Choices made now will determine if the data centre industry – and its global tech customers – act as partners in Australia’s climate goals, or become a reason they’re derailed.
Australia is rapidly shifting from fossil fuels to renewable energy to cut climate pollution, strengthen energy security, put downward pressure on power bills and keep communities safer from worsening fires, floods and extreme heat. Climate-fuelled disasters across the country are already more frequent and intense, and communities are living with the consequences. The 2025/26 summer saw Victorian communities flung from catastrophic fire warnings to flash flooding within a week and back to extreme heat ten days later, western Queensland receiving its average annual rainfall in five weeks, and Western Australia’s Eyre Highway closed by fire and then by floodwater within two days (Climate Council 2026a). In NSW, climate change is estimated to have reduced income per capita by more than $20,000, or approximately $180 billion in total in 2024 alone (NSW Net Zero Commission 2026).
In September 2026, the United Nations Environment Programme (UNEP) released a landmark report confirming that exceeding heating of 1.5°C above pre-industrial levels is now unavoidable (UNEP 2026). With every fraction of a degree above 1.5°C, the risk of triggering irreversible tipping points — including the destabilisation of major ice sheets, the degradation of the Amazon rainforest, and disruption to the ocean currents that help regulate our climate — grows sharply. UNEP is clear that the only way to minimise how high temperatures peak, and bring them back down as quickly as possible, is to rapidly and deeply slash climate pollution.
Australia is making strong progress, with renewables and storage now supplying more than 45% of electricity in the National Electricity Market (NEM) – nearly double their share six years ago (Open Electricity 2026). Australian households are leading the charge, with solar on more than 4.5 million homes, and more than 500,000 home batteries installed in just over a year (Clean Energy Regulator 2026a).
But right now, the Australian Government’s own projections show that the data centre industry – and its customers, including international AI and technology companies – are putting this progress at risk. Much of the emissions reduction expected this decade depends on rapid decarbonisation of the electricity sector. However, beyond 2030, the latest projections show slower progress in cutting electricity sector pollution than previously expected. The projections explicitly note the role of data centres in slowing the shift: without intervention, their increasing electricity demand will be met by a mix of coal, gas and renewables, rather than renewables alone (Department of Climate Change, Energy, the Environment and Water (DCCEEW) 2025). These impacts are avoidable if we put the policies in place to ensure data centres are powered by additional renewable and storage (Baringa and Clean Energy Finance Corporation (CEFC) 2025).
Water demand from the data centre industry is also surging. Data centres can require significant volumes of water, with industry estimates suggesting demand will at least triple by 2030 (Mandala and Data Centres Australia 2025). As climate change intensifies drought and water stress across Australia, unchecked growth could place increasing pressure on already constrained water resources.
The Albanese Government must not let this once-in-a-generation opportunity go to waste. Enforceable rules can ensure the data boom supports a reliable, clean grid that secures Australia’s future.
Recommendations
1. Apply mandatory energy, water and reporting standards from 30 MW of total energy demand, with portfolio aggregation and anti-avoidance rules
2. Apply the renewable obligation to data centres 30MW+ that commence operations after 23 March 2026, and phase it in for existing data centres
3. New renewable supply should be built within three years of a data centre commencing operations
4. The renewable obligation must be underpinned by a requirement to enter into long-term contracts with renewables pre-final investment decision
5. Include Australia’s climate targets as an assessment criterion for any modifications to the renewable electricity obligation
6. Rule out off-grid fossil fuel generation as a primary power source at any time – including while new renewables are being built
7. Consider mechanisms to unlock the industry’s potential to accelerate Australia’s renewable rollout by acting as anchor offtakers in large renewable projects
8. Establish a national framework for public reporting on data centre energy demand, water use and climate pollution
9. Make best-practice energy efficiency the standard for all data centres
10. Place strong limits on use of water that account for the changing climate, accompanied by best-practice water efficiency ratings and reporting
11. Ensure data centres pay for the energy and water infrastructure they need to protect households from rising bills
12. Phase out fuel tax credits for the industry to incentivise flexible demand backed by renewable solutions
13. Require meaningful community and First Nations engagement and benefit sharing
14. Work with states, territories and other stakeholders to encourage best-practice regional data centres that deliver lasting community benefits
15. Require data centres to contribute to the electrical workforce through an apprentice quota and a training levy
