It was supposed to be called Cipriani, a master planned community with more than 9,700 homes at the western fringe of this sprawling desert city in central Arizona.

Plans have changed. One regional growth industry – housing – is being supplanted by another – computing. Even as both carry questions about efficient use of water in one of the driest, fastest-growing areas of the country.

Last August, Cipriani Holdings sold the 2,069-acre land parcel west of the Buckeye Municipal Airport to Tract, a Denver-based data center developer. Instead of housing people, the Cipriani site, now part of the Buckeye Tech Corridor, will incorporate up to 20 million square feet of commercial space to house the cloud.

These are boom times in central Arizona for data centers, particularly in Maricopa County, which is one of the country’s largest data center markets. Factors in its favor, according to Alan Howard, an industry analyst at Omdia, a research firm, include relatively cheap land, tax incentives, low power rates, and proximity to the computing needs of the 5 million people in the Phoenix metro area.

Data centers house the servers and advanced graphics processors that are the foundation of the contemporary internet – and modern life in general. Their purposes range from the small-scale and mundane (storing your beach photos) to the hyperscale and potentially world-changing (training AI models). In aggregate, their power demands and water consumption for cooling have increased exponentially, prompting concerns about the sustainability of data center growth in the Southwest.

Despite the environmental anxieties, there is reason for optimism on water. New data centers are more efficient than older models. Some are using reclaimed water to reduce potable water demand. If the local climate is right, they can use ambient air to cool their servers. Companies like CyrusOne and Microsoft are pioneering cooling systems that consume little or no water in their direct operations, not counting water used to produce their electricity. Though there are tradeoffs involved with energy use, water consumption is increasingly becoming less an absolute constraint and more about the choices companies make.

“I’m far more concerned about energy than water,” said Glenn Williamson, CEO of the Canada Arizona Business Council and chairman of EPCOR Water, a private utility that operates in the state. “For water, we know what we need to do. We just need to pull the trigger.”

New ‘C’ in Arizona’s Economic Geography

The server fervor extends to the highest reaches of government. On January 21, just a day after his inauguration, President Donald Trump hosted a trio of tech industry executives at the White House. Larry Ellison of Oracle, Masayoshi Son of SoftBank, and Sam Altman of OpenAI stood at the president’s side while Trump announced private sector investment in AI infrastructure that could approach $500 billion. For this Stargate Project, he promised the construction of “colossal data centers” to keep America leading the AI race against China.

“I’m going to help a lot through emergency declarations because we have an emergency, we have to get this stuff built,” Trump said.

More and more of this data center “stuff” is being built in Arizona.

School kids learn Arizona’s economic geography via alphabetic repetition. Five C’s were dominant in the state’s early years: cattle, citrus, climate, copper, and cotton. As those industries decline in relative importance, it might soon be time to add a sixth C: computing. Metrics vary, but according to Howard at Omdia, the Arizona data center market is between the fourth and eighth largest in the country. All the big tech companies – Amazon, Google, Meta, and Microsoft – have a presence in the state, as do the less visible names Centersquare, CyrusOne, and QTS.

Arizona encourages the growth of data centers through a sales tax exemption that was approved in 2013. The Arizona Commerce Authority, the regulating agency, says that 64 data centers have received the exemption that covers purchases of hardware and software.

Growth has been accompanied by guardrails. Chandler was the first municipality in the state to regulate data centers. An ordinance adopted in 2022 established siting and noise-reduction requirements, but it did not mention water. The city regulates data center water use through a 2015 policy that limits these facilities to 115 gallons per day, per thousand square feet of space. For additional water needs, the company operating the data center must find an outside source.

Marana, a town 20 miles northwest of Tucson, adopted an ordinance in December that prohibits the water department from supplying data centers with potable water. Companies must find an alternative source and file an application with the town that estimates annual water consumption. No data centers are currently operating in the Marana service area, said Heidi Lasham, the town water director.

In Buckeye, Tract is laying the foundation for a development that could house 40 data centers occupying 20 million square feet at full buildout. Tract’s business model is not to build the data centers, but to acquire land and develop water, wastewater infrastructure, and energy access for the site so that tech companies have a turnkey option for quicker entry into the market.

Tract would not discuss its water plans for the Buckeye development. Graham Williams, chief investment officer, did provide a written statement when asked whether Tract would set water-use requirements for tenants.

“We secure enough water for our sites for a solution that optimizes energy and water use,” Williams wrote. “This is built into our approval process so that our end users are incentivized to maintain these standards since relevant stakeholders have signed off on them.”

In effect, Tract will attempt to balance energy and water demands, since low-water cooling often increases energy consumption.

