Data Centres: Australia's New National Expectations on Water and EHS
A Sector Under Regulatory Scrutiny
Australia's data centre sector is expanding at a pace that is straining infrastructure, water resources and planning systems. Driven by surging demand for AI computing and cloud services, the number and scale of data centre proposals across the country, particularly in Western Sydney and Melbourne's north, has prompted governments to move from reactive project-by-project assessment to a more structured, strategic regulatory framework.
In March 2026, the Australian Government took a significant step: the release of the Expectations of Data Centres and AI Infrastructure Developers, jointly announced by three ministers. This document sets out five national expectations intended to shape how data centre proposals are assessed and approved across all jurisdictions. It is the most significant federal intervention in data centre regulation to date, and it places environmental and community considerations, particularly water, at the centre of the approvals calculus.
The Five Expectations
The five national expectations cover: alignment with Australia's national interest; energy sourcing and grid stability; sustainable water use; investment in local skills; and contribution to research and innovation. Of these, the water expectation is the most substantive from an EHS perspective.
Under Expectation 3, data centres are required to engage early and proactively with water utilities, communities and First Nations peoples on location and water sourcing. They must adopt efficient cooling technologies, use non-potable water where possible, apply circular water opportunities, cover their share of infrastructure costs, build resilience against drought and climate disruption, and report transparently on water usage and efficiency. These are not aspirational statements; they are the benchmarks against which development proposals will be assessed.
The energy expectations are equally significant. The federal government already requires data centres hosting government workloads to achieve a five-star NABERS energy rating, with a Power Usage Effectiveness target below 1.4. The national expectations signal that this standard (and its water equivalent, the Water Usage Effectiveness metric) is likely to become the baseline for all significant data centre approvals, not just those serving government clients.
State-Level Developments: NSW Leading the Way
At the state level, NSW is leading the regulatory response. A major data centre inquiry has been underway, with public hearings in May 2026 and a final report due 30 September 2026. Submissions have highlighted the scale and pace of growth as a critical issue, and both environmental groups and industry have called for consistent, enforceable performance standards; recognising that regulatory certainty accelerates approvals and reduces investment risk.
The NSW Consultation Paper indicates the government is considering a flexible, performance-based approach that sets outcome benchmarks on Power Usage Effectiveness and Water Usage Effectiveness rather than prescribing uniform design inputs. If those benchmarks are embedded in State Significant Development conditions, NSW will effectively have done what the national Expectations framework stopped short of mandating.
Victoria has taken a different approach through its Sustainable Data Centre Action Plan, designed to improve government coordination and attract investment while ensuring growth is 'well planned, efficient and responsible.' That plan signals an intent to make Victoria a competitive destination for data centre investment, provided operators meet sustainability expectations.
The Water Problem Is Real
Data centre water consumption is not a theoretical concern. In Melbourne's north, seven applications have been lodged with Yarra Valley Water to draw from the municipal supply for data centre cooling, one approved application alone would consume up to 3.94 million cubic metres annually, equivalent to the water supply of 66,000 people. In a country that experiences regular drought conditions and faces long-term water security challenges, this level of demand requires genuine scrutiny and planning.
The current regulatory gap is that NSW enforces no specific water usage rules for data centres beyond a general requirement that development 'contains measures designed to minimise the consumption of potable water' — a standard described by experts as inadequate. The expectation is that both the NSW inquiry findings and the outcome of the federal Expectations framework will close this gap with measurable, enforceable Water Usage Effectiveness thresholds.
What This Means for Developers and Operators
For data centre developers and operators, the regulatory direction is clear even if the final rules are not yet settled. Proposals that cannot demonstrate proactive engagement with water utilities, credible plans for non-potable water use, and commitment to transparent reporting will face delays, additional conditions and reputational risk. The expectation of early engagement (with utilities, communities and regulators) is explicit.
PJRA assists data centre proponents with environmental impact assessment, water use planning, EHS approvals strategy and community and stakeholder engagement. Understanding and addressing these requirements early in the project development process is far more efficient, and far less costly, than attempting to address them at the assessment stage.
How PJRA Can Assist
PJRA assists data centre proponents with environmental impact assessment, water use planning, EHS approvals strategy and community and stakeholder engagement. Understanding and addressing these requirements early in the project development process is far more efficient, and far less costly, than attempting to address them at the assessment stage.