Proposed EU AI law could cost the economy €31bn, study says

New legislation in Europe aimed at regulating the use of artificial intelligence (AI) could cost the region’s economy US$36 billion (or €31 billion) over the next five years, a report from the Center for Data Innovation concludes.

The European Commission published a draft of its proposed Artificial Intelligence Act (AIA) in April 2021. If adopted, the AIA will be the world’s most restrictive regulation of artificial intelligence (AI) tools, according to the report. It will not only limit AI development and use in Europe but impose significant costs on EU businesses and consumers. 

“The AIA is likely to spark a chilling effect on investments into AI in Europe, due to the Act’s legal complexity and the compliance costs it engenders,” the report says. “This will damage Europe’s digital transformation before it is even properly underway.”

The Center for Data Innovation argues that a small or mid-sized enterprise with a turnover of €10 million would face compliance costs of up to €400,000 if it deployed a high-risk AI system. Such systems are defined by the commission as those that could affect people’s fundamental rights or safety. It is estimated that the AIA will cost the European economy €31 billion over the next five years and reduce AI investments by almost 20%. 

“That designation sweeps in a broad swath of potential applications — from critical infrastructure to educational and vocational training — subjecting them to a battery of requirements before companies can bring them to market,” the center said.

Increasing AI expenses and impacts on businesses 

It is reported that AI adoption will become more expensive for businesses, skilled workers will become less available and companies will lack the resources to comply with the AIA. That, in turn, will “further dampen the vitality of Europe’s digital ecosystem,” the report says.

“The Commission has repeatedly asserted that the draft AI legislation will support growth and innovation in Europe’s digital economy, but a realistic economic analysis suggests that argument is disingenuous at best,” said Ben Mueller, senior policy analyst at the Center for Data Innovation and author of the report.

He added: “The rosy outlook is largely based on opinions and shibboleths rather than logic and market data.”

The EU’s Digital Decade target foresees 75% of European businesses using AI by 2030, a ten-fold increase from current adoption levels. Given the costs of the AIA, the report suggests it is hard to see how this is achievable for European businesses that want to invest in AI in a “high risk” sector.