Written submission from Environment Agency (DCU0093)

Environment Agency written evidence: Environmental Audit Committee’s Risks and opportunities to the sustainability of data centres in the UK inquiry

Introduction

The Environment Agency (EA) does not regulate or approve data centres as a sector. Decisions about the location and development of new data centres are primarily made through the planning system and wider government policy frameworks.

However, we have a role where an individual development or operation interacts with environmental permitting, water abstraction, water resources management or other environmental responsibilities within our remit.

We work with water companies, government departments, industry bodies, environmental non-governmental organisations and other stakeholders to improve understanding of future water needs and support evidence-based planning. We want to understand current and future water demand from data centres to support this work.

We have responsibilities relating to water resources, environmental protection and abstraction licensing where the relevant legal requirements apply. Environmental

regulations, permits or abstraction licences may apply where a development or operation could affect water resources or the environment. The requirements will depend on the nature and circumstances of the individual proposal and the relevant legislation.

It is worth noting that most data centres obtain water from the public water supply rather than through direct abstraction and therefore would not generally require an abstraction licence. In these circumstances, water use is primarily managed through the water company rather than directly regulated by the EA.

The EA’s role, relevant to data centre development, is to:

• Manage and protect water resources and the environment.
• Regulate abstraction and discharges where the relevant legal requirements apply.
• Provide environmental advice within our remit, including through planning processes where appropriate.
• Oversee and contribute to long-term water resources and drought planning.
• Work with water companies, government and industry to improve the evidence base on current and future demand.

We do not:

• Decide whether data centres are needed.
• Determine national policy on the sector’s growth or strategic importance.
• Decide where data centres should be located.

Written submission from Environment Agency (DCU0093)

• Grant planning permission.
• Determine whether a development requires an Environmental Impact Assessment.

These matters sit with government and the relevant planning authorities. Our involvement in an individual proposal is distinct from the planning authority’s decision-making role.

We have sought to comment on the questions within our remit as a regulator, as outlined above. Therefore, this written evidence focuses on the impact of data centres through the lens of water supply and availability, and we have not provided an answer to every question in the call for evidence.

What current and future factors and trends are driving demand for data centres and what opportunities and challenges do they pose for the UK?

1. As an organisation with a statutory purpose to support sustainable development, we see the transformational economic potential of data centres and other AI technology, and aim to support the growth of data centres in a way that protects the environment. Opportunities presented by data centres include:

1. Increased efficiency of heat networks. Data centres provide a potential source of waste heat for nearby heat users and networks. Early consideration of the proximity of data centres to potential heat users could help identify viable

opportunities for improving sustainability through waste heat re-use.

2. Economic growth. In addition to the national economic benefits, clustering data centres presents an opportunity to boost local economies across the country. Localised data centres facilitate service industry growth, wider productivity, and economic security.

2. The EA has identified the following challenges facing the UK in relation to new data centres:
1. Planning uncertainty. The absence of early information on the location of new data centres leads to significant uncertainty in long-term infrastructure planning and investment decisions. We would welcome the opportunity to apply our learning from working with other sectors and collaborate early with data centre developers, water companies and planning authorities to improve understanding of water supply, abstraction, discharge and environmental constraints, allowing potential issues to be identified and addressed early in the planning and permitting process. We are working with partners in the National Energy System Operator, Department for Energy Security and Net Zero, Ministry of Housing, Communities and Local Government, and the Department for Business,

Innovation, Science and Trade to determine how best to plan for these

strategically. The emerging Spatial Development Strategies will offer a regional means to plan strategically for demand in the near future.

2. Energy constraints. These will create barriers to sector growth and complicate the coordinated planning needed to deliver co-benefits.
3. Water demand, supply pressures and efficiency challenges. Without stronger drivers for water efficiency and uptake of alternative sources of water, there are

Written submission from Environment Agency (DCU0093)

increased pressures on the water environment and risks to system resilience in times of drought.

4. Funding uncertainty and barriers to investment. Water companies currently face significant uncertainty around how to secure funding to meet the additional demand created by new data centre developments.
5. Legislative and policy uncertainty. A clearly, articulated government position on the regulatory expectations surrounding data centre development and associated water use will help to address this challenge. The government is currently developing the National Policy Statement (NPS) for Data Centres. The NPS will set out an indicative minimum threshold for data centres seeking inclusion in the Nationally Significant Infrastructure Project regime and outline how the EA should assess applications.
6. Data gaps, limited transparency and barriers to sharing. Government should continue to consider whether water use data should be reported. This would increase understanding of current water use and enable better modelling and prediction of future water demand.
7. Barriers to collaboration. Earlier conversations between data centre developers and water companies, before the planning stage, would provide water companies with more time to build the extra demand into their plans, and offer an opportunity for the development of innovative and collaborative solutions between the

sectors.

