Australia's data centre expansion is being compared to the mining boom, with OpenAI CEO Sam Altman suggesting the country could become a "data centre capital of the world." However, this growth comes with environmental concerns, particularly around water and energy consumption.
Water Use in Perspective
In the 2023–24 financial year, Australian industries consumed about 17.6 million megalitres of water, roughly 30 times the volume of Sydney Harbour. Agriculture, forestry, and fishing accounted for two-thirds of this total, using water to produce goods valued at A$54.6 billion — approximately $4,600 per megalitre. In contrast, the "other industries" category, which includes data centres, generated $2.3 million per megalitre, making it 500 times more economically productive than agricultural water use.
Estimating Data Centre Water Consumption
Due to a lack of clear data, only rough estimates are possible. Research indicates data centres require about 25 megalitres of water per megawatt of capacity. With approximately 300 data centres in Australia operating at 1.3 gigawatts, annual water use is estimated between 15,000 and 35,000 megalitres — less than 1% of national water consumption. However, these figures only account for direct cooling water, not the water used to generate electricity for these facilities. Additionally, proposed new data centres are significantly larger, with some requiring 5 to 40 megalitres per day. If all 41 planned centres in Sydney are built, they could consume 15–20% of the city's water supply within a decade.
Energy Demand: A Greater Concern
Data centres currently use just over 2% of electricity on the National Electricity Market, a figure expected to nearly triple to 6% within four years, according to the Australian Energy Market Operator. The Clean Energy Finance Corporation estimates it could reach 11% within ten years. The key issue is whether this increased demand will be met by renewable sources or fossil fuels like gas.
The Need for Better Data
The lack of granular data on data centre water and energy use impedes effective policy. The Australian Bureau of Statistics groups data centres into a broad category, making it impossible to access detailed statistics. The federal government has introduced new expectations for water use and efficiency, but only one data centre currently meets the national water-efficiency rating. Moreover, Australia's National AI Plan pays little attention to water and energy. State and federal water ministers have identified data centres as an emerging threat to water security, and a Senate inquiry is underway.
To address these issues, Australia is updating its System of Environmental-Economic Accounting to better track water use. The national accounts have also started treating environmental damage as a production cost. Properly valuing all water used by industries and separating data centre data from other sectors would transform the debate from a noisy controversy into a measurable discussion.
In conclusion, Australia's data centre boom is neither the water villain some fear nor the cost-free miracle described by promoters. It represents a high-value, rapidly growing industry with relatively low water use but significant energy demands. With better data, decisions on where to allocate resources can be based on numbers rather than headlines.
