Politics with Michelle Grattan: Andrew Charlton's warning on data centres' impact on power bills

From the conversation, this is politics with Michelle Grattan. >> National cabinet has met to discuss the federal government's proposed legislation for the data centers that are going to be rapidly rolled out as the artificial intelligence revolution gains pace. There's been pushback, however, from Queensland and the Northern Territory over the government's insistence that new centers must be powered by new renewable energy projects. Meanwhile, there's increasing community disquiet about the whole issue of data centers, including their noise and their implications for the environment. [music] Today, we're joined on the podcast by Andrew Charlton. He's the Assistant Minister for Science, Technology, and the Digital Economy, as well as Cabinet Secretary. In this interview, we canvass the debate about data centers, the new rules, the fears over AI, as well as the potential it brings, and more. Andrew Charlton, we're starting to see a public backlash to the building of data centers both in Australia and abroad. A recent poll here found that only 23% of Australians would support a data center being built in their area, with some 44% opposed. How seriously do you take this backlash, and do you think it's likely to become worse? >> Well, first of all, thanks for having me on the show, Michelle. I think the backlash against data centers is very serious, and the reason I think it's very serious is because I think the concerns that many people have are real. You know, when you look at the United States, the consequences for local communities of the unplanned and unmanaged rollout of data centers been very severe. >> I mean, if you think about energy costs, you know, in the United States, we've seen very significant increases in consumer energy prices. The in the largest electricity grid in the United States, the PJM grid, prices went up by more than 60%. Big part of that was due to data centers. You know, there are families in the United States who turned on their taps after a cluster of new data centers was put near their homes and they lost water pressure. You know, so I think to the extent that the backlash against data centers is based on real community concerns, we should take it very seriously. That's really the Australian government's approach. It's to make sure that those types of impacts don't happen in Australia, to make sure that data centers don't push up power prices, to make sure the data centers don't complicate people's access to water, and by addressing those very real concerns, thereby increase public confidence and reduce the backlash against them. I think that's the right strategy to take these concerns seriously, uh step in early to create a world-first regulatory framework, and thereby give the public confidence. And that's precisely what the Prime Minister is doing today. >> So, what provision is there in this framework for community consultations? We've seen, for example, in the energy rollout, the renewable energy rollout, that communities have uh said that there's not been enough consultation. Do you have a specific provision this time for consultation? >> Well, we've put communities right at the heart of these proposals. We want to make sure that the communities that host these data centers uh beneficiaries, uh that those communities do not experience harms, like increasing power prices, loss of access to drinking water, noise, etc. So, making sure that uh community benefits are at the heart of these data center proposals is really the most important point. And that's been front and center in the Prime Minister's discussions with his state and territory counterparts. >> But will it actually involve consultations when the uh particular projects are foot? >> Absolutely. You know, I think those consultations already occur in many cases, but we want to make sure that those consultations are meaningful and that those consultations uh occur within guardrails, nationally consistent guardrails. Uh framework that the Prime Minister is calling the Australian AI standard, which is this world-first set of requirements that data centers work with communities and deliver benefits to communities and avoid imposing harms on those communities. >> But some fear that uh there's a rush to get some centers built before these guardrails are legislated. Is this a problem? And when do you expect the legislation to be passed? And when will it start? >> Well, uh in terms of the types of data centers that um this legislation will capture, these are the large AI data centers, and we are really at the early stages of the development of these data centers. Australia would only have a couple of them at the moment, um whereas, you know, the United States would have many, many dozens. >> So, when will the legislation be through and the new rules start? >> Well, the Prime Minister is taking it to National Cabinet today. Uh he said that he expects to have exposure drafts out before the end of the year. >> And that would mean the rules would begin when do you think? >> Well, once the legislation has passed the Parliament, which would be in the new year. >> Right. Well into the year, presumably. >> Well, we we think there's an urgency around this and we'll be trying to get it done as quickly as possible. >> Now, we saw a report from the Australian Energy Market Operator that said data centers are expected to draw as much power from the grid by 2036 as all homes in New South Wales and Victoria do at the moment. Do you think Australia can keep up with this? That the grid can keep up with it? >> Well, look, that's a plausible estimate. Um data centers currently consume about 3% of electricity in the grid and the report you referred to suggests that in the next 10 years, that might rise from 3 to around 13% of the grid. Uh that is a