This is fossil fuel expansion in 2026: a state pre-committing to a supply glut, then reverse-engineering demand to justify it, with a compliant federal government adjusting the rules.
Mon 7 Sep 2026 13.02 AEST
Photo: AAP Image/Dean Lewins
Port Phillip Council has unanimously passed a motion calling for the Federal Government to fund a National Climate Compensation Fund with a levy on gas and coal production. The inner-Melbourne local government area, which covers suburbs such as St Kilda, Elwood, South Melbourne and Port Melbourne, faces increased risk of flooding and coastal damage in the face of climate change.
The New South Wales Independent Planning Commission last week approved the largest coal mining project in the state’s history. The way it proposes to deal with the immense climate-harming emissions from burning the exported coal beggars belief.
When the federal government first flagged rules for the AI data centre boom, the pitch sounded reasonable: new facilities would bring their own renewable energy, not draw down power households already rely on. Gas, if it featured, would be backup.
Three weeks ago, that pitch collapsed.
At National Cabinet on 27 August, the federal government agreed to carve-outs letting Queensland and the NT power new data centres with coal and gas, with standards to be legislated in early 2027.
The NT argued it should be free to use local gas, sitting outside the National Electricity Market.
Energy Minister Chris Bowen, who months earlier said a gas-only data centre would not be allowed to proceed, signed off on exactly that outcome.
With an updated position that there will be a “high bar” test for states supplying fossil fuels to data centres through their own infrastructure. State-owned utilities can apply to use existing fossil-fuel generation for data centres only if they prove it is cheaper than renewables and does not raise consumer bills.
None of this really matters to the NT’s plans and the fracked gas-powered AI data centres. It’s the Territory getting what it wanted all along, having spent the past year building a gas industry with nowhere to put its gas.
Analysis this week from Data Desk shows how stark that oversupply is. Darwin-Katherine grid demand has plateaued at around 1,760 GWh a year, flat to 2028–29. Yet the NT government has locked itself into take-or-pay gas contracts, including with Tamboran, obligating it to pay whether the gas is needed or not. Add a full-scale Beetaloo Basin fracking industry and the Territory faces buying more than three times what its grid can use.
That is the real reason Beetaloo Digital, a Beetaloo Energy subsidiary, has been handed exclusive rights over 185 hectares at Weddell for a proposed 2 GW gas-powered data centre, backed by Halliburton. Weddell isn’t an obviously brilliant site for hyperscale AI computing, isolated from the networks that usually justify one, in the tropics and cyclone belt that is getting hotter and stormier thanks to climate change. But gas fracking needs a customer, and an always-on data centre is the most convenient one imaginable. The federal carve-out/exemption – whatever you want to call it, legitimises what gas needed anyway.
This is fossil fuel expansion in 2026: a state pre-committing to a supply glut, then reverse-engineering demand to justify it, with a compliant federal government adjusting the rules.
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It matters well beyond the Top End, and our Pacific neighbours are watching more closely than Canberra realises.
Last week, at the Pacific Islands Forum in Koror, Palau, Tuvalu’s climate minister Dr Maina Talia described losing sleep over a new UN Environment Programme finding that the world is already tracking past 1.5 degrees, not a future risk but a near-term reality. For a nation with a highest point under five metres above sea level, that isn’t an abstraction. Beside him, Vanuatu’s Ralph Regenvanu, who led the case that won a landmark ICJ ruling on states’ climate obligations, put it plainly: fossil fuels drive the crisis, and the least a major producer can do is stop expanding.
That is precisely what Australia isn’t doing. The Albanese government has approved 37 new or expanded coal, oil and gas developments since taking office, the latest one a coal mine approved on September 3, 2026. Meanwhile it hands the fossil fuel industry billions in subsidies a year, even while talking up a 50 per cent renewable grid to Pacific leaders watching their homelands disappear. A gas-fired data centre riding an unnecessary fracking basin is the newest addition, dressed up in AI-boom language.
Australia is co-president of negotiations for COP31 in Türkiye this November, at the exact moment Dr Talia and Mr Regenvanu are asking us for real political will, not talk. At COP30 in Belém, Australia joined over 80 countries backing a plan to phase out coal, oil and gas, which Brazil is meant to develop into something concrete before COP31. As the world’s third-largest fossil fuel exporter, Australia needs a clear phase-out plan, including exports, for that co-presidency to mean anything
You cannot honestly hold a leadership role at COP31 while approving a fracking-fuelled gas glut in the Beetaloo at home. The Australia Institute’s research is clear on what a credible roadmap looks like: stop approving new coal and gas projects, of which Australia has 94 in the pipeline, and enact the Transition Away from Fossil Fuel objectives we signed up to in Belém.
No new approvals, on a clear timeline to a transition away from fossil fuels, is a test the National Cabinet’s data centre decision has just failed.
If the government wants data centres to run on clean energy, the fix is simple: no carve-outs, no “gas firming” or “gas backing” loopholes, no new gas basins built on the promise data centres will suck up whatever excess gas is extracted.
Otherwise, the AI boom becomes what fossil fuel vested interests want from any new source of massive domestic energy demand: to paper over the shrinking market for gas globally and a reason to keep expanding domestically.
It’s a choice our governments must make on whether they keep gaslighting us on climate action, and Dr Talia and Mr Regenvanu have made clear our Pacific neighbours see it for what it is. It’s a choice we can still reverse before COP 31 in Antalya and the Transition Away from Fossil Fuels conference in Tuvalu in seven months.
Louise Morris is Head of Fossil Fuel Transition at the Australia Institute, with 20 years’ experience encompassing climate, energy, forest protection, and law reform in the not-for-profit sector, and federal politics.