8. Public and media perceptions. Specific data from data centres could be released by data centres to explain their environmental impacts and what they are doing to address them.
8. One of the key challenges posed by data centres is their need for water at a time when water resources in England are already under increasing pressure. Current estimates suggest England will face a deficit of around 5 billion litres per day by 2055. The water supply deficit is driven by:

1. Increasing population. More water is needed for people, and to produce and provide the goods and services they use.
2. Improving water supply resilience. Water companies are required to increase their water supply resilience to cope with severe drought.
3. Climate change. Increased likelihood of hotter summers, reduced rainfall, and more frequent extreme events. Increased demand in hot periods (including for irrigation of crops).
4. Land use pressures. Housing development, land for food production and biofuels, and tree cover targets increase water use. A huge effort will be needed to deliver the actions to reduce this deficit. This will include demand management measures including reducing leakage and increasing water efficiency as well as developing new sources of supply like reservoirs and strategic water transfers.
5. Environmental improvement. Some of the projected water supply deficit reflects the need to leave more water in rivers, wetlands and groundwater to protect and improve the environment. While the need for abstraction reductions are understood to protect sustainable water resources today, we are uncertain

about the precise amount of water that may require protection from abstraction in the future, where such protection will be needed, and on what timescales.

Written submission from Environment Agency (DCU0093)

4. The EA is working with the data centre sector to help it understand and plan for its future needs for water. Data centre growth and water resource planning are interdependent, but both sectors lack the information needed to plan with confidence. Without better data sharing and reporting of water use, it is difficult to forecast future demand, assess local impacts and coordinate investment in water and digital infrastructure. This will help inform the future demands, especially peak day demands, included in water company water resources management plans

(WRMPs) which water companies are required to produce to ensure resilient supplies.

What are the environmental impacts of different types of data centre currently having in the UK and what are the future impacts likely to be?

What are the potential short, medium and long-term projections of these impacts?

5. There is no mandatory reporting or monitoring of data centre water consumption. Water use varies significantly according to location, scale, cooling technology and operating conditions. Current EA estimates (calculated based on the EA’s Annual Review Data Water resources data and modelling technical report1) indicate that the sector accounts for less than 1% of water put into public supply nationally, but an individual development may be significant locally. The evidence base however remains incomplete, because data centres are not required to report site-level water use to the EA.
6. A key challenge with regards to water usage by data centres is in relation to peak day water use, when hybrid cooled systems will use water cooling as well as air cooling. This will be at the same time as increased demand from other sectors. When data centres are planned and designed, consideration must be given to the types of cooling technology being selected and the corresponding water needs. Data centre planners should assess options including closed-loop water cooling which uses much less water, and air cooling where feasible. We encourage data centre developers to consider use of non-potable water, to embed water efficiency or water reuse in their design and to contact their proposed water and wastewater supplier early in the planning process to understand and plan for any potential water restrictions. Our recently published National Framework for Water Resources (2025) also recommends use of alternative supplies of water, such as recycled water, desalinisation and their own water collection systems.
7. However, huge growth in data centres is predicted in the medium- and long-term so impacts on water supply/environmental protection could be more significant, depending on the type of technology adopted by the data centre. Dependent on the individual development, relevant considerations may include water availability, the source and volume of water required, the sustainability of any abstraction, water quality, the management of discharges and effects on the receiving environment.
8. Not all data centres carry the same environmental burden. There is considerable difference in size and age. The overarching risk is that decisions being made today, in planning permissions and investment approvals, are locking in environmental

1 Water resources data and modelling technical report - Appendix of the National Framework for Water Resources 2025, Environment Agency, 2025: National Framework for Water Resources 2025: water for growth, nature and a resilient future - GOV.UK

Written submission from Environment Agency (DCU0093)

impacts that extend decades into the future, in a policy environment that has not yet caught up with the scale of what is being built. Retrofitting is unlikely as it is prohibitively costly and operationally challenging once initial designs are agreed, with design lives measured in decades.

9. Developers optimise against a mix of capital cost, operating cost, energy efficiency, carbon performance and resilience. The current regulations place more weight on energy efficiency and carbon reduction than on water efficiency. Operators therefore have more incentive to minimise electricity use than to minimise water use, especially when water costs a lot less than electricity.

