The cost of AI data centres

In his address to Sydney University, Prime Minister Anthony Albanese amplified the importance of investment in Artificial Intelligence in the future of Australia. “Our power, our agency, our choice lies in embracing change and shaping it,” Albanese said. “Not just adopting or accommodating AI. Designing it, making it, building the capability right here. 

“And building our sovereignty – and our economic resilience as a result. That’s why we are serious about attracting frontier AI investment to Australia.

The speech signalled the Federal government’s interest in developing and boosting the infrastructure needed to make Australia an attractive player in the Artificial Intelligence world. Albanese continued, “It’s our time to decide what AI looks like in Australia,” stressing how a project of this scope demands not only new infrastructure but also a rethink of Australia’s energy grid and consideration of how it will affect communities where data centres will have to be built. This concern, Albanese emphasised, must be the responsibility of the government and not the companies to build “whatever they want, wherever they want”. 

“It’s not a question of ‘if’ or ‘when’ AI will transform our economy; we are past that. The question that matters, the choice that we have – is how,” he continued. “How do we apply our enduring values of fairness and opportunity to make this technology work for us? For workers and communities, for our economy and our environment, for our creative industries.” 

For the government, Australia is an attractive location for data centres. A lot of sunlight provides good renewable energy to feed the extensive power consumption these buildings require. Access to important mineral resources, a highly skilled population, and space. Lots and lots of space. But for  nearby communities, these data centres come with the concerns of their impact on the local energy grid, the effect on water reserves, and whether they create enough jobs to justify these issues. 

The United States Department of Energy expects that by 2028, U.S. data centres will represent as much as 12 per cent of all electricity consumed in the country. This overconsumption contributes to air pollution and strains local water reserves, including rivers and aquifers. Towns have complained about noise pollution from cooling systems and fans. And they contributed to rising energy costs in local areas. In the state of Georgia, one of the largest data centre complexes in North American was found to drain almost 30 million gallons of water. 

For the last two years, a small community in Memphis, Tennessee, has been fighting the construction of a xAI data centre, owned by Elon Musk. The New York Times reported that residents in the neighbouring town noted the spike of pollution since the construction of the 550-acre building, which is fuelled by natural gas, with one resident saying, “we’re getting more and more days a year where it is unhealthy for us to go outside”. 

The Federal government’s National AI Plan pledged to help the states in attracting AI investment to the country. In NSW, a Parliamentary Inquiry into Data Centres has been set up, chaired by Legislative Council Member, Abigail Boyd. The inquiry received submissions from over 100 organisations and concerned citizens, with one common thread: to address energy and water consumption. 

“Data centres can place meaningful demand on water supplies depending on cooling technology and operational choices. Many proponents are already investing in water-efficient designs, alternative cooling systems and non-potable water sources, but clearer and more consistent approval pathways are needed to support these outcomes at scale,” says the Property Council of Australia.  

“One of the issues here is that there is a less clear recognition of these unique environments [for data centre expansion] that Australia has, also has unique challenges,” says Sonia Qadir, Research Fellow at the University of New South Wales node of the ARC Centre of Excellence for Automated Decision-Making & Society (ADM+S). Qadir thought the Prime Minister’s speech at the University of Sydney was interesting and promising, but failed to address some concerning issues. One, Qadir points out, is how data centres are built in urban areas, often store diesel and can be a fire hazard for the community. Climate change, which Qadir points out is a question of national security, social impact and environmental impact were not properly addressed. 

“The prime minister promises that there’s going to be consultation with industry and trading partners to design a framework for [data centres]” Qadir continues, “but what is missing here is that there’s no mention of consultation with researchers who are working on this issue, with environmental activists and advocates, and especially community groups, including First Nations groups. 

“In addition to that, we sort of noted that there is no mention of other kinds of impacts. Noise pollution, air pollution, micro particles, and other kind[s] of health impacts as well. The materials that are used in data centres […] are often forever chemicals like PFAS” 

The Centre’s recommendation for the NSW inquiry comprises nine points that range from energy consumption issues, environmental concerns, and the requirement for public transparency and consultation with First Nations groups. An interesting point the submission makes is how the need for AI data centres may be overblown by speculation, and that “the public-interest case for rapid data centre expansion should not rest on contestable forecasts about AI-driven social or economic value, which are not yet evident in aggregate productivity statistics.” 

The proposal from the Prime Minister to fast-track data centres, can undermine the viability of the framework, in Qadir’s opinion, but the fact the demand is being driven by the promise that it will be financialviable in the future, deserves more scrutiny. 

Qadir questions the narrative that it’s important for Australia to “jump on the bandwagon” as fast as possible, pointing to reports that indicate there is no statistical evidence of productivity gains in OECD countries so far. Another paper, published by the National Bureau of Economic Research in the U.S., interviewed thousands of business executives across developed countries, including Australia, and found that nine out of ten executives reported no productivity gains from AI in the last three years. 

“One of the reasons why people are talking about this is because the current growth that is recorded in the AI industry is largely through circular financing” Qadir explains. “For instance, a company like Nvidia, who make the GPUs and chips needed for AI, is investing in OpenAI to help them build and expand data centres. 

“This is similar to what happened in the 1990s, which led to the dot com bubble.  

The current investment in AI is a few trillion US dollars, whereas the revenue that is actually being made by companies like OpenAI and Anthropic is [around] 25 billion dollars. This reflects there is a bubble that will burst at some point, and I think that’s something for the Australian government to be very cautious about.” 

If the inevitable is coming, Qadir says planning regulations in NSW need to be stronger. Thresholds of energy and water consumption need to be well defined and enforced, so applications are refused if they go over these thresholds. Decommissioning is also a very serious problem for the ADM+S. As the buildings eventually run their course, the Centre’s submission calls for a requirement that data centres prepare decommissioning and rehabilitation plans. And finally Qadir hopes the NSW inquiry report includes serious public accountability, especially with First Nations communities.  

Qadir concludes, “The government needs to remember that data centres are not valuable in the abstract. It’s not because they exist, or because AI is here, but we have to think of conditions under which the development should be justified in the public interest.” 

The Inquiry’s report is expected to be released at the end of September.