Watts on the line? Unpacking the Senate's data centre and AI inquiry

The Senate has referred an inquiry into artificial intelligence and data centres to its Environment and Communications References Committee, opening a new front of federal review of a sector already navigating a NSW inquiry and multiple State and Commonwealth consultation and expectations papers.

The Inquiry, established on 13 May 2026, is short and sharp on paper, but expansive in scope.

For stakeholders – including data centre developers, hyperscalers, enterprise customers, energy and water utilities, investors and AI adopters across a range of industries – this is an opportunity to shape federal policy settings that may influence everything from approval timelines to contractual risk allocation in cloud and AI procurement.

Terms of reference: short text, broad reach

The Committee's terms of reference are deliberately wide. They direct the Committee to inquire into and report on:

• the effectiveness of existing regulatory frameworks in managing the growth of data centres in Australia, including in relation to existing and future deals between the Government and global AI companies;

• the potential impacts of AI and data centres on Australian communities, industries and the environment, water and energy; and

• any other related matters.

The framing signals two distinct lines of review – one focused on data centre infrastructure and one focused on the AI ecosystem.

Why now: the policy backdrop

The Inquiry sits within an active policy environment. Recent and ongoing developments include:

• National AI Plan (December 2025): The Australian Government's National AI Plan, which sets the Commonwealth's strategic direction for AI, and flags an intention to collaborate with States and Territories to establish national data centre principles.

• The NSW data centre inquiry (February 2026): A wide-ranging parliamentary inquiry into the development and regulation of data centres across New South Wales, with a final report from the NSW Legislative Council Public Accountability and Works Committee due by 30 September 2026.

• AEMC draft connection reforms (March 2026): Draft reforms from the Australian Energy Market Commission which seek to introduce new technical standards requiring large electricity users, including data centres, to remain connected during disturbances on the electricity grid and respond to grid instability.

• The Commonwealth's expectations paper (March 2026): A paper outlining the Australian Government's expectations of data centres and AI infrastructure developers (the Commonwealth Expectations), canvassing the social licence for, and the management of the impacts of, data centres and AI infrastructure in Australia.

• The NSW data centre consultation paper (March 2026): A consultation paper which canvasses potential whole-of-government approaches to the regulatory environment for data centres and the sector's significant growth.

Key themes likely to dominate the Inquiry

While the terms of reference for the Inquiry are succinct, public commentary, the Committee's likely lines of inquiry and our own analysis of submissions made to the NSW data centre inquiry suggest several themes will attract close attention.

1. Existing regulatory frameworks: are they fit for purpose?

The Committee will examine whether existing Commonwealth, State and Territory regimes – in particular, planning, environmental, energy, water and privacy regulation – are keeping pace with the scale and speed of data centre growth.

Stakeholders should expect scrutiny of regulatory and policy fragmentation across jurisdictions, the role of the Commonwealth in coordinating outcomes, and whether the non-binding Commonwealth Expectations are sufficient or should be reinforced by legislation.

2. Government-to-corporate AI deals

Greens Senator Sarah Hanson-Young, who chairs the Committee, has framed the Inquiry as an opportunity to review Government agreements with stakeholders in the AI space: "We need proper transparency and parliamentary scrutiny of the deals being done to ensure that it is the Australian community who benefit most from the expansion of the AI industry here." The Memoranda of Understanding between the Australian Government and key corporations signed since late 2025 are likely to attract attention on issues including value for taxpayers and intellectual property, data sovereignty, model evaluation and safety commitments.

3. Energy demand, emissions and grid impact

Energy use is one of the issues most likely to dominate submissions. Data centres currently account for approximately 2% of Australia's total grid-supplied electricity, a figure projected to rise to 6% by 2030. In New South Wales, data centres already consume 4% of NSW's grid-supplied electricity, expected to rise to 11% by 2030.

The Inquiry will examine how data centre demand interacts with the energy transition, generation adequacy, network investment, cost recovery (especially for network infrastructure augmentations) and emissions targets. The interaction with the AEMC's proposed connection reforms will be central. There is a real prospect that recommendations will require data centres to make defined contributions to renewable energy supply, grid investment or demand-flexibility mechanisms – building on the direction already set in the Commonwealth Expectations.

4. Water use and security

Water-intensive cooling, particularly in stressed catchments, has emerged as a point of community focus. The Commonwealth Expectations note that operators should minimise their water consumption through efficient cooling technologies, use non-potable water where possible, engage early with water utilities and communities and report transparently on water use.

Senator Hanson-Young has specifically identified impacts on drinking water supplies as a focus of the Inquiry, and the Committee can be expected to consider efficiency standards, alternative cooling, cost-recovery models and reporting obligations.

5. Community, environmental and industry impacts

Beyond energy and water, the Committee will look at land-use, noise, heat, traffic and amenity impacts, as well as the broader economic and workforce implications for Australian industries. Stakeholders should expect questions about social commitments, financial and non-financial public benefit contributions for the community and surrounding region and the social licence framework underpinning the Commonwealth Expectations. The NSW inquiry has already heard evidence on these themes, including concerns about precinct-level cumulative impacts from multiple data centres.

6. Copyright

Copyright reform remains a critical pre-condition for AI companies to locate their training workloads in Australia and create demand for data centres. Submissions are likely to address that issue and explore the viability of reform options, including the introduction of a new statutory licence regime to compensate copyright owners and give certainty to AI companies.

7. Lessons from overseas

Submissions will likely point to overseas developments as reference points for Australian policy design – including the European Commission's data centre energy efficiency package, the UK Parliament's recent research briefing and bills introduced in the US Congress proposing moratoria or critical infrastructure designations for AI data centres.