftop solar project at Johor's JHB1 campus. This shows that Sara Loo, Associate Research Officer at the Iseas-Yusof Ishak Institute in Singapore, describes it as an illusion of progress created by the highly visible but marginal installation of the sun.
As Loo puts it, “this overall idea of a sustainable data center is itself a contradiction.” This is because these facilities are energy intensive, water intensive and carbon-emitting in nature. Despite increasing pressure to become green, the core model continues to be environmentally expensive, she notes.
Malaysian Environment Minister Nick Nazmi Nik Ahmad said earlier this year that the data center boom could support the country's renewable energy systems. Malaysia has become “more selective” when approving new data centre projects due to water and energy constraints, he stressed.
However, the minister added that tech companies are expected to be “willing to pay a premium,” allowing many other industries to “push the boundaries” of renewable energy and water recycling systems in ways that they cannot afford.
Unlike Singapore, which has evaluated how to impose moratoriums on new data centres from 2019 to 2022 to sustainably manage data centre growth, Malaysia could be slow. “Johor has benefited a lot from Singapore's moratorium. [had] Loo explains.
However, she warns that the continued expansion into data centres in Malaysia, supported by an incentive-based approach focused on efficiency optimization, may not adequately address the environmental and social impacts of energy and water consumption at the local and national level. Loo notes that the long-term outcome of this growth remains uncertain.
Nadhila highlights Singapore's successful policy approach. This includes green building upgrades and research grants aimed at increasing efficiency in data centers as a powerful example of the region.
“Targeted incentives can accelerate the adoption of clean technologies,” she says, but “it's also important to establish a clear sustainability framework from the start. Once the data center is working, remodeling becomes much more difficult.”
This article was originally published on Dialogue Earth under a Creative Commons license.
