The Australian government has proposed new national rules that would stop data centres from drawing large volumes of household drinking water to cool their servers, as the artificial intelligence boom drives rapid growth in the facilities.Under the plan drawn up by the Albanese government, new data centres would be required to prioritise recycled water for cooling and to pay for any additional public infrastructure needed to supply that water.
The proposal is due to be presented to state environment ministers on Friday.Officials say the measures are intended to protect limited water supplies and prevent rising costs for households. Australia is the world’s driest inhabited continent, and many regions already face periodic water restrictions during droughts.
Data centres use significant amounts of water for evaporative cooling systems that keep high-performance computers running.Industry estimates suggest total water demand from data centres could more than triple over the next five years as more facilities are built to support AI training, cloud computing and digital services. In Sydney, some individual projects have sought volumes equivalent to dozens of Olympic swimming pools per day.
Projections from water utilities indicate the sector could account for a much larger share of urban water supplies by the mid-2030s if growth continues unchecked.
The federal proposal aims to create a more consistent national framework. Several states have already begun imposing conditions on data centre approvals, including requirements to report water use and limits on power efficiency. The new rules would go further by explicitly steering operators away from potable water supplies.
Data centre developers would need to demonstrate access to recycled or non-potable sources before receiving planning approvals. Where new pipelines or treatment capacity are required, the operators themselves would be expected to fund the infrastructure rather than passing costs onto residential customers.
The move forms part of a broader set of environmental and energy standards the government is developing for large-scale digital infrastructure. Earlier this year, officials outlined requirements for data centres to underwrite or supply their own power and to minimise overall resource use.
Those measures are intended to ensure the AI industry does not strain electricity grids or water systems that serve homes and businesses.Some projects have already encountered practical hurdles with recycled water. In one high-profile case, developers linked to a major AI facility abandoned plans to use treated wastewater after facing difficulties securing planning permission for the necessary pipeline.
They switched to a liquid cooling system that uses no water but consumes more electricity.Environmental groups have welcomed the direction of the proposal, arguing that clear limits are needed to prevent competition between technology infrastructure and residential or agricultural water needs. Industry representatives have previously cautioned that overly rigid rules could delay projects and reduce Australia’s attractiveness as a location for AI investment at a time when global demand for computing capacity is surging.
Details on exact volume thresholds, timelines for existing facilities, enforcement mechanisms and any transitional arrangements have not yet been released. The government is expected to consult states, water utilities and industry before finalising the rules.If adopted, the restrictions would apply primarily to new developments.
Existing data centres would likely face different requirements, though officials have indicated the overall policy direction is to reduce reliance on drinking water across the sector.The proposal reflects growing recognition that the physical infrastructure supporting artificial intelligence carries significant environmental costs. While data centres currently account for a relatively small share of national water use, their rapid expansion in dry regions has prompted governments around the world to examine similar safeguards.
