Everyone’s talking about how much power AI will need. Almost no one is talking about where that power is going to come from. In Australia, the honest answer is gas, and a mountain of dodgy offsets to make it look clean.
I’ve spent years watching the fossil fuel industry search for its next excuse to stay in business. Carbon dumping dodgy offsets to fossil fuel companies. Now there is a bigger and better one. Data centres get called “digital infrastructure” and “sovereign capability,” and that language is doing a lot of work to smuggle a gas expansion past the public
Look at the numbers. AEMO’s 2026 Electricity Statement of Opportunities now expects data centres to consume around 34 terawatt-hours of electricity a year by 2035-36, up from about 5 terawatt-hours today, which is hard to visualise. That takes their share of total electricity demand from roughly 3 per cent to 13 per cent, a forecast that has itself been revised up 50 per cent in just twelve months. Growth is concentrated in New South Wales and Victoria, the two states with the dirtiest electricity grids in the country.
This is showing up in real projects, not
This is showing up in real projects, not just spreadsheets. Project Ares, a proposed one-gigawatt data centre in the Northern Territory, would use more gas than the entire Territory currently consumes. Analyst Ketan Joshi has estimated that even under the best-case scenario for its linked solar farm, the project’s pollution output is staggering. Because it isn’t 100 per cent gas-powered, it will slide straight through the new federal rules meant to stop exactly this.
Cloud Carrier’s proposed 700-megawatt gas plant near Moss Vale would run 21 gas engines to power its Southern Highlands data campus, and Greenpeace’s analysis found it alone would wipe out the entirety of NSW’s projected 2028 emissions cuts. Beetaloo Digital, a two-gigawatt, $40 billion gas-fired proposal at Weddell, would dwarf every other industry in the Northern Territory combined. This is the new centre of gravity for gas expansion in this country.
The federal government’s response so far shows how fast this can collapse. National Cabinet went into last month’s meetings insisting new data centres nationwide would run on renewables. As I wrote in The Point after that meeting, cabinet came out instead with a “flexible” approach that dropped the requirement altogether, and Queensland and the Northern Territory didn’t wait to see how flexible: both declared their data centres could run entirely on coal and gas.
Energy Minister Chris Bowen has since tried
Energy Minister Chris Bowen has since tried to walk that back, insisting there are no carve-outs and that gas-only projects won’t be allowed to proceed, while conceding those states can still apply for an exemption if they convince the regulator gas is cheaper than renewables. When is a carve out not a carve out?
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Reas flowed from the Beetaloo Basin and called gas-powered data centres a “landmark opportunity” for the Territory. Different ministers, different messages, all in the same fortnight
It gets worse. Whatever standards eventually emerge from this mess won’t even apply to most of the industry. ABC analysis has found dozens of approved but yet-to-be-built data centres will escape the government’s energy and water rules entirely because they won’t apply retrospectively, and the new generation coming through the pipeline is significantly bigger and hungrier than anything operating today. Prime Minister Anthony Albanese has been clear about it: “You can’t retrofit.”
Underneath the electricity question sits an even bigger
And underneath the electricity question sits an even bigger offset problem. Several of Australia’s largest data centre operators already claim to be “carbon neutral,” and NextDC is the clearest example. It says its data centres run on 100 per cent carbon-neutral power, backed by offsets once accredited through Climate Active. The government scrapped that scheme after EnergyAustralia admitted, in a settlement with Parents for Climate, that offsets don’t undo the harm of burning fossil fuels. NextDC still sells the same trick to its own tenants through a product called NEXTneutral.
If gas-fired data centres keep growing, that pollution will most likely land in the Safeguard Mechanism, the policy meant to cap emissions from Australia’s biggest industrial polluters. Instead, it just provides unlimited offsets. It is also undergoing a scheduled review.
Australia Institute analysis of the Safeguard Mechanism found that reported emissions cuts have relied so heavily on dodgy offsets that Australia has likely pumped far more greenhouse gas into the atmosphere than the official accounting shows. Wave enough dodgy offsets at a gas-fired data centre, and you can cook the books and call it climate action. That is precisely the kind of greenwashing this industry has always been looking for.
None of this is inevitable
None of this is inevitable. It is a choice being made right now about whether Australia’s AI boom runs on gas and coal and offsets, or genuinely additional renewable energy. So far, the settings on offer would let big tech dress up a gas expansion in the language of climate progress. We have seen this playbook used repeatedly. We should not let it work again.
Louise Morris is an award-winning advocate with 20 years’ experience encompassing climate, energy, forest protection, and law reform in the not-for-profit sector, and federal politics before joining The Australia Institute.
Big Tech’s AI boom is turning into a lifeline for Big Gas | The Point
