Australia has set new expectations for AI data centres – they should serve the public

Yesterday, the Australian federal government released new expectations for data centres and artificial intelligence (AI) infrastructure.

The message is simple: if companies want faster federal approvals, they must show their projects are in Australia’s national interest, support the clean energy shift, use water responsibly, create local jobs, and build local capability.

The government states it will prioritise projects that line up with those goals. Assistant Minister for Science, Technology and the Digital Economy, Andrew Charlton, said

we will do what is necessary to ensure the growth of AI is sustainable and underpinned by a strong social license.

This is a big shift. It means data centres in Australia are no longer being treated as just another property or tech investment. They’re now being treated as major infrastructure, with real effects on the power grid, water systems, land use and local communities.

What is a data centre again?

Data centres are large buildings packed with computing equipment that stores, processes and moves data. These sites help run cloud services, video calls, online banking, research and the growing wave of AI tools.

The International Energy Agency says a typical AI-focused data centre can use as much electricity as 100,000 households. The largest ones under construction today could consume 20 times as much.

While Australia already has more than 250 data centres, that number is set to grow as the AI boom continues. These facilities help power modern life and they can bring jobs, investment and digital capability.

But essential infrastructure still needs public trust. And that trust will depend on whether these facilities pay their own way, or whether nearby communities end up carrying the hidden costs through more pressure on electricity, water and scarce urban land.

Read more: Australia is set to get more AI data centres. Local communities need to be more involved

Electricity is the first big issue

A report prepared for the Australian Energy Market Operator found data centres in Sydney already use about 4% of New South Wales’ grid-supplied electricity. By 2030, that could rise to 11%.

Nationally, the Clean Energy Finance Corporation says data centres could account for up to 11% of Australia’s total electricity use by 2035.

The same report states Australia would need another 3.2 gigawatts of renewable electricity generation and 1.9 gigawatts of battery storage by 2035 to contain price rises and avoid extra emissions.

That doesn’t mean data centres are automatically bad for the energy system. In fact, they could help fund new renewable energy, storage and grid upgrades if the rules around that are right. But that is the key point: if the rules are right and the government enforces them.

Water is the second issue

Not all data centres use the same amount, because water demand depends heavily on their cooling systems and what water source they use. But water can no longer be treated as a side issue.

A Water Services Association of Australia report on data centre water use in Australia says estimates for Sydney range from about 1.9% of water supply by 2030, to around 15–20% by 2035.

The water question is not just local. Australia’s water utilities say current data-centre use is still low, but future centres are likely to be much larger, with developers already seeking 5 to 40 million litres a day. One industry estimate puts current use at less than 0.1% of Australia’s total water, but future demand will depend on cooling choices and water source.

Hence the new federal expectations: data centres must use water sustainably, work early with utilities and communities, use non-potable water where possible, pay their share of infrastructure costs, and report water use transparently.

Then there is land

Many data centres are drawn to major cities because they need strong power, fibre links, water, site access and, in some cases, proximity to end users. But that also means they often compete for industrial land

In New South Wales, industrial land is already under pressure and is needed for logistics, urban services, jobs close to home and the construction supply chains that help deliver housing.

In January, NSW set up a parliamentary inquiry into data centres. It’s looking at electricity demand, grid impacts, water use, drought risk, noise, heat, traffic, land-use conflicts and whether data centres’ resource demands are impinging on new housing supply.

It is also asking who gets the benefits, who carries the costs and how transparent the approval process really is. In other words, NSW is already treating data centres as a public interest issue. Other states may need to follow, because federal expectations alone cannot resolve state planning and land-use conflicts.

What can we expect from the new federal policy?

At best, the new expectations should end the idea that any data centre is a good data centre simply because it brings private investment.

If the government adheres to its own rules, new data centre projects should bring their own clean power or help fund it. They should use water efficiently and, where possible, use recycled or non-drinking water. They should create real local jobs and skills. And they should be open about their energy, water and environmental performance.

The way forward is not to block data centres – Australia will need more of them. The answer is to be much more selective about where they go, how they are powered, how they are cooled and what they give back.

If they are essential infrastructure, they should meet the same test as any other big piece of infrastructure: serve the public, not just the market.