When the Cloud Lands: How the Data Centre Boom Is Becoming a Climate Issue for Cities

When a proposal for a new data centre appeared on the council agenda in the Rural Municipality of Sherwood, Saskatchewan, I found myself doing something I used to do often as a municipal councillor: opening the council information package and reading it line by line.

The proposal looked familiar in many ways - a large commercial rezoning application, suggesting new investment, jobs, and an expanded tax base. Exactly the kind of development local governments are encouraged to attract.

But as I read through the materials, I began noticing what wasn’t there.

How much water would the facility use? 

How much electricity would it require?

Who would pay for the infrastructure upgrades needed to support it?

Across Canada, proposals like this are beginning to show up with increasing frequency, from Nanaimo to Etobicoke, from Olds, Alberta, to the RM of Sherwood. As the federal government advances an ambitious agenda to develop domestic “sovereign AI,” the physical infrastructure needed to support that ambition — data centres — will increasingly land in local communities.

For municipal governments, this raises a new set of challenges and often asks them to gamble on the promise of regional economic development without readily available details.

Data centres are often described as part of the digital economy. But the infrastructure behind artificial intelligence is anything but virtual: it is deeply physical and resource-intensive.

Consider water.

A hyperscale data centre can use roughly 300,000 gallons of water per day — more than 1,000,000 litres — depending on the cooling systems used. A recently approved facility in Etobicoke was authorized to use approximately 1.2 billion litres of water annually, equivalent to roughly 500 Olympic-sized swimming pools.

Recent reporting by Bloomberg exposes how rapidly expanding data centre development is already intensifying water pressures in parts of the United States. The analysis found that roughly two-thirds of data centres built since 2022 have been located in areas experiencing high levels of water stress, raising questions about how communities balance these investments with long-term resource management.

For communities like the RM of Sherwood, these numbers matter.

Residents such as Janna Pratt from the George Gordon First Nation have raised concerns about the implications for local lands and ecosystems.

“Consultation needs to be a key process with the lands, to build a partnership together to protect what is out there, especially the wildlife.”

Understanding water usage isn’t just about environmental impact. It can also affect municipal infrastructure planning, from maintaining adequate hydrant flows for fire protection to managing wastewater systems.

Energy demand raises similar questions.

Data centres require enormous electricity loads. Many projects propose building dedicated substations to supply the necessary power. But it is often unclear who bears the cost of that infrastructure. 

In Saskatchewan, there is currently no legislation requiring developers to cover transmission upgrades or infrastructure like new substations. This raises the possibility that those costs could be borne by SaskPower, and ultimately passed on to households through higher utility bills.

In some U.S. jurisdictions, similar cost-shifting dynamics have already produced dramatic consequences. In certain regions, electricity bills have increased by nearly 300% over a five-year period as utilities passed the costs of grid upgrades required by data centre development onto consumers. In order to avoid these kinds of concerns in Canada, local governments need clarity about who pays for infrastructure expansion before approving new projects.

A Global Boom, Landing Locally

Across the United States, data centre development has become a political flashpoint in states such as Wisconsin, Virginia, and New York. Some jurisdictions are even considering temporary moratoriums on new approvals.

Canada has an opportunity to learn from these experiences and implement climate- and equity-informed approaches to this new infrastructure. 

Some regions in Scandinavia, for example, have negotiated agreements with developers to capture waste heat from data centres and redirect it into district heating systems, turning a potential environmental cost into a community benefit.

These examples illustrate an important point: the outcomes of data centre development are not predetermined. They depend on the questions communities ask and the governance tools they have available.

Why this matters now 

AI is rapidly reshaping economies and public services. But the infrastructure powering that transformation has significant implications for energy systems, water resources, land use, and local governance.

What this moment reveals is that AI infrastructure is climate infrastructure.

And the decisions about where and how that infrastructure is built are increasingly being made at the local level.

Across Canada, municipal leaders are being asked to weigh economic opportunity against public concern and environmental risk, often without the information or policy tools they need to make informed decisions.

At Urban Climate Leadership, we are working with local governments and partners across sectors to help equip communities with the knowledge and collaborative capacity needed to navigate these decisions.

Because the future of artificial intelligence may be digital, but the impacts will be deeply local.

And increasingly, those impacts will shape the climate and infrastructure decisions cities must make.

Five Questions Cities Should Ask About Data Centres

As proposals for AI data centres appear across Canada, municipal leaders are beginning to ask a new set of questions.

1. How much water will the facility use?
Cooling systems for hyperscale data centres can require more than one million litres of water per day.

2. Where will the electricity come from?
Large facilities may require dedicated substations and significant grid capacity.

3. Who pays for infrastructure upgrades?
Transmission lines, substations, and utility expansions can be costly. Clear rules are needed to ensure those costs are not passed on to residents.

4. What benefits will the community receive?
Some jurisdictions have negotiated waste heat reuse, local energy integration, or economic participation agreements.

5. How will local communities and Indigenous nations be consulted?
Transparent consultation processes are essential to ensure projects respect local priorities and environmental stewardship.

As AI infrastructure expands, these questions will become increasingly central to local climate and economic governance.