Regulation of data centres and AI training: the Commonwealth asks the hard questions

Responding to the challenges of data centres and AI

Governments everywhere are grappling with how to respond to AI. The AI ecosystem is growing and changing at a phenomenal rate, is backed by eye-watering amounts of capital, and is radically reshaping our understanding of the intersection between areas of public policy that were previously thought of as disparate (albeit all important), such as electricity supply, copyright and national security.

Data centres and AI have become matters of significant public debate. If community concerns are not adequately addressed, the social licence of data centres and AI is at risk. The scale of that risk is evident in the United States: according to Data Center Watch, local opposition blocked or delayed at least 45 proposed data centre projects valued at nearly US$68 billion in the second quarter of 2026.

Against that backdrop, the last 18 months have seen a range of legislative and regulatory reviews, consultations and, more recently, government announcements about AI and how it should be regulated in Australia. To date, proposals by government regarding AI regulation have been heavy on principle but light on detail, as governments try to work out how best to maximise the potentially enormous benefits of AI while mitigating the significant risks and causing minimum disruption to Australia's legal and regulatory frameworks.

The hard grind of turning high level principles into detailed standards enshrined in legislation has been progressing at Commonwealth and state levels, and in the next 6 to 12 months we can expect to see legislation entering parliaments around the country.

The Commonwealth's consultation paper

To that end, on 17 September 2026 the Commonwealth released a consultation paper, Getting it right: Building AI infrastructure that works for Australia, calling for input on how best to turn the statements of principle released to date into detailed national legislative AI standards. The consultation paper asks many detailed questions across a range of areas and seeks submissions by 5.00 pm AEDT on Friday 9 October 2026.

The questions extend beyond the matters typically covered in consultations on infrastructure legislation, reflecting the importance of securing a social licence for data centre development and AI.

The consultation paper expressly builds on previous initiatives in relation to data centres and AI laws, including:

1. the Commonwealth's March 2026 Expectations of data centres and AI infrastructure developers. This was covered in our March 2026 insight Great expectations: What the Australian Government requires of data centres and AI infrastructure;

2. the Prime Minister's 15 July 2026 announcement that the Australian Government will establish a set of national AI standards, with the aim of introducing legislation in early 2027 to make AI work in Australia’s national interest, including a nationally consistent regulatory framework containing minimum requirements for large data centres. This was covered in our July 2026 insight From Principles to Power Points: What the Government's "AI in Australia's Interests" means for business; and

3. National Cabinet's 26 August 2026 decision that the Commonwealth would work with state and territory governments to develop consistent mandatory standards for data centre energy, water and land-use, and support skills and training opportunities. This was covered in our August 2026 insight Nine governments, one rulebook: National Cabinet backs mandatory AI and data centre standards.

The proposed national standards will cover two broad areas: minimum requirements for data centres and conditions for frontier AI training in Australia. The consultation paper outlines the potential benefits and risks arising from developing data centres and undertaking frontier training in Australia and restates the principles that will inform the Commonwealth's requirements for large data centres and conditions for AI training.

Each principle is reasonable in the abstract, but the challenge lies in identifying how best to turn those principles into precise standards, and in particular, in identifying the trade-offs that must be addressed when doing so. In matters of public policy it is rarely possible to please everyone, and the challenge for policy makers is determining how to implement principles in a way that best serves "the national interest" (itself a contested concept) while ensuring sufficient public (and crossbench) support.

Having identified the principles, the paper then asks a series of detailed questions in relation to each of the identified principles, to help the Commonwealth determine how best to implement the principles. The questions are many (58 in the paper's list, several with more than one part) and broad-ranging, and so will be relevant to a broad range of stakeholders.

The paper first asks a series of threshold and framing questions grouped under two headings:

1. Capacity thresholds for application of the AI standards (3 questions)

2. Approach to the application of the AI standards (5 questions)

Two proposals in this part of the paper will matter most commercially. The first is a tiered approach to coverage: facilities below 30MW would sit outside the standards, facilities with an ultimate electricity network connection capacity of 30 to 100MW would face baseline requirements, and facilities above 100MW (or a cumulative portfolio equivalent of 150MW) would face more substantial requirements. The second is whether, and at what point, the standards should apply to projects already in the approvals and development pipeline.

The paper then sets out questions specific to data centres and to AI training.

Questions about requirements for large data centres

The paper identifies various background issues and general principles in relation to the requirements for large data centres before asking numerous specific questions grouped under the following headings:

1. Making a positive contribution to Australia's energy transition (4 questions)

2. Renewable electricity certificate obligations for data centres, which sit within the energy transition part of the paper (8 questions)

3. Using innovative, efficient and sustainable solutions to minimise water use (8 questions)

4. Imposing no net costs on consumers and communities (7 questions)

5. Meaningful engagement with communities and councils (9 questions)

6. Building skills and training (2 questions)

The questions are wide-ranging and detailed. They cover issues as diverse as barriers to data centres investing in initiatives that would mitigate impacts to other water users, such as using recycled water; how to manage and prioritise competing land uses, for example where land is also suitable for housing or agriculture; and how to phase in energy obligations to account for the time needed to build data centres and new renewable projects.

Questions about conditions for AI training

Similarly, the paper identifies a number of background issues and general principles in relation to the conditions for AI training, before asking specific questions grouped under the following headings:

1. Security, safety and transparency (4 questions)

2. Investing in local capability, skills, research and innovation (6 questions)

3. Supporting Australian writers, musicians, artists and journalists, and others working in the creative and media sectors (no consultation questions; the Attorney-General is leading separate consultation on copyright)

4. Providing a simple, consistent national framework (2 questions)

Again, the questions are wide-ranging and detailed. They cover everything from how safety and security conditions can keep pace with rapid technological change while giving investors and operators legal certainty, to which indicators best demonstrate a contribution to Australian research, innovation and public interest purposes.

Where to next?

As noted above, submissions are due by 5.00 pm AEDT on 9 October 2026, about three weeks after the paper was released. During this period, the government will also conduct targeted engagement with stakeholders. Given the breadth of the questions raised in the consultation paper, most respondents should focus on questions specific to issues that directly affect them, rather than respond to every question.

More broadly, the depth and breadth of the issues raised by the consultation paper show that the Commonwealth intends to cover a lot of legislative ground in the next few months. The outcomes will likely impact billions of dollars in capital flows, while touching the lives of Australians in ways that we are still only just beginning to understand.