Data center water use becomes investor risk

More than one billion gallons of water went into cooling Google’s data center in Council Bluffs, Iowa in 2024, according to reporting cited by Ars Technica. The same week, SpaceX amended its IPO paperwork to warn that water scarcity and regulation could constrain future data center development, underscoring how quickly a local utility issue is becoming a line item for investors.

Data centers consume water mostly for cooling, and the cheapest option in many places is evaporative cooling: fresh water absorbs heat and is then vented through cooling towers as vapor. Operators like it because it can reduce electricity demand from mechanical chillers and pumps, lowering operating costs and, depending on the grid, emissions. But the trade is paid at the municipal level, where summer heat raises both household demand and server-rack demand at the same time. Shaolei Ren at UC Riverside tells Ars Technica that water is a local constraint; a design that looks efficient on a global sustainability slide deck can look like competition with residents when a watershed is stressed.

The scale is no longer hypothetical. Lawrence Berkeley National Laboratory estimated in a 2024 report that hyperscale data centers could consume up to 33 billion gallons of water by 2030 if evaporative cooling becomes the dominant approach. The number is often defended by comparison—agriculture and oil and gas consume more, and a single fracked well can take millions of gallons—but those sectors rarely show up seeking permits in the same suburbs where cloud providers want to build. A Gallup poll cited in the piece found opposition to data center development running high, with water scarcity the top resource concern.

Companies are now trying to buy room to grow. Google announced new water commitments for communities hosting its data centers, including plans to expand reclaimed and recycled water use, disclose annual water consumption, and invest in local projects intended to replenish more freshwater than it uses. Microsoft and others have made similar pledges, while Microsoft, OpenAI, and Oracle have indicated they are moving away from evaporative cooling in some projects to reduce water use. Google, however, has also defended evaporative cooling in regions with abundant water, arguing in an EU filing that it can be part of a “sustainable” design—an argument that rests on the ability to shift costs between electricity systems and water systems depending on what is cheapest or most politically manageable.

The practical effect is that data center expansion is starting to depend on water rights, wastewater access, and local permitting as much as on fiber and power. When a fast-growing digital service needs a slow-moving physical resource, the bottleneck ends up being decided in county meetings and utility rate cases rather than in software roadmaps.

In Council Bluffs, the water already left the cooling towers as vapor. The next round of projects is being priced with drought language written into the prospectus.