Australia’s data centre rush now rivals the mining boom. OpenAI chief executive Sam Altman last week said Australia could become a “data centre capital of the world”.
This would come at an environmental cost. Water use is a common concern. One report estimates AI centres could use billions of litres of water a year.
But what do the numbers say? Based on the value derived per megalitre, data centres look less threatening and more likely to be a highly economically productive use of water.
The bigger problems are energy and location. As a new report suggests, electricity demand from data centres could outstrip clean power from renewables and lead to new gas plants.
Before committing fully, we need granular detail on how much water and energy these centres use.
What value do we get from water?
In the 2023–24 financial year, Australian industries consumed about 17.6 million megalitres of water – about 30 times the water in Sydney Harbour.
Of this, agriculture, forestry and fishing consumed about two-thirds of the total – nearly 11.8 million ML. This water was used to produce goods valued at A$54.6 billion – roughly $4,600 for every megalitre consumed.
Compare this to “other industries”, the category covering data centres. A megalitre of water in this sector was valued at $2.3 million – 500 times more value than if used on a farm.
How much water do data centres use?
We can only make a rough estimate on water use due to a lack of clear data.
Research shows data centres need about 25ML of water per megawatt of capacity. Australia has about 300 data centres with about 1.3 gigawatts of operating capacity. Using these figures, Australia’s current data centres would use 15,000–35,000ML a year. That would be a fraction of 1% of the water used nationwide – close to a rounding error.
There are three caveats.
First, credible estimates of water use vary widely.
Second, most estimates – including this article – only count water used directly for cooling. Data centres can be remarkably frugal with this water and getting more efficient.
But data centres indirectly use substantially more in the water used to produce the electricity powering them. Coal, gas and hydro plants all need water.
Third, proposed new data centres are much, much larger than existing ones. Some are seeking between 5ML and 40ML a day.
If all 41 in the pipeline or under assessment are built, they would directly use 15–20% of Sydney’s water supply within a decade.
Sydney would bear the strain on water supplies in return for an upfront economic benefit from construction and some ongoing jobs. But the economy wide $116 billion boost to GDP from AI adoption by all industries over the next ten years would be spread nationally.
It would make sense to locate data centres where water is more abundant and cheaper.
Energy is a bigger concern than water
At present, data centres use just over 2% of the electricity on the National Electricity Market.
This would almost triple to 6% within four years, according to Australian Energy Market Operator forecasts. The Clean Energy Finance Corporation estimates the figure could be 11% within a decade.
Energy use isn’t inherently bad. What matters is whether increasing demand will be met by renewables – or gas.
Data centres are hungry for energy. The question is how that demand will be met.Westend61/Getty
We need better data – on data centres
We can’t manage what we don’t measure. Data centres are a textbook example of a data gap impeding good policy.
The Australian Bureau of Statistics rolls data centres into a broader category.
This means we can’t access detailed statistics on how much water or energy data centres use. Nor how much they add to the national accounts.
The federal government has introduced new expectations on water use and efficiency for data centre operators. That’s something. But it’s not the same as a national picture that fits with existing official statistics. Only one data centre meets the new national water-efficiency rating.
Surprisingly, Australia’s National AI Plan has little focus on water and energy. State and federal water ministers have named data centres as an emerging threat to water security. A Senate inquiry is in progress.
We need to track water use better
Australia’s water accounts measure how much water every industry uses. But they don’t track how much water is lost to evaporation or value all water used. Water supply and sewerage are bundled together in even the most detailed view of the national accounts, meaning neither can be seen clearly.
So while data centres appear to be a high-value use of water, we can’t confirm it.
There are signs of change. Australia uses the international System of Environmental-Economic Accounting to track water use. This is being rewritten now, in part to address these issues. The national accounts have also begun treating damage to nature as a cost of production. Both shifts matter, no longer treating the environment as free lunch.
To finish the job, authorities will have to properly value all the water used by industries and disentangle data centre data from other industries. This would turn a noisy debate into a measurable one.
Time to keep tabs on AI
Based on the data we do have, we can say Australia’s data centre boom is neither the water villain some fear nor the cost-free miracle its promoters describe.
Instead, it looks like a high-value industry arriving at record speed which is relatively light on water use and fairly heavy on energy.
With better data in hand, the numbers – not the headlines – should decide where the next megalitre and the next megawatt should go.
Michael Vardon is a member of the Australian government's Technical Advisory Panel for Environmental-Economic Accounting and is on a United Nations team working on environmental-economic accounting.