very steep increase in power consumption by data centers. What the government has said is we want to make sure that any increase in data center power usage does not cause power prices to go up for Australian households. We don't want to see the same impact on power prices here that we have seen around the world. And so, that's why the Prime Minister has gotten in front of this problem and said that data centers need to bring their own power. They need to be contributing to the grid with new energy, adding new generation to the grid uh if they want to operate in Australia. And what that will mean is that the pace of data center growth is calibrated to the growth in energy generation in the grid. That will mean that the grid grows at the same pace as the data center demand. That will stop data centers from putting upward pressure on prices uh and make sure that the extent to which these data centers are introduced, they're bringing their own power uh and not taking power that consumers or businesses in Australia need. >> The conservative states or jurisdictions of Queensland and the Northern Territory are objecting to that condition. They say that they should be more energy-agnostic, that they want to use other forms of uh energy, not just the renewable energy. Why is that approach inadequate? It sounds to have some common sense about it. >> Look, I'm not agnostic to the outcome for Australian. >> [clears throat] >> I want to make sure that Australian households do not face higher power prices because of data centers. And if we are allowing data centers to use power from, for example, coal-fired generation, then they are going to be competing for that existing power from that source with households and businesses. That will push up the price. If we allow data centers to use gas from the East Coast reservation, for example, then they will be drawing gas that would otherwise be used by households and businesses. So, the problem with that proposal is if we allow the data centers to draw on finite sources of energy, they will inevitably put upward pressure on the price of those finite sources of energy. However, if we require the data centers to bring new incremental energy, which is renewable energy, additional to what we already have, then they won't push up prices for Australian consumers. So, the reason why we are so focused on on making sure that this that data centers use incremental renewable power is cuz it is the genuinely new source of power, the genuinely incremental source of power of power. The source that does not compete with Australian families for the reserves of power we already have. That's why it's important that this principle be adopted by the states. >> Now, turning to AI specifically, there's been a lot of worry among the arts and uh there's been a lot of worry among those in the creative industries uh about how it's going to affect them. The government's proposed legislation is addressing issues like copyright. I wonder if you can just give us some more detail on how this will be written. >> Well, the Prime Minister has been very clear on this question. Um he said that uh Australia will not be enabling our creatives to have their work taken without compensation. Uh he set some very clear parameters. Um he said that that creatives will have to make will maintain control of their uh works. He said that any voluntary use will have to be paid for by AI companies. And the reason that he said that is that this government backs the creative sector. We recognize that this is a really important sector in Australia. We recognize the value of their work. And we think that they should be compensated if their work is used in AI. The Attorney General is leading the process working with all of the sectors in order to get an outcome here. Um but the Prime Minister has clearly laid down the parameters of what that outcome will be. >> You gave a major speech on AI last week and you made the very important point that Australia must move up the AI value chain to get the most benefit from from it rather than simply hosting data centers. What does this move up mean in practice? How would it operate? >> Well, the AI value chain um starts at one end with the basic inputs, for example, energy. Then on top of the energy, the next element in the value chain is the infrastructure, the data centers. Then on top of that is the chips. Then on top of that is the models. Then on top of that is the uh consumer applications and software. So, Australia's strength right now is at the bottom of that value chain in energy and data centers. We have abundant renewable energy potential. We have a very strong data data center industry. So, that's where our strength lies in the value chain. But, the point that I was making in that recent speech is that's not necessarily where the most value for Australians will lie. In fact, some of that data center industry might not be where the real profitability in the sector is. And in fact, I broke the value chain to show that a lot of the real economic value, the type of value that will maintain Australia's prosperity in the 21st century sits up in the higher levels of the value chain where a lot of money is being made out of models and out of software and consumer applications. So, that means Australia's strength is in that area in the bottom and we need to use that strength to climb up the value chain. And we have a plan to do that. It's the oldest industry policy trick in the book, which is use the element of the value chain what the element of the value chain where you have strength to create a position in the part of the value chain where there is the most money to be made. And the way that we're doing that is by saying that if the foreign companies want to come and invest in Australia in data centers as they do, then we're going to require them to contribute to our ecosystem higher in the