The Federal Government Wants to Rein In Datacentres. The States Aren't Keen.

Anthony Albanese will use Wednesday's national cabinet meeting to ask state and territory leaders to agree on a single set of rules for datacentres across Australia. He's trying to stop a fight between the Commonwealth and the states over who gets to control the sector's rapid growth.

The Prime Minister faces pushback from conservative governments in Queensland and the Northern Territory. Their objection is simple: deciding where big developments go has traditionally been a job for state and territory governments, not Canberra. Albanese's argument is that the new federal laws will work alongside existing state rules, not replace them. Exactly how that split works in practice is where the arguments will start.

So what is the Commonwealth actually proposing? A set of minimum rules that datacentre developers would have to follow by law. Under the plan, facilities would have to avoid pushing up energy prices, cover their own infrastructure costs, and keep water use down. Developers would also need to limit impacts on local communities, with facilities "appropriately sized and located away from homes, schools and potential housing or agricultural sites" (The Guardian). Projects that already have approval before the new laws come in would stay under the old state and territory rules. That's meant to keep developers who've already spent money happy, but it also means a lot of planned developments will go ahead under whatever rules the states already have.

Here's why the politics matter. National cabinet, which brings together the PM and the premiers, works by agreement — everyone has to be on board, or at least not actively blocking. A couple of conservative premiers digging in can slow the whole thing down. Albanese needs their sign-off to get a national framework in place before the sector grows any faster. Letting already-approved projects stay under the old rules is the obvious way to get them over the line without developers complaining that the government changed the rules after they'd already invested.

The urgency is real. The Australian Energy Market Operator, or AEMO, which manages the electricity grid, reported 165 datacentres already running nationally with another 225 in the pipeline. AEMO forecasts datacentre power use will increase seven-fold over the next decade. Its main forecast has electricity demand from the sector growing from 5 to 34 terawatt hours by 2035-36 — put simply, from 3% to 13% of all electricity used in Australia. In a high-growth scenario, demand could reach 52 terawatt hours, a ten-fold increase. AEMO also noted that more than a third of datacentre projects listed in 2025 had since been cancelled, and that operating facilities take years to reach full capacity. So the pipeline is large but far from guaranteed to materialise in full (The Guardian).

AEMO's 2026 Quarterly Energy Dynamics for the second quarter already records that daytime electricity demand grew across the national grid, with datacentre load among the factors driving the increase. The market operator's 2026 Integrated System Plan notes that local power networks are being rapidly upgraded to cope with a forecast doubling of electricity demand by 2050.

AEMO chief executive Daniel Westerman has pointed to record levels of new power generation and battery storage coming online as improving the reliability outlook, even with coal-fired power stations expected to retire. Climate Council chief executive Amanda McKenzie put the stakes bluntly: datacentres are set to devour an enormous share of Australia's electricity, and "there was one shot to get the rules right" to make sure that growth doesn't strain the grid and push up pollution (The Guardian).

National cabinet is only half the picture. Albanese is also planning to bring in a major piece of AI legislation next year, potentially one of the biggest reforms of Labor's second term. The legislation is meant to make sure the economic benefits of AI are shared widely, and will set tough copyright rules for AI businesses alongside standards for security, safety and skills development (The Guardian). The government wants Australia to be a top destination for the jobs and investment tied to datacentres and AI (pm.gov.au), and last month Albanese promised "the strongest possible protection" for Australian artists and writers against misuse of their work by AI.

The tension between those two goals — welcoming the investment and keeping its impacts in check — runs through the whole agenda. The datacentre rules and the AI framework are being developed separately, but they answer the same underlying question: how much of the cost of the AI boom gets carried by the public, and how much by the companies profiting from it. The minimum rules for datacentres answer that for physical infrastructure. The copyright and safety standards answer it for the digital economy. Neither answer will satisfy everyone, and the premiers' pushback on Wednesday is the first real test of whether the Commonwealth can hold the line.

What's striking is the loophole in the grandfathering arrangement. Letting already-approved projects stay under the old rules is a pragmatic political concession — no government wants to change the rules after companies have already invested. But it also means a big chunk of those 225 projects in development could go ahead under weaker state rules if they get approval before the federal laws pass. The Climate Council and other advocates will flag that gap, and it gives Queensland and the Northern Territory a reason to rush through approvals rather than wait for the national standard. If the minimum rules are to mean anything for most of the pipeline, the Commonwealth will need to move fast on the legislation.

The other thing to keep in mind is that AEMO itself says a lot of these projects won't happen. With over a third of 2025-listed projects already cancelled, the seven-fold demand forecast is a best guess, not a certainty. But even the conservative estimate — 34 terawatt hours by 2035-36 — means a sector using 13% of the nation's electricity. That's a big shift in how much power the grid needs to supply, and it arrives right when coal is leaving the system. Westerman's confidence about new generation and storage is backed by the data, but the margin for error shrinks if demand tracks to the high end rather than the middle.

The broader context here is familiar to anyone who watches Canberra. A Labor government trying to assert national authority over an area where states have always had a say, conservative states pushing back on principle and on industry grounds, and an industry lobby that will happily play both sides off against each other. The difference this time is the speed. The AI buildout is happening faster than the rules can keep up, and everyone in the room on Wednesday knows it.