Australian data centres are expanding fast as AI accelerates demand for digital infrastructure. Yet, these facilities that power the digital economy are putting pressure on water, energy, and planning systems, raising concerns about their sustainability.
While the computing infrastructures, used to process, store and manage information, cater to a growing demand for cloud services, video streaming and digital storage, their primary need is for AI, which requires vast computing power to train and run machine-learning models, and to execute prompts. Every query, image generation or automated response relies on remote servers operating continuously.
While we might not see them, data centres are at the core of our digital lives.
For Tim Prosser, a digital sustainability and tech emissions expert, user consumption rates are the primary issue.
“There are 5.5 billion people now globally connected to the internet. On average, we spend seven hours a day connected by this umbilical cord to a digital device or an asset,” said Prosser.
“If you have a personal commitment to a 1.5 degree climate life, 40 per cent of your carbon budget disappears because of your digital existence. All of those photographs, the emails, all of the assets that are sitting on a physical device connected to the grid, generating emissions, it has a footprint.”
These trends are transforming data centres into critical infrastructures for the global economy, but are also becoming major resource consumers.
Sydney at centre of expansion
A 2026 report from DiMarket estimated the Australian data centre market will reach $6.81 billion by 2032, up from $2.1 billion in 2025.
Australia was also ranked in ninth place worldwide for data centre investment attractiveness by the consulting firm Baringa.
Jeremy Gill, head of policy at the Committee for Sydney, told the recent AI and Sustainability conference at University of Technology Sydney, the rapid market growth was driven by competitiveness between governments.
“There is an imperative to be competitive, not just between New South Wales and Victoria, but for Australia in the world in terms of attracting infrastructure and investment,” he said.
“But the kind of phrase that keeps coming from that, into my mind, is really ‘a haste of care’. OK, [do] we just go and approve everything because we want to beat Victoria?”
Gill added the race for data centres could lead to approving projects that are not sustainable for the environment and community.
Sydney, Melbourne, Brisbane and Perth are the main data centre hubs in Australia and are expected to continue to grow in the next few years, with Sydney (91) and Melbourne (51) representing more than half the total number of data centres nationally (270).
Dr Bronwyn Cumbo from UTS’s Transdisciplinary School, is researching the sustainability of Sydney data centres.
“As you go west [in Sydney], the scale and size of data centres are substantial,” she said. “A standard data centre used to be 10, 20 megawatts, and now we’re looking at 100.”
“The expansion of the size and number of data centres in Australia raises concerns about its environmental impact.
“The community is going to be experiencing a lot of construction. If you’re living next to these industrial lines there is huge amounts of construction, the scale of these things is quite rough. They are with us about five to eight years.”
The energy cost of the cloud
Centres require a significant amount of energy and water to function, especially to maintain the cooling system preventing the infrastructure from overheating.
The International Energy Agency (IEA) estimated that in 2024, data centres consumed about 415 terawatt-hours (TWh) of electricity, and this accounted for 1.5 per cent of the world’s electricity consumption. It was projected to grow to 945 terawatt-hours in 2030, which would be three per cent of the total electricity consumption worldwide.
The forecasted doubling of data centres’ electricity consumption by 2030 is in part due to increased use of AI.
In Australia, data centres currently draw about two per cent of electricity from the national grid.
That share could triple within five years.
By 2030, AEMO forecasts that data centre energy demands could exceed the power used by the nation’s fleet of electric vehicles.
Growing strain on water resources
The cooling systems essential to data centres not only consume energy, but also a great amount of water. The IEA evaluated in 2023, worldwide water withdrawals associated with data centres exceeded 5 trillion litres. This is equivalent to the total amount of drinking water consumed annually in France, a country with a population of nearly 67 million people.
At the same time, it is expected that worldwide water consumption associated with data centres will double, reaching approximately 1.2 trillion litres per year.
“Australia is a really dry continent. And in the Sydney context, about 80 per cent of our water is rainfall-dependent,” said Gill.
“A lot of other countries and cities around the world have a double diversified water supply. For some reason, we do about nine per cent desal (desalination). We do not recycle. And so we need to approach this in a way that perhaps other cities around the world don’t, just given how reliant, currently, we are on rain for our water source.”
Indeed, the Australian Bureau of Meteorology estimated water sources in Australia in 2020 came mainly from surface water and groundwater, both dependant on rainfall.
According to the Climate Council of Australia climate change is already threatening these water sources by reducing cool-season rainfall and increasing the duration of droughts. It has warned there will be less water available for agriculture, urban water supplies and ecosystems in the coming decades, especially in southern Australia, including areas around Melbourne, Adelaide and Perth.
These are areas where data centre locations are increasing and will compete for the same water resources that residents, farms and industries rely on.
Sydney Water estimates that data centres currently use 3.5 billion litres of Sydney’s drinking water per year, which is less than one per cent of total demand. But the government–owned corporation says this could grow to 25 per cent by 2035.
Can data centres be sustainable?
“These infrastructures are important, but what are they doing to accelerate the ambitions of the state, or government, or communities around energy security, affordability, decarbonisation, and water diversification?” asked Gill.
The Australian Department of Industry, Science and Resources published in 2025 the National AI Plan, in which data centres are presented as an opportunity to accelerate the renewable transition and drive investment in skills, research and sustainable technologies. The plan contends that sustainable cooling systems are already being adopted by enterprises in Australia.
As demand for AI continues to grow, the question is no longer whether data centres are necessary, but how far Australian cities can sustain them.
Main image artist’s impression of new data centre planned for Spotswood, Melbourne, courtesy GreenSquare.
All human sources quoted in this article were collected from their participation at a conference entitled “AI and Sustainability” which took place at the University of Technology Sydney on March 12, 2026.