stack. What does that mean? It means if one of these big AI companies wants to come and build a big data center in Australia, we're going to ask them to do some extra things on top. We're going to ask them to contribute to our local ecosystem of startups and researchers by for example, providing subsidized compute to help our researchers and our startups. We might also ask them for example to bring some of their own research and development capability to Australia. We might ask them for example to create partnerships with our universities and scientific institutions. So, this is a way that we can use our strength, the attractiveness that we have for foreign investment in data centers, uh to increase our strength higher up the stack by putting requirements on those data center investors. In our data center expectations, we call that expectation five. And it's a really important part of our economic strategy, not just to participate in the AI economy, but to make sure that we produce prosperity for Australians out of that economy. >> Do you think companies will be willing to accept those sorts of conditions or go somewhere where the conditions are less rigorous? >> Well, it's a balance. We have to make sure that we put those conditions on those companies in a way that that supports them. For example, I think there's a lot of value in those partnership with Australian researchers. And we have to do it do it in a way where those companies see value in being Australia in in Australia. So, there is, you know, always a balancing act to create value for both parties, but I think we can I think we can, because we are an attractive location, we are in a position to make reasonable demands of these companies in that space. We're working with the companies, we're working with our research sector to determine what those demands should be, but we certainly have a lot of strength, a lot of great universities, a lot of great research institutions, and I think there can be mutual value. >> Australia has a real productivity problem at the moment. Do you think that AI can be at least a small silver bullet in dealing with this? >> Well, I would hope so. Artificial intelligence is effectively a a significant technological innovation, and technological innovation is one of the primary drivers of productivity growth. Productivity growth, as you know, is about enabling us to produce more output for the same amount of inputs, and artificial intelligence, because it will help us to do a lot of work should be a significant source of productivity gains. How quickly those gains come uh is another question. Uh whether they whether it takes time to embed artificial intelligence into our economy in a way where we can harvest those gains, but certainly it shows great potential for productivity gains over the medium and long term. And that should be a source of economic growth. And because we're a Labor government, we want that to be a source of general prosperity. We want to make sure that those gains filter through the economy and that all Australians benefit from it. That we see the benefit of that increased productivity in higher wages for working people. And that we see the benefits of that productivity in stronger economy that benefits everybody. Artificial intelligence holds great promise for stronger economic growth and and also a fairer economy. >> Of course, productivity can be about doing more with fewer people. And many people are fearing significant job losses through AI. What do you think about this? >> Well, that would be a very unfortunate outcome because um uh there's no point getting productivity growth um at the expense of employment because then your total output does not go up. Um what we need is productivity growth that augments and enhances the human labor to make that human labor more productive, get higher returns from that human labor, and ultimately drive up wages and living standards. That's the outcome that we want. There are a lot of predictions out there about what the implications of artificial intelligence will be for employment, uh for the labor market. The government is really focused on transparency [clears throat] here and on monitoring the situation very closely. Uh and I give great credit to the employment minister, Amanda Rishworth, who released a paper from uh the government just a few weeks ago, which described the employment impacts of artificial intelligence in Australia. And this paper went through what is artificial intelligence really doing to Australian jobs? And the conclusion of the of that paper was that at this point, at least up to this point, the impact of artificial intelligence on Australian jobs is modest. We have continued low unemployment. We have continued high participation rates. And even in the areas of our labor market which are most impacted by artificial intelligence, graduate jobs, IT jobs, we are seeing jobs in those areas hold up strongly in Australia. So, we're not complacent about the impact of artificial intelligence on the labor market. We are monitoring it very closely. We are working hard to make sure that as this technology comes into the Australian labor market, it comes in to augment human labor, not to replace it. And that in doing so, it provides stronger opportunities, more productivity growth, higher wages, and better living standards. But, we're monitoring the situation very closely. >> I saw that paper with its non-scary conclusions, but nevertheless, we are at such an early stage that it doesn't really say much about job replacement in the longer term, does it? >> Well, look, I mean, there's always been technology that replaces human jobs. 200 years ago, 98% of the population worked in agriculture. And then, agricultural mechanization took away a lot of those jobs. And now, 2% of the labor market works in agriculture. So, you know, we are no strangers to