When we think of heavy industry, we picture steel mills, aluminium smelters, oil refineries and chemical plants. These industries shaped the 20th century. They required enormous capital investment, vast amounts of energy and transport infrastructure and transformed the communities in which they operated.
The defining capital-intensive industry of the 21st century looks very different. It is the data centre.
US$500 billion. US$8 billion. 23 per cent.
Those 3 numbers tell the story. US$500 billion is the estimated contribution of data centres to the United States economy in 2023 . US$8billion is an estimate of the cost of constructing a single 200-megawatt AI data centre - enough computing capacity to consume as much electricity as a medium-sized city. Twenty-three per cent is the share of Ireland's electricity consumed by data centres in 2025 . Ireland's population is similar to Queensland's, but consumes just over half as much electricity.
These extraordinary numbers explain why governments around the world are competing fiercely to attract data centres, while local communities increasingly question whether the benefits justify the costs.
The infrastructure
At first glance, a data centre appears to be little more than a large shed. In reality, it is one of the most sophisticated and capital-intensive pieces of infrastructure in the modern economy. Instead of producing steel, cement, or motor vehicles data centres produce the computing power that underpins the digital economy. Every second, they perform a massive number of computations that enable businesses, governments and households to use digital services.
Industry measures data centres by electrical capacity rather than floor space because electricity defines both their operating capability and infrastructure requirements. Yet electricity is not their largest capital cost. The average cost of constructing a new data centre now exceeds US$11 million per megawatt of capacity. Nearly half of the construction cost is devoted to electrical infrastructure including substations, batteries, backup generators and power conditioning equipment. But the largest investment is often the specialised graphics processing units (GPUs) that perform the parallel computations underpinning artificial intelligence. In a modern 200-megawatt AI facility, the GPUs alone may cost around US$5.6 billion, compared with around US$2.2 billion for the building, cooling systems and electrical infrastructure combined. As AI becomes more deeply embedded in everyday life, demand for this computational capacity is growing at an extraordinary pace.
Soaring demand
Every online payment, streamed movie, telehealth consultation, cloud-based business application and AI query relies on computing power housed in a data centre. Despite its name, 'the cloud' is not an ethereal place floating in the sky. It is a vast network of physical facilities connected by fibre-optic cables and powered by enormous quantities of electricity. The cloud is simply a clever name for someone else's computers.
Their real economic significance lies well beyond the technology sector. Like steel before it, computing power is not an end product: it is an essential intermediate input into almost every modern economic activity. Data centres provide the digital infrastructure that enables productivity improvements across the economy. Manufacturers optimise production, hospitals analyse medical images more rapidly, banks process secure transactions and farmers increasingly rely on sophisticated data analytics to improve yields.
These wider productivity gains explain why governments compete so aggressively to attract data centres. Like ports, airports and rail terminals before them, data centres create what economists call 'agglomeration' effects. Once a region develops world-class digital infrastructure, software companies, AI developers, cybersecurity firms and advanced business services are more likely to locate nearby. Infrastructure attracts businesses, businesses attract skilled workers, and together they generate a self-reinforcing cycle of investment and innovation.
Yet this national success story looks rather different from the perspective of the communities that host these facilities.
Community costs
Data centres require vast amounts of electricity, substantial network infrastructure and often significant quantities of water. Because they operate continuously, they create a large and inflexible demand for electricity, requiring significant investment in generation, transmission lines and substations. If the costs of these network upgrades are spread across all electricity users, as they often are, households and businesses may ultimately pay through higher electricity bills. Even where data centres fund direct connection assets, expanding the broader network to accommodate growing demand is rarely costless.
Estimates by Sydney Water that by 2035 data centres could need as much water as around one-quarter of Sydney's current annual drinking water consumption were referenced in a NSW Parliamentary Inquiry this year. Data centres can also be noisy, continuously running large cooling systems and regularly testing banks of diesel generators. Noise levels during these tests can approach 100 decibels , comparable to a jackhammer or freight train, making noise pollution an increasingly contentious issue for nearby residents.
Unlike many heavy industries in the past, the greatest economic contribution of a data centre is not local employment. While construction creates thousands of temporary jobs, once operational a multi-billion-dollar facility typically employs only 200-300 permanent staff. Data centres generate value not because they employ large numbers of people, but because they enable millions of other people to work more productively.
This creates a familiar economic tension.
Many of the benefits from data centres - higher productivity, innovation and economic growth - are spread across the state, the nation and even the global economy. Local and regional businesses may also benefit from agglomeration economies as complementary industries clustered around digital infrastructure. By contrast, many of the costs - including land use, electricity demand, water consumption, noise and visual impacts - are borne disproportionately by the communities living closest to the facilities.
Time for considered policy
History suggests that every era has its defining infrastructure. The 19th century had railways. The 20th century had electricity networks, ports and heavy manufacturing. The 21st century is increasingly being defined by data centres.
That makes getting the policy settings right all the more important. Australia needs a nationally coordinated approach to data centre development - one that recognises their economy-wide productivity benefits while also addressing their local impacts. Such an approach would help ensure that data centres are located where they create the greatest net economic value, that host communities are properly informed and share fairly in the benefits, and that states and territories compete on genuine comparative advantage such as access to renewable energy, water, land and network capacity, rather than on tax concessions or subsidies that simply shift investment from one jurisdiction to another.
About the author
Flavio Menezes is a Professor of Economics at UQ and Centre Director of UQ's Australian Institute for Business and Economics . He works in the field of market design and auction theory, incentives, regulation and competition.