10. The limited availability of electrical grid connections and the preferential prices of water compared to energy mean that water-based cooling remains a preferential option, and there are limited incentives for the data centre sector to reduce water consumption. Neither the cost nor the regulatory framework fully reflects the environmental value of water, especially in stressed catchments, so market dynamics favour solutions that reduce energy consumption even when they increase water consumption. This contributes to increasing, and sometimes unpredictable, water demand from data centres during peak summer temperatures, coinciding with high stress on water networks. Without stronger drivers for water efficiency and uptake of alternative sources of water, there are increased pressures on the water environment and risks to system resilience in times of drought.
11. The EA only grants licences to abstract water if this is sustainable, the applicant has a reasonable need, and the water is used efficiently. This involves evaluating water availability on a catchment basis, ensuring environmental needs are met, and protecting existing rights. The abstraction licensing system protects existing water allocations for those abstractors who have a continued need for the water. Where abstraction licences are time limited, renewal is subject to 3 tests: abstraction is environmentally sustainable; there is a continued need for the water; and abstracted water will be used efficiently. In the event existing water allocations are not environmentally sustainable or allocations are not fully utilised then the EA may have to reduce the quantities on existing licences (both time limited and permanent). Water recovered for the environment is not reallocated to other abstractors. New water demand for hyperscale data centres would need to be met through remaining available water taking account of existing abstraction rights and the environmental needs.

12. The current EA water abstraction charging scheme is designed to recover the costs incurred by the EA in administering and regulating the abstraction licensing regime. This approach follows HM Treasury’s Managing Public Money guidance on recovering costs through charges.

13. The water abstraction charging regime applies the same cost recovery principles regardless of the commercial value generated from abstracted water or the ‘value of the water’ to the wider society or the country. The abstraction charges are based on factors such as the volume of water abstracted, the proportion returned to the environment (linked to purpose the water is abstracted for), water availability within the catchment and whether the abstraction needs support from EA water transfer operations. The cost of an abstraction licence depends on the factors applying to a

Written submission from Environment Agency (DCU0093)

licence.

14. This means that all abstractors pay the same cost for the water abstracted if all abstraction factors and circumstances are the same (i.e. volume, proportion returned to the environment and water availability) irrespective of the who is licensed to abstract water, therefore a charges could all be the same for a for public water supply, agricultural abstraction, bottled water companies or other commercial users, such as data centres.

To what extent will Artificial Intelligence (AI) accelerate the need for data centres and is this being adequately taken account of by the Government and relevant bodies, such as the Climate Change Committee and the Office for Environmental Protection, in terms of nature, the environment and climate change?

15. AI is likely to require more cooling of data centres. Therefore, if a data centre has a water-based system or a hybrid data centre, which usually uses air cooling but requires water to cool when temperatures are hottest, there is potential to drain water supply at the driest times of year and when demand is higher from other

sectors.

16. The government’s AI Opportunities Action Plan, essential to its goal for a decade of national renewal to boost living standards, seeks to expand sovereign compute capacity by at least 20 times by 2030.
17. In 2024 the government designated the UK data centre industry as Critical National Infrastructure (CNI). The EA is working with wider government and the water industry to review the nation’s response to severe drought, including planning to ensure water remains available for essential services.

18. Water companies have to plan for CNI in their drought plans, including planning to ensure water remains available for essential services Water company plans for CNI rely on existing knowledge of current water demands when the drought plans are developed.

19. The designation of data centres as CNI provides a significant opportunity to

substantially improve our understanding of the current and future water needs of the sector. Putting data centres on an equal footing as water, energy and emergency services systems will mean the data centres sector can now expect greater government support in recovering from and anticipating critical incidents, giving the industry greater reassurance when setting up business in UK and helping generate economic growth for all. In a drought situation, the EA works with Defra and water companies and water companies may need to consider prioritising water. Vulnerable people and CNI, such as a data centre, would be prioritised. We believe more work to understand drought scenarios in areas with a data centre and community engagement in those areas needs to be done to fully understand the impact of this prioritisation.

To what extent do existing policies, such as the Environmental Improvement Plan and the Planning and Infrastructure Act and associated policies, take account of the

Written submission from Environment Agency (DCU0093)

potential impact of data centres, particularly in terms of water use, nature and the environment?

20. Water companies are expected to plan for future non-household demand and maintain resilient supplies through their WRMPs. This includes demand from data centres. Water companies are under no obligation to provide businesses with water where this puts its supply obligations to household customers at risk. In some water stressed areas in East of England, water companies have implemented moratoriums which place a temporary prohibition of new mains water supplied where it would be used for non-household non-domestic purposes. They are only obliged to provide the domestic component of any non-household use.

