Albanese's Datacentre Plan: Federal Rules, State Resistance and a Race Against the Clock
Anthony Albanese will use Wednesday's national cabinet meeting to get premiers on side for nationally consistent datacentre rules, trying to head off a state pushback against federal controls on the sector's rapid growth.
The Prime Minister faces pushback from conservative governments in Queensland and the Northern Territory, who don't like Canberra stepping into what has traditionally been state and territory planning territory. Albanese's pitch is that the new federal approval laws will work alongside existing state rules, not replace them. The detail of how that actually works in practice is where the friction will live.
What the Commonwealth is putting on the table is a set of legislated minimum obligations for datacentre developers. Under the plan, facilities would have to avoid pushing up energy prices, cover their own infrastructure costs, and minimise water use. Developers would also need to limit effects on local communities, with facilities "appropriately sized and located away from homes, schools and potential housing or agricultural sites" (The Guardian). Projects approved before the new regime takes effect would be grandfathered — meaning they'd stay under whatever state and territory laws already apply. That's designed to head off complaints from developers who've already sunk money into approved projects, but it also means a large pipeline of developments will proceed under whatever rules states currently have on the books.
The political mechanics are straightforward. National cabinet works by consensus, and a couple of conservative premiers digging in can slow the whole thing down. Albanese needs their sign-off, or at least their grudging agreement, to land a national framework before the sector's growth accelerates further. The grandfathering clause is the obvious lever to get them over the line without triggering retrospective complaints from developers who've already invested in approved projects.
The urgency is real. The Australian Energy Market Operator's annual Electricity Statement of Opportunities reported 165 datacentres already operating nationally, with a further 225 in development. AEMO forecasts datacentre power use will increase seven-fold over the next decade. Its central-case modelling has electricity demand from the sector growing from 5 to 34 terawatt hours by 2035-36, rising from 3% to 13% of total consumption. 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 ramp to full capacity. So the pipeline is large but far from guaranteed to materialise in full (The Guardian).
AEMO's 2026 Quarterly Energy Dynamics for Q2 already records that operational demand across the National Electricity Market (the NEM, which covers the eastern states and South Australia) grew in daytime hours, with datacentre load among the factors outpacing other changes. The market operator's 2026 Integrated System Plan notes that local distribution networks are being rapidly upgraded to cater for a forecast doubling of electricity demand through the NEM by 2050.
AEMO chief executive Daniel Westerman has pointed to record levels of new generation and storage coming online as improving the reliability outlook, even with expected coal retirements. 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 ensure that growth does not strain the grid and push up pollution (The Guardian).
National cabinet is only half the picture. Albanese is also planning to introduce a major piece of AI legislation next year, potentially one of the defining reforms of Labor's second term. The legislation is intended to ensure 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 is positioning Australia as a destination of choice for the jobs and investment tied to datacentres and AI (pm.gov.au), and last month Albanese promised "the strongest possible protection" for Australian creatives against misuse of their work by AI.
The tension between those two ambitions — welcoming the investment and constraining its impacts — runs through the entire agenda. The datacentre rules and the AI framework are being developed on separate tracks but address the same underlying question: how much of the costs of the AI buildout gets absorbed by the public, and how much by the companies driving it. The national minimum obligations answer that for physical infrastructure. The copyright and safety standards answer it for the intangible economy. Neither answer will satisfy everyone, and the premiers' resistance on Wednesday is the first real test of whether the Commonwealth can hold the line.
What's striking about the framework is the grandfathering carve-out for already-approved projects. It's a pragmatic political concession — no government wants to retroactively change the rules on sunk investment. But it also means a significant chunk of the 225 projects in development could proceed under weaker state regimes if they secure approval before the federal laws land. That's a loophole the Climate Council and other advocates will flag, and it gives Queensland and the Northern Territory an incentive to approve projects quickly rather than engage with the national standard. The Commonwealth will need to move fast on legislation if the minimum obligations are to mean anything for the bulk of the pipeline.
The other variable AEMO itself flags is project attrition. With over a third of 2025-listed projects already cancelled, the seven-fold demand forecast is a central case, not a certainty. But even the conservative trajectory — 34 terawatt hours by 2035-36 — means a sector consuming 13% of national electricity. That's a material shift in the load profile of the NEM, and it lands at exactly the moment coal is exiting the system. Westerman's confidence about new generation and storage is well-grounded in the ISP data, but the margin for error narrows if datacentre demand tracks to the high-growth scenario rather than the central case.
For the Canberra observer, the politics are familiar. A Labor government trying to assert national authority over an area of contested constitutional responsibility, conservative states pushing back on principle and on industry grounds, and an industry lobby that will happily play both sides. The difference this time is the speed. The AI buildout is happening faster than the regulatory response, and everyone in the room on Wednesday knows it.