Mick Tsikas/AAP, Hakim/Canva, The Conversation, CC BY
New polling this week put One Nation ahead of Labor in the primary vote for the first time, as the party’s latest policy announcements signal greater political ambition.
One Nation recently unveiled its new oil and gas policy at the Australian Energy Producers Conference in Adelaide. It promises “vastly greater returns” to an electorate “rightly unhappy” with the distribution of Australia’s natural resources.
While One Nation’s gas policy is not entirely new, the party’s growing prominence means announcements will attract greater scrutiny.
So, what is the party proposing?
Embracing government intervention
The Norway-style gas proposal is One Nation’s first substantial intervention in current tax and energy policy debates. It’s a marked shift away from the social and migration issues that have long defined the party.
Norway heavily taxes its oil and gas extraction profits. It reinvests the wealth into the world’s largest sovereign fund to spent on social initiatives.
Echoing the Trump administration’s willingness to buy into resource and technology companies, One Nation’s announcement reflects a broader embrace of economic interventionism: where a government actively modifies a free-market economy.
The announcement shows a stark differentiation between One Nation and The Liberal Party on the economy. And it comes at a time when the parties have increasingly overlapped on issues like migration.
Liberal frontbencher James Paterson attacked the policy as socialist. He described it as “borrowed from Venezuela and Hugo Chávez”.
One Nation’s policy
Despite the splashy announcement, One Nation’s gas policy was not entirely new.
Hanson has pointed to a Norway-style sovereign wealth fund as a model for gas revenue policy since at least 2017. Senator Hanson has also frequently attacked parliament for being “hostage” to multinationals resource companies operating in Australia.
In announcing the policy, Senator Hanson committed One Nation to encouraging more gas and oil exploration and production. Hanson also said taxpayers should get a “fair share” on profits from Australian resources.
Key elements of the policy include replacing the current Petroleum Resource Rent Tax, which places a 40% tax on the profits related to the extraction of petroleum, gas and condensate.
Instead, One Nation would give the government the option to take a 30% stake in future drilling projects, with profits directed into a new sovereign wealth fund.
It’s not the first time this has been suggested. Back in May 2017, Hanson proposed One Nation adopt a system of royalties paid on production, saying such a scheme would raise up to $10 billion per year.
Tapping into public grievance
One Nation’s position sets it apart from both major parties.
Labor and the Coalition hold sharply differing views on energy and Net Zero.
But the two parties share common ground on one point: neither supports increased taxation measures on the gas industry, particularly amid global uncertainty caused by the US-Israel war with Iran.
With its policy, One Nation is tapping into real public grievance. Others, such as The Australia Institute, the Greens, and Independent senator David Pocock have spent years pointing out the same basic unfairness: Australia exports vast quantities of gas, companies profit enormously, and the taxpayer gets very little in return.
But the timing of One Nation’s announcement deserves closer scrutiny. It was not made to a general audience but a gathering of energy industry heavyweights. Reports suggest the announced version was softened after consultations with industry representatives.
Pushing back at the ‘green agenda’
Far-right parties have a distinctive approach to energy policy – they simultaneously cast multinationals as “elites” who take wealth from ordinary people, while advocating for gas drilling expansion themselves.
Hanson has adopted US President Donald Trump’s slogan – “drill, baby, drill” – to spruik her party’s approach to fossil fuels. And she has called on the Labor government to push their “climate change bedwetters” to the side, and expand oil and gas exploration in the interest of energy security.
One Nation blames environmental reforms for triggering an energy crisis, which it claims has cost everyday Australians. Ending net zero is, accordingly, a “massive part” of One Nation’s gas policy, which they claim will safeguard fuel security.
Hanson has described One Nation’s policy as “partnering with the oil and gas industry, rather than treating it as the enemy”.
Internal tensions
This policy debate risks exposing potential tensions between the federal and state branches of One Nation.
Efforts by the South Australian Labor government to repeal a ten-year moratorium on fracking in the south east of the state were blocked by the newly elected One Nation MPs and Liberal Opposition.
The inconsistency between the federal party’s pledge to expand gas exploration and the state branch’s efforts to block it have created headaches for their leader. Hanson distanced herself, dismissing it as a decision for the state branch.
Heading into the next election, One Nation wants contrast with the Liberals on economic interventionism, while setting itself apart from Labor, the Greens and the independents on climate and environmental policy. It is calculated decision from a party that senses its moment.
Emily Foley receives funding from the Australian Research Council.
Jordan McSwiney receives funding from the Australian Research Council, NSW Government, and NSW RNA Research & Training Network.
Kurt Sengul receives funding from the Australian Research Council, NSW Government, and NSW RNA Research & Training Network
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