In a comprehensive report, Greenpeace has interrogated the industry's environmental credentials, accusing it of failing to cover its own emissions with new solar and wind and "heaping massive new load" onto the grid.
It's also sharply critical of data centre proposals that include onsite gas generation, including a NSW Cloud Carrier project involving a 700-megawatt power plant, and questions the "critical infrastructure" status given "AI is being used for abuse, war and other human rights violations".
Australia has become the second biggest destination for data centre investments worldwide as tech companies rush to meet demand for AI tools.
Questions have been levelled at the sizeable energy, water and land usage needed for the computing power, with a diversity of views among civil society.
While governments have been broadly welcoming of the business investment, concerns have not gone unheeded, with state and federal energy ministers - Queensland excluded - in favour of 100 per cent renewable energy offsets for new data centre proposals.
The Greenpeace report, led by independent climate analyst Ketan Joshi who has been studying data centre environmental issues closely, casts doubt on claims operators are already building new clean energy as "unsubstantiated".
Renewable energy credits used by some players are unlikely to be amounting to true additional energy, the report said.
Even the use of power purchasing agreements - contracts with buyers to sell energy upon completion - was questionable as solar and wind projects scrutinised were often close to finalisation and unlikely reliant on the data centre support to go ahead.
Mr Joshi said the findings challenged the notion data centres were actually accelerating the clean energy transition and helping meet net zero goals.
"Unless the data centre industry builds no new fossil fuels and far more new renewables than new demand, we end up worse off," he said.
"Currently data centres increase coal and gas output and delay shutdowns, while plugging polluting gas into data centres does the damage directly instead."
Lobby group Data Centre Australia says the industry has invested billions in grid and recycled water infrastructure, is abiding by energy efficiency regulations, and pays 100 per cent of its electricity network costs.
Energy Minister Chris Bowen said data centres could be a "net plus" for the energy system, if done right, while confirming regulatory options were under consideration.
"The best one to look at most urgently is a rule change through the Australian Energy Market Commission to say, 'if you want a data centre in Australia, great, we welcome the investment, but you'll bring your own renewable energy and you'll be flexible and you'll help us manage the grid'," he told reporters on Tuesday.