machines that take on human jobs. What we have to have been good at over time, and have been good at over time, is creating new jobs for humans to do, new ways for humans to add value to each other. And that's the task we have in front of us with artificial intelligence. It's certainly the case that artificial intelligence will be doing things that currently humans do. The question is, can we then create new jobs, new opportunities for those people? And the historic experience is that yes, we can. The challenge is to make sure that through the transition, there isn't significant dislocation, that we support workers through that transition, that we provide them with new opportunities, that we give them the training that they need, we create those new jobs, and we help people on the way through. That's the challenge that we have. That's why we're monitoring it so closely. >> AI can be used very negatively in elections and in political campaigning. Do you have fears in that regard, and do you think that the government needs [clears throat] to look at some controls and in that area? >> Look, artificial intelligence, like many of of these other digital technologies, can have significant impacts on elections. You know, we've already seen around the world in the last few elections, you know, significant attempts at interference. And artificial intelligence will be a tool for the people who want to interfere in elections. There's no There's no question about that. Now, this is part of the government's broader artificial intelligence safety agenda. That safety agenda is looking at a whole range of different risks that are posed by artificial intelligence. Risks, for example, to child safety, and that's why Minister Rowland is leading the digital duty of care. Risks to privacy, and that's why Minister Rowland is leading reform in the Privacy Act. Risks in critical infrastructure being addressed by Minister Burke. Risks in the economy being led by Assistant Minister Leigh. The government is working hard on all the range of risks that are posed by artificial intelligence, including those democratic risks, and the government has a joint standing committee on electoral matters that looks at these types of things and certainly artificial intelligence will be one of the aspects as we think about the risks to our democracy in the years ahead. >> So, could we see action before the election? >> Well, I'll let the I'll let the joint standing committee um do their work, um but certainly something that we need to be very focused on, something that we need to be looking at to see what those risks are, to firm up those risks, and make a determination about what mitigating actions, what regulations, what legislation may be required to address that. Um but I think we need to do the work first before we jump to the solution. >> Just to finish on another area, economics is um your special area of expertise, and today we've seen fresh inflation figures. Inflation has come down somewhat, but it's still in the mid-3s at 3.5% for the headline rate. This is bad news for people who see their grocery bills going up and their real wages going backwards. There are fears that interest rates will rise again in coming months. How long before How long do you think before inflation is likely to be brought under control, back to that 2 to 3% Reserve Bank range, and what more can the government do to support the Reserve Bank in its efforts to get on top of the inflation dragon? >> Well, you know, inflation is a terrible feature of our economy. It increases prices, it hurts the cost of living. It's very damaging for family budgets. You know, the good news is that inflation has come down a lot in the last 4 years. You know, 4 years ago inflation was in the 6s. It is now in the 3s. Now, that is still too high, as the Treasurer has said many times. The government has been contributing to or helping to put downward pressure on inflation by running responsible fiscal policy. Uh this government delivered two budget surpluses last term. Uh that is two more than the liberals delivered in their entire three terms in parliament. We've delivered very significant fiscal savings uh which are are also of assistance uh and we have a strong productivity agenda that the treasurer has been leading and uh in uh unveiled in large part in the last budget. So there's no question we've got more work to do in terms of getting inflation down, but this is a government through uh fiscal discipline and through work on the productivity side and supply side of the economy uh that's committed to supporting that is those objectives. >> When you speak of more work, can you be a bit more specific? >> Well, the government has had a very active uh productivity program. Um whether it be by reducing regulation or uh cutting uh nuisance tariffs, uh a range of measures to promote capital investment. The government's very focused on the supply side of the economy um and a lot of the measures led by the treasurer have contributed to an increase in uh private sector capex which we've seen in the last a little while. Part of that is data centers which we're talking about earlier in this conversation. These are all important things to get growth moving, to get productivity moving uh on top of the very significant fiscal savings that have been found in the last several budgets. >> Andrew Charlton, thank you very much for being with us today to talk about these [music] issues of the future. That's all for our podcast. Thank you to my producer Ben Roeper. We'll be back with another interview soon, but goodbye for now. >> Production by Ben Roeper. Theme music by Lee Rosevere. The conversation is a not-for-profit media organization. Sign up to our daily newsletter for evidence-based news and analysis, including articles from Michelle Grattan, or listen to more of our shows wherever you get your podcasts.