Welcome to 2026!
As the use of AI explodes, so too do the energy and resource demands. Unfortunately, this comes at the expense of the environment, the government purse, and ultimately, each and every one of us. Under present arrangements, existing data centre operators and aspiring entrants are being given massive public subsidies in the form of unfettered access to the same essential services (electricity and water) that communities and ‘regular’ commercial users need to sustain towns and cities around the nation.
The environmental consequences of these new ‘mega’ consumers of our valuable resources are laid bare in the following opinion piece.
As Victorians face water restrictions for the first time in a decade (“Water warning: Victorians face restrictions”, The Age, 27/12), the state government is courting an industry that consumes vast quantities of drinking water: hyperscale data centres (“Data centre frenzy could overwhelm power grid”, The Age, 31/12).
Data centres aren’t using spare or leftover water. They consume large volumes of treated drinking water for cooling – the same water households are being told to conserve. At the same time the government is encouraging rapid data centre expansion, dam inflows are hitting record lows and water storages are falling.
While some data centre capacity serves essential purposes, much of it supports commercial activities such as cryptocurrency mining, AI model training, social media platforms, and targeted advertising – activities that generate private profit rather than public benefit. Rationing household water to enable such expansion is difficult to justify during a water crisis.
As reported, energy authorities warn that data centre developers routinely over-estimate their requirements as “insurance”, locking up water capacity that may never materialise – or not until climate impacts have worsened considerably. This speculative hoarding directly competes with urban supply at a time of critical scarcity.
The environmental impacts create a vicious cycle. Data centres drive up electricity demand, still significantly reliant on Latrobe Valley brown coal, thereby worsening heat and drought. That scarcity is then used to justify more desalination – an energy-intensive process producing drinking water that is diverted to cool data centres.
The absurdity deepens when you examine Melbourne’s water system. Over 300 megalitres daily of Class A effluent – one step below potable quality – is discharged from the Eastern Treatment Plant into Bass Strait where, paradoxically, this valuable freshwater is toxic to marine life. This treated water then mixes with seawater, flows toward Wonthaggi, where the desalination plant extracts it, uses energy-intensive reverse osmosis to remove the salt and pumps it to Cardinia Reservoir. CSIRO’s Environmental Projects Office 1999 Effluent Management Study for Melbourne Water suggested this effluent could go directly to Cardinia as indirect potable reuse thereby eliminating ocean discharge and the need for desalination entirely. That recommendation was dismissed. This is not climate adaptation; it is a feedback loop that amplifies environmental stress.
If Victoria is serious about water security, data centres must be required to operate on recycled water – as they already do in water-scarce Singapore, where AWS, Microsoft, and Equinix all use reclaimed water. Households should not be rationed while digital infrastructure expands at their expense.
Prof. David Fox
Former Director, CSIRO Environmental Projects Office