Australia’s data centre boom is well underway, but concerns are increasingly being expressed at the community, local, and national levels about energy and water usage.

The Australian Energy Market Operator (AEMO) says 162 facilities are already operating nationally, concentrated mainly in Sydney and Melbourne and accounting for 2 per cent of grid-supplied electricity. Under AEMO’s central Step Change scenario, consumption reaches about 12 terawatt hours, or 6 per cent of total grid supply, by 2030 and roughly 34 terawatt hours by 2050. Globally, the International Energy Agency expects data centre electricity use to nearly double between 2025 and 2030, while demand from AI-focused facilities is set to triple.

This infrastructure matters. It supports banking, health, government, research, cloud services and national security. It can also attract investment, jobs and advanced industries. While some pockets have called for a moratorium on data centres, doing so would forgo those benefits without solving the underlying challenge. But unplanned expansion could raise electricity prices, compete for scarce water and industrial land, lock in emissions and concentrate systemic risk.

The Commonwealth has begun to set the terms. Its Data Centre Expectations, released in March 2026, require new clean energy and storage, payment of network costs, demand flexibility, efficient water use and local skills and research capability.

In July, the Commonwealth announced plans to make standards for large data centres enforceable. On 26 August, National Cabinet agreed to develop nationally consistent mandatory standards covering data centre energy, water and land use, while supporting skills and training. Commonwealth legislation is intended for early 2027 and will complement state and territory planning and approval processes.

Together, these decisions reinforce the principle that data centres should serve the public: they should pay their way, support the clean-energy transition, use water responsibly and create lasting Australian capability. But important gaps remain. The emerging framework may still allow facilities to rely on electricity generated from coal and gas, while community concerns in Tasmania and the experiences of residents already living beside major facilities show that social licence depends on appropriate siting, tangible local benefits and protection from transferred costs. The next step is to translate this public-interest principle into a staged national decarbonisation pathway, with clear coverage, consistent disclosure and verification, progressively stronger performance standards, and defined accountability across governments, regulators and operators.

Beyond the power bill

Most debate still treats sustainability as an electricity problem. The latest evidence says it is a whole-system and whole-life problem.

As Arup notes, as grids decarbonise, emissions embedded in buildings, equipment and repeated replacement become more important. Based on its projects, mechanical, electrical and plumbing systems represent about 70 per cent of upfront embodied carbon and 88 per cent across a facility’s life. The key plant may be replaced two or three times. Servers, often excluded from building assessments, can be replaced every three years and carry a large footprint from semiconductors and critical minerals.

Australian research from the Materials Embodied Carbon Leaders’ Alliance reaches a similar conclusion: mechanical and electrical systems may account for up to 90 per cent of cumulative embodied emissions. This means a good Power Usage Effectiveness score is not enough. It can hide rising total consumption, water-intensive cooling, high-carbon materials, refrigerant leakage, diesel backup and discarded hardware.

Energy and water risks are also local. CEFC-commissioned modelling found that, without additional renewable generation and storage, data centre growth could increase wholesale prices by 26 per cent in New South Wales and 23 per cent in Victoria by 2035, while lifting grid emissions. Infrastructure Australia reports that Sydney Water could face 90 billion litres of annual data centre demand by 2035, 15-20 per cent of its current supply. These impacts cannot be managed through national averages or renewable certificates alone.

A three-stage pathway

Australia can turn data centre growth into an opportunity for cleaner energy, stronger infrastructure and lasting national capability. A three-stage pathway could provide certainty for governments, communities and investors while preventing today’s data centre boom from becoming tomorrow’s energy bust.

2026-27: Measure, map and set the floor

The Commonwealth could build on its forthcoming energy, water and land-use standards by developing a comprehensive National Data Centre Sustainability Standard. Facilities above 5 megawatts could disclose verified data through a public dashboard covering electricity use, PUE, carbon intensity, clean-energy matching, demand flexibility, water use and catchment stress, refrigerants, backup fuels, whole-life carbon, material recovery and resilience assurance, without exposing security-sensitive information.

Governments could complement this with a national suitability map combining grid capacity, renewable energy zones, recycled water, fibre, workforce, potential heat users, biodiversity and climate hazards. This could help screen speculative proposals, improve connection queues, support precinct planning and give communities meaningful information before locations are locked in.

2028-30: Link faster approvals to performance

The next opportunity would be to connect faster approvals with demonstrated sustainability performance. Large new facilities that bring additional clean generation and firming, cover their network and water infrastructure costs, and provide auditable demand-response plans could receive priority assessment. Renewable matching could progressively move towards time- and location-matched clean power, reducing reliance on fossil-generated electricity when renewable generation is unavailable.

Planning systems could use climate-adjusted PUE and Water Usage Effectiveness benchmarks, supported by a NABERS Commitment Agreement targeting at least a five-star Energy rating and subsequent operational verification. Non-potable or closed-loop cooling could be encouraged wherever feasible, alongside low-global-warming-potential refrigerants, sulphur-hexafluoride-free switchgear and lower-emission backup systems.

Whole-life carbon budgets could be independently checked at design and completion. Procurement could encourage environmental product declarations, low-carbon steel and concrete, adaptable layouts, modular components and supplier take-back schemes. A national “green lane” could offer faster assessment to projects demonstrating energy, water, carbon and resilience readiness.

2030-35: Make data centres assets to the wider system

By 2035, Australia could position data centres as active contributors to the energy system. Facilities could move towards 24/7 carbon-free energy matching and provide flexibility by shifting non-urgent computing, using batteries and reducing demand during system stress. Data centre precincts could also share renewable generation, storage, and recycled-water infrastructure, while recovering waste heat where nearby users are viable.

Circularity offers another opportunity for Australian industry. Digital material passports could track servers, batteries, cooling equipment and structural materials. Take-back, refurbishment and high-value recovery schemes could extend equipment life while supporting Australian e-waste and remanufacturing industries, contributing directly to Australia’s goal of doubling circularity by 2035.

A national resilience framework could enable operators to demonstrate how critical services would continue during extreme weather, water interruptions, grid faults, cyberattacks, and supply chain disruptions. This would give governments, investors and communities greater confidence that Australia’s digital infrastructure is efficient, adaptable and prepared for future shocks.

One framework, clear accountability

A coordinated framework would give Australia an opportunity to lead in sustainable and resilient digital infrastructure while providing investors with clear and consistent expectations.

The Commonwealth could establish a national floor, with states and territories integrating it into planning and precinct decisions. Existing institutions could provide the implementation backbone: AEMO and network providers could manage connections and system security; the Australian Energy Market Commission could support market rules for flexibility; water utilities could assess cumulative catchment impacts; NABERS could verify performance; and the Critical Infrastructure Security Centre could support alignment with existing all-hazards risk-management requirements. An annual independent report could demonstrate progress and showcase Australian leadership without disclosing security-sensitive information.

Australia does not need to choose between a data centre boom and its 2035 emissions target. It needs rules that reward the best projects and stops costs from being shifted to households and communities. A clear pathway would make approvals faster, investment safer and social licence stronger. The nations that lead the AI era will deliver not merely the most compute, but the cleanest, safest and most resilient compute.

Dr Ehsan Noroozinejad Farsangi is an Associate Professor and Global Challenge Lead at Western Sydney University, where he specialises in Smart, Resilient & Sustainable Infrastructure. He has previously received a Policy Challenge Grant from the Australian Public Policy Institute on affordable and Net Zero housing.

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