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 .
Sydney is set for huge growth in AI data centres.
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.
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.