21. In the UK water and utility markets, a Supply Point Identifier (SPID) is a unique number assigned to a business premises to track its water and sewerage services. There should be clearer SPID references on planning applications to be able to identify data centres as there is currently no classification.

22. Having mandatory targets or reporting against the potential impact of water use from data centres as part of the EIP would be helpful for modelling and predictions.

How should the impact of data centres be factored into future policies, such as the Land Use Framework, regional planning, housebuilding and reform of the water sector?

23. The key question is how future growth of data centres can be directed towards locations, technologies and water sources that minimise pressures on already stressed catchments while maintaining the UK's digital infrastructure ambitions. Digital growth needs to be balanced sustainably against other societal needs.

24. The UK data centre industry has seen steady improvement in energy and resource efficiency in recent years, with government policy like the Climate Change Agreements scheme – operators receive a discount on the Climate Change Levy if they meet certain energy efficiency targets – incentivising gains in performance. As a result, many operators adopted evaporative cooling technologies in the 2010s, trading increased water use for meaningful reductions in electricity consumption and emissions. The result was a sector that got significantly more energy-efficient – but also began using more water where conditions allowed. This trend began to shift in the early 2020s as it became clear certain regions of England, and the UK were facing more acute water stress2.

25. To improve transparency and provide a better understanding of the implications of data centre development on water usage, we suggest that the largest non-household customers should publish their water usage and set out what steps they are taking to become more water efficient.

2 Understanding data centre water use in England, TechUK, 2025: techUK Report - Understanding data centre water use in England

Written submission from Environment Agency (DCU0093)

How important is the location of data centres and what factors should be considered for optimum siting of them?

26. Water companies face increasing difficulty planning future network and resource requirements due to limited visibility over the scale, timing and geographic distribution of data centre growth. The absence of early information on the location of new data centres leads to significant uncertainty in long term infrastructure planning and investment decisions. This challenge is intensified when growth appears in locations that are unsuitable in terms of water availability. As a result, there is the potential for development to be misaligned with sustainable water system capabilities.

27. Emerging sources of demand, including data centres, can contribute to future pressures on water resources in some locations. These demands must be considered alongside factors such as climate change, population growth, housing development, industrial activity and environmental requirements. The effects of an individual data centre on water resources will depend on factors including:
1. its location and scale
2. the source and volume of water required
3. The cooling technology used
4. The timing and pattern of demand
5. local water availability
6. Existing pressures on the relevant water supply system or catchment
7. The needs of people, businesses and the environment

28. Water stress and the cumulative impact of water demand in an area should also be considered for data centre siting. The clear summer peak demand in water consumption could pose the largest risk to regions. It is unlikely to be noticeable nationally. This highlights the importance of assessing water demands locally and seasonally, particularly in the context of climate change and drought planning.

What existing and emerging technologies can be used to minimise the environmental and climate change impact of data centres?

How mature are these technologies and are they ready to be rolled out at the scale and pace required to match the potential expansion of data centres?

29. Data centres sometimes use water to cool hardware, and operators face a trade-off between energy use and water use, as waterless cooling systems require more energy. This has prompted questions about how data centres use and measure water while still meeting the growing demand for digital services. At the same time, digital solutions enabled by data centres support innovations that improve water management and conservation across sectors. We are currently working with techUK to understand the most water efficient technologies, such as new chip designs, and promote them. Alongside this, we are working with the government to investigate whether standards to use these technologies could be applied for all data centres or alternatively specific standards applied for specific locations

Written submission from Environment Agency (DCU0093)

30. It is not essential for data centres to use significant amounts of water. Advanced cooling technologies, e.g. liquid and direct-to-chip cooling and hybrid heat rejection systems, exist that significantly reduce overall water consumption by enabling highly efficient heat transfer at the server level. These systems are especially well-suited for AI and high-performance compute workloads, where precise thermal control is essential. Additionally, chips that operate at marginally higher temperatures have significantly reduced cooling requirements.Future innovation in cooling will see the continued refinement of hybrid Heat Rejection Systems using combinations of various systems3. The EA supports the use of these systems, where applicable, as a less water intensive way of cooling. There is potential for the relevant trade bodies to pursue a voluntary agreement that all new data centres to be built to such standards to reduce water requirements.
31. Furthermore, the water that data centres do use does not need to be treated drinking water. We support the advancement of using alternative water sources, e.g. rainwater harvesting, effluent re-use, on-site storage.
32. Later this year the EA plans to carry out a second survey of the sector to build on the survey we conducted in 2025 with techUK on understanding data centre water use in England. This may provide some data on emerging technologies and plans to reduce environmental impacts of data centres.

What specific role can renewable energy play in reducing the carbon footprint of data centres?