Terry Lowe, Buckeye water manager, said Tract intends to drill wells on the site to self-supply with groundwater. In the future, he said, Tract will transfer the water system to the city when it no longer wants to be in charge of operating it. A city planning document restricts the site’s groundwater use to 2,000 acre-feet per year.

Tract’s forthcoming groundwater use highlights a loophole in Arizona water law. The state, in 2023, placed a moratorium on new housing developments outside Buckeye whose water source is local groundwater. Existing housing developments that pump groundwater must pay to recharge what they use. Neither provision applies to industrial developments like Tract’s data centers that are located in areas without a renewable surface water supply. This irritates the homebuilding lobby, which complains of unequal treatment.

Amber Walsh, an analyst with Bluefield Research, said that data center water use is a complex topic because of rapid technological change in the industry. Total water demands at present have accelerated, even as individual data centers become more efficient. When viewed nationally, all those drops, in effect, have turned into a flood.

At the state level, data centers are a modest water user, even if they can put pressure on individual utilities. Walsh’s research at Bluefield indicates that data center water consumption in Arizona in 2025 will be roughly 905 million gallons, or 2,777 acre-feet. In the Phoenix area, this is enough water for nearly 10,000 homes annually. It’s less than a tenth of one percent of the state’s annual water use.

Site-specific water data is hard to come by because companies guard the information. Still, researchers and analysts have put together national and regional estimates.

According to Lawrence Berkeley National Laboratory, data centers accounted for 4.4% of U.S. electricity use in 2023, up from 1.9% in 2018. All that power creates heat that needs to be removed. The trend toward hyperscale data centers – the largest of the large, those from the tech titans that are involved in AI computing – has had a similar inflationary effect on water use. Nationally, water consumed in data center operations grew from 21 billion liters in 2014 to 66 billion liters (53,500 acre-feet) in 2023. Indirect water use – the water consumed by the power plants that provide electricity to data centers – amounted to another 800 billion liters.

Water demands are not set in silicon and they involve tradeoffs. They depend on three main factors: type of cooling system, climate conditions, and operational practices. These vary based on location and data center. In favorable climates, using ambient air to cool the equipment results in no water use, but it does require more energy. Evaporative cooling, in which water is the medium for transferring heat, is less energy hungry but consumes more water. Older, water-intensive cooling system designs are being phased out in many places in favor of more efficiency. The Berkeley Lab report, however, notes that the growth of hyperscale data centers using liquid cooling could reverse the efficiency gains.

“Unlike energy, using water to cool a data center is a choice, not a requirement,” according to Alex Setmajer of Equinix, a data center operator. “While all data centers require energy, the decision to use water or not is a decision we make intentionally based on the local climate and long-term sustainability of available water sources.”

Water is becoming a hotter topic in the data center world, but it is still not the main driver for industry decisions, Walsh said. “It’s more or less they select the site that they want and then they’re like, ‘Okay, how can we make whatever water requirements work?’”

For desert areas like Maricopa County, water limits are being met with technological innovation. The eight facilities in the Chandler data center campus operated by CyrusOne do not use water for cooling, and they use a negligible amount overall, only 180,000 gallons a year for humidification. All of the company’s new data centers from 2024 onward will use zero-water cooling.

There are other examples. In December, Microsoft, a computing giant, announced a similar operational innovation for its data centers: a closed-loop cooling system that recycles water, effectively cutting water consumption to zero. The company said in a post on its website that it will pilot the technology in 2026 in data centers in Phoenix and Mount Pleasant, Wisconsin, as it works to make zero-water cooling the “primary cooling method across our owned portfolio.”

The shift to less water-intensive cooling is not without a penalty. The tradeoff is more energy use. Microsoft says this energy increase will be “nominal” due to more efficient cooling equipment. The company declined to respond to questions about how it would implement the new zero-water cooling system designs.

Shutting the Bedroom Door

For Buckeye officials, the Tract development is another step in its rapid demographic evolution. At the turn of this century, Buckeye was a quiet farm town of 8,000 people. Now, it holds almost 120,000. By the turn of the next century, city officials are planning for more than 1 million.

Every weekday morning Buckeye witnesses an exodus. Workers flow out, leaving for jobs elsewhere. City officials reckon that 90 percent of working residents leave town to earn a paycheck, many joining the Interstate 10 caravan east into Phoenix. Peak drive times can be 30 minutes longer than in the off hours.

In the evening, the flow reverses. This is the standard definition of a bedroom community: sleep there, work elsewhere. Eric Orsborn, the mayor, said he wants to change that pattern. Buckeye’s future is aimed at developing not only its residential plots but also its business sector.

The Tract development, though it will generate only a modest number of non-construction jobs, is part of this plan.

“If you’re going to build a city of let’s say 300,000 by 2040, we don’t want everybody leaving the city every day to go to work,” Orsborn said. “So it is one of our highest priorities is to attract those jobs out this way.”