Australia’s Data Centre Boom Built on Vague Water Plans: A Growing Challenge

Australia is experiencing a data centre boom driven by digitization, AI, cloud computing, and massive investments from global technology giants. This rapid expansion holds immense economic promise but is simultaneously exposing significant vulnerabilities in the country’s water management frameworks. Data centres, essential hubs for digital services, require vast quantities of water for cooling, and many new developments are proceeding with insufficient, vague, or non-measurable plans to manage their water consumption. This situation raises critical questions about water security, regulatory oversight, and the sustainability of digital infrastructure growth in Australia, especially in water-stressed regions like Sydney and Melbourne.

The Scale of Water Demand by Data Centres in Australia

The extent of data centre water demand in Australia is becoming a pressing concern. Sydney Water projections estimate that, by 2035, data centres could consume up to a quarter of Sydney’s available water supply — approximately 135 gigalitres annually. Recent approvals in New South Wales alone indicate new data centres collectively could use about 9.6 gigalitres per year of potable water. This could amount to nearly 2% of Sydney’s maximum water supply just from developments greenlit since 2021, with major players including Microsoft, Amazon, and AirTrunk investing heavily.

In Melbourne, applications from data centres seeking water allocations approached nearly 20 gigalitres annually, comparable to the water needs of hundreds of thousands of residents. Local councils have warned this escalating demand risks placing considerable strain on water infrastructure, potentially stalling other community developments like housing projects.

Sponsored Banner

Vague and Non-Measurable Water Plans

One of the critical challenges identified is that many data centre projects have vague water management strategies approved by authorities. State planning laws require developers to demonstrate how developments minimize water consumption, but they do not mandate detailed projections or measurable targets for water use reduction. Most approved projects provide general assurances or rely on developers’ non-quantified commitments to reduce potable water demand through alternatives such as rainwater harvesting or recycled water use.

For example, only three out of ten large data centre projects approved in Sydney outlined projections for water savings. The largest facility approved, a 320-megawatt AirTrunk data centre, claimed it would reduce potable water consumption by a mere 0.4% through rainwater harvesting. Another Amazon-backed centre committed to a 15% reduction in reliance on town water, which is one of the more ambitious figures. However, the lack of standardized or transparent benchmarks means these promises may not translate into substantial water savings or mitigate the overall impact on municipal supplies.

Water Scarcity Context: Climate and Population Pressures

Sydney’s water supply situation exacerbates the risks posed by unchecked data centre water consumption. The city’s potable water largely comes from a single dam and a desalination plant, making supply vulnerable amid rising population growth and climate change impacts. In 2019, severe drought conditions forced residential water use restrictions targeting garden watering and car washing due to dwindling reserves.

Experts highlight that there is already a gap between water supply and demand, and the surge in water-intensive data centres could deepen this shortfall. With higher temperatures and more frequent droughts likely due to climate change, the competition for limited water resources between residential, commercial, and industrial users is expected to intensify.

Sponsored Banner

Regulatory Gaps and Governance Challenges

Despite the significance of water use for data centres, New South Wales and other states lack rigorous regulatory frameworks specifically tailored to the digital infrastructure sector. Sydney’s state government currently approves data centres as “state significant developments,” placing approval authority at state level rather than with local councils. This arrangement can marginalize community input and reduce scrutiny on water and energy resource planning by local authorities.

Water management responsibilities largely remain with utility providers and state agencies who consult with developers, but coordination is weak, especially given that existing water infrastructure was not designed to support such high and concentrated water demand from data centres. This fragmented approach may present challenges in balancing water allocations fairly and sustainably across sectors as demand grows.

Emerging Water-Efficient Technologies and Practices

There are encouraging signs that some companies within Australia’s data centre industry are exploring technologies that reduce water demand. A pioneer in liquid cooling technology, Canberra-based CDC, developed closed-loop systems with zero water consumption for primary cooling over a decade ago. Such innovations offer potential pathways to decouple data centre expansion from unsustainable water use.

Some facilities plan to use rainwater harvesting, recycled water, or advanced cooling methods to reduce reliance on potable water. AirTrunk, for instance, has indicated efforts to transition sites to be nearly fully supplied by recycled water. However, industry-wide uptake of these solutions appears uneven, and current planning approvals do not strongly incentivize or require measurable progress toward water sustainability.

Impacts on Communities and Development

The water demand from data centres is already influencing broader urban and regional planning. In Sydney’s Macquarie Park precinct, residential housing developments face delays due to concerns that approved data centre projects consume such high volumes of water. Local governments like Melbourne’s Hume City Council have voiced worries that fast-tracked data centre approvals bypass local scrutiny, undermining coordinated planning efforts to manage shared resources including water and energy.

Community awareness and involvement in water allocation decisions for new data centres remain limited, even as the sector’s resource footprint grows. These dynamics suggest an urgent need for transparent, community-inclusive governance frameworks to manage trade-offs and ensure long-term sustainability.

Toward Smarter, Sustainable Data Centre Growth

Australia’s data centre boom is a hallmark of digital progress and economic opportunity, but it unfolds amid significant water resource constraints amplified by climate change and population growth. The sector’s current trajectory, supported by vague and non-measurable water plans, risks deepening water stress in key regions such as Sydney and Melbourne.

Addressing this challenge requires a concerted effort from governments, utilities, industry, and communities to institute rigorous regulatory standards that mandate clear water consumption and saving targets for data centres. Increased investment and incentives for water-efficient technologies, such as liquid cooling and recycled water systems, are essential. Moreover, integrated, transparent planning involving local and state authorities can help balance competing water demands and align data centre growth with environmental sustainability.