Prime Minister Anthony Albanese had been pushing for mandates for AI data centres to provide their own renewable energy as the use of the technology increases rapidly.
But Queensland and the Northern Territory appeared to received a carve-out from the federal government following a national cabinet meeting on Wednesday, allowing for centres in those jurisdictions to be powered by coal and gas.
But Chris Bowen has clarified it is up to states and territories to prove they can find a cheaper source of power if they want to comply with the proposed federal laws.
"Now, the Queensland government says they can somehow have something which is cheaper than renewables? We say, 'OK, prove it'," he told the ABC.
"We'll have the Australian Energy Regulator look at it and assess it.
"But the Commonwealth will decide that, not a state or territory."
Each jurisdiction must prove the construction of a data centre will provide it's own power which will not push up energy prices.
Mr Bowen said the government's position had not changed following the national cabinet meeting.
"The government was always going to legislate nationally consistent standards, we're still going to," he said.
The revised proposal came a day after the grid operator warned energy demand from data centres was expected to rise by almost seven times over the next decade, adding the National Electricity Market should remain reliable into the 2030s if renewable projects are delivered on time.
Sasha Titchkosky, a member of the Sydney-based Lane Cove Responsible Planning community group that's been speaking out about a proposed data centre development in the area, said the carve-outs set a dangerous precedent.
"The goalposts just constantly keep changing, and when you're fighting to protect your community and ensure that the things that are really important to your community hold true, it becomes very difficult to kind of be handballed from one side of the field to the other," she told AAP.
She said the move away from enforcing renewables for data centres to allow for coal and gas was a concern, just weeks after the proposed federal mandates were unveiled.
Climate Council chief executive Amanda McKenzie said the needs of community, rather than AI companies and the energy industry, needed to come first..
"This is a question of whether data centres bring genuinely new clean energy with them, or soak up capacity the rest of us need," she said.
"Clear and consistent national standards that deliver additional renewable energy, without any exceptions, is the only way to avoid higher power prices and pollution."
Draft legislation is set to be unveiled by the end of 2026, with the laws planned to come before federal parliament in early 2027.
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