Australian government unveils prioritised support for ‘national interest’ data centres

The Australian government released the new framework under its 2025 national AI plan to manage any adverse impacts of the industry’s rapid growth on 23 March.

The Australian data centre industry is expected to attract between A$85 billion (approx. US$58.8bn) to $135bn in investment from international and domestic investors within the next decade, according to the Clean Energy Finance Corporation.

The framework outlines five expectations which apply to developers of new or expanded hyperscale data centres, largescale AI compute facilities and co-location sites. While the framework does not create new legal obligations, the federal government has said it will prioritise support and streamlined regulatory engagement for development proposals closely aligned with its expectations.

Under the framework, developers are expected to demonstrate how their projects advance Australia’s “national interest”, including in relation to data sovereignty, environmental sustainability and local economic benefits. Operators will be expected to show that developments support the transition to clean energy by securing new renewable generation or storage, contributing fairly to grid infrastructure costs and implementing technologies that reduce overall demand and improve grid stability.

Leanne Olden, an expert in energy law at Pinsent Masons, said: “The expectations do not create new laws or regulations. Given they are not legally mandated regulations, there are concerns that the framework may not be strong enough to protect Australia's grid supplies and water sources.” 

“The expectations are general guidelines for the developer to comply with in its proposal in order to be prioritised by the government,” she said.

“This allows flexibility for the government to evaluate whether these expectations have been met and to ensure that the broader community benefits from the development of data centres and AI infrastructure, while encouraging investment in that space.”

Water sustainability is a prominent feature of the framework. Data centres are expected to use cooling systems that don’t waste water, use recycled or non‑drinkable water where they can and find innovative ways to reuse water. The framework also places obligations on operators to invest in the Australian workforce and large providers are expected to contribute to local research, innovation and supply chain capability.

Data Centres Australia has publicly supported the framework’s intent, but has highlighted several shortcomings, including the absence of clear assessment criteria. Without transparent and consistent benchmarks, operators and investors will struggle to understand how the expectations will be measured in practice, according to the industry body.

The Productivity Commission notes that whilst regulation could incentivise safe and ethical AI use in Australia, poorly designed technology-specific legislation could stifle innovation, reduce market competition, and deter foreign investors from developing data centres and AI infrastructure in Australia.

Instead of introducing AI-specific laws, the Productivity Commission recommends that the government first utilise Australia’s existing legal frameworks to mitigate the risk of harm and that the right balance is required to manage the risks.