33. Data centre development is increasingly constrained by limited availability of grid connections, long lead times, and uncertainty around future power sources that is further compounded with uncertainty on project numbers. Rising and volatile electricity prices influence cooling choices, often making water-based cooling the more financially viable option.
34. Improving energy efficiency is possible for data centre decarbonisation. If reducing consumption is not possible, the next step is to clean it by getting as much electricity as possible from renewable sources. The challenge is that data centres' operational profile — constant, high-volume, 24/7 demand — makes straightforward reliance on renewables more difficult than for most other sectors and requires more understanding and better planning.
35. Considerations include size of land and storage required for a data centre to use on-site renewables. Renewable energy is therefore necessary but not sufficient. It must be combined with genuine additional new generation, mandatory procurement standards, binding 24/7 matching requirements, and integration with storage and demand-side flexibility.

3 Understanding data centre water use in England, TechUK, 2025: techUK Report - Understanding data centre water use in England

Are there beneficial or precautionary lessons to learn from the impact of data centres outside the UK?

36. There are several lessons that can be learned from the impact of data centres outside the UK, examples of beneficial lessons include:
1. In Europe, some data centres can capture the heat that is produced and sell it to cities for heating and hot water.
2. In Singapore, there is a data centre which uses DCI electrolysis to move mineral build up from water that is used in its cooling equipment, so that it can be used for three times as long, leading to significant water savings.
3. A recent paper published by the European Data Centre Association highlighted the Information and Communications Technology (ICT) industry in the Netherlands represents less than 0.1% of water used nationally, while data centres in France in 2020 consumed just over 0.1% of nationwide water4.
4. In Northern Virginia, Amazon Web Services (AWS), in partnership with Loudoun Water (a water utility company) was the first data centre operator to be approved to use treated wastewater for direct evaporative cooling.

37. Public and media perception of the impact of data centres in the UK is often based on examples of data centres in the USA, such as AWS mentioned above. The USA houses almost half of the worlds data centres, and more data on them is available due to more studies on consumption. A lot of news reporting on data centres in the UK relies on this information. However, the water usage of data centres in the UK is different from those in the USA, which means reporting from this knowledge base may not always provide an accurate representation of UK data centre water consumption.
38. Compounding this issue is the limited public awareness of the critical role data centres play in supporting everyday digital services, as well as the indirect water and energy impacts of individual digital behaviours. Without clearer communication, shared messaging, and improved transparency between the sectors, negative public sentiment is likely to persist, undermining the ability to secure social licence for future developments and making collaborative, sustainable planning more difficult.

To what extent will the resource demands of data centres impact on other sectors with regard to competition for resources and decarbonisation?

39. As data centres are considered CNI they will theoretically have higher priority for access to water than other important sectors, such as agriculture which is not critical infrastructure.
40. There is a trade-off between power usage effectiveness and water usage effectiveness; the less water used the more power required. Therefore, to be

4 Understanding data centre water use in England, TechUK, 2025: techUK Report - Understanding data centre water use in England

environmentally sustainable it needs to be green energy.

41. Ofgem has warned that connecting these data centres to the grid could delay other projects "critical for decarbonisation and economic growth." Renewable energy developments are already struggling to connect at the pace at which they are being built, putting the government's target for a virtually carbon-free power system by 2030 under further pressure5.

42. Data centre development itself is also increasingly constrained by limited availability of grid connections, long lead times, and uncertainty around future power sources that is further compounded with uncertainty on project numbers. Rising and volatile electricity prices influence cooling choices,

often making water-based cooling the more financially viable option, that can increase pressure on local & limited water resources.

43. Although the development of heat networks presents a potential co-benefit, offering opportunities to recover and reuse waste heat from data centres, their deployment competes for limited underground space already needed for essential water mains and other pipelines. Moreover, there is uncertainty around the sustainability of heat networks reliant on data centre heat, as future sector efficiencies will reduce the amount of waste heat available. These challenges create barriers to sector growth and complicate the coordinated planning needed to deliver co-benefits.

Additional information – risks of pollution

44. On site power generation for data centres, which often comes in the form of combustion plants, poses pollution risks.

45. There are water pollution risks associated with power generation co-located with data centres. These may rely on large banks of combustion plants with large-scale storage of fuels; battery energy storage systems; heat networks; and going forward, small modular reactors. These pollution risks need to be assessed and managed, often through the planning system. The EA may comment on measures required to protect the environment and advise where the applicant has not demonstrated the level of risk to be acceptable.

5 Understanding data centre water use in England, TechUK, 2025: techUK Report - Understanding data centre water use in England