Data Centres and Energy

The IEA Electricity 2024: Global trends Analysis and forecast to 2026 report states 

Global electricity demand from data centres could double towards 2026 

We estimate that data centres, cryptocurrencies, and artificial intelligence (AI) consumed about 460 TWh of electricity worldwide in 2022, almost 2% of total global electricity demand. Data centres are a critical part of the infrastructure that supports digitalisation along with the electricity infrastructure that powers them. The ever-growing quantity of digital data requires an expansion and evolution of data centres to process and store it. Electricity demand in data centres is mainly from two processes, with computing accounting for 40% of electricity demand of a data centre. Cooling requirements to achieve stable processing efficiency similarly makes up about another 40%. The remaining 20% comes from other associated IT equipment. 

Future trends of the data centre sector are complex to navigate, as technological advancements and digital services evolve rapidly. Depending on the pace of deployment, range of efficiency improvements as well as artificial intelligence and cryptocurrency trends, we expect global electricity consumption of data centres, cryptocurrencies and artificial intelligence to range between 620-1 050 TWh in 2026, with our base case for demand at just over 800 TWh – up from 460 TWh in 2022. This corresponds to an additional 160 TWh up to 590 TWh of electricity demand in 2026 compared to 2022, roughly equivalent to adding at least one Sweden or at most one Germany. ... 

Data centres are significant drivers of electricity demand growth in many regions

There are currently more than 8 000 data centres globally, with about 33% of these located in the United States, 16% in Europe and close to 10% in China. US data centre electricity consumption is expected to grow at a rapid pace in the coming years, increasing from around 200 TWh in 2022 (~4% of US electricity demand), to almost 260 TWh in 2026 to account for 6% of total electricity demand. Growth will be driven by increased adoption of 5G networks and cloud-based services, as well as competitive state tax incentives. 

China's State Grid Energy Research Institute expects electricity demand in the country’s data centre sector to double to 400 TWh by 2030, compared to 2020. We forecast electricity consumption from data centres in China to reach around 300 TWh by 2026. Regulations are being updated to promote sustainable practices in current and future data centres to align them with decarbonisation strategies. A major source of data centre growth is expected to come from the rapid expansion of 5G networks and the Internet of Things (IoT). 

In the European Union, data centre electricity consumption is estimated at slightly below 100 TWh in 2022, almost 4% of total EU electricity demand. Around 1 240 data centres were operating within Europe in 2022, with the majority concentrated in the financial centres of Frankfurt, London, Amsterdam, Paris, and Dublin. With a significant number of additional data centres planned, as well as new deployments that can be expected to be realised over the coming years, we forecast that electricity consumption in the data centre sector in the European Union will reach almost 150 TWh by 2026. 

Almost one-third of electricity demand in Ireland could come from data centres by 2026 

In Europe, the data centre market in Ireland is developing rapidly as their electricity consumption grows along with new policies and initiatives. Electricity demand from data centres in Ireland was 5.3 TWh in 2022, representing 17% of the country's total electricity consumed. That is equivalent to the amount of electricity consumed by urban residential buildings. At this pace, in a high case scenario, Ireland’s data centres might double their electricity consumption by 2026, and with AI applications penetrating the market at a fast rate, the sector could reach a share of 32% of the country’s total electricity demand in 2026 if most of the approved projects are able to be connected to the system. This assumes that at the same time efficiency gains in other sectors continue to take place. 

Ireland’s stock of data centres, currently at 82, is expected to grow by 65% in the coming years, with 14 data centres under construction and 40 approved to start the building phase. Ireland has one of the lowest corporate tax rates in the European Union (12.5%), which is an advantage for the sector’s expansion in the country. By contrast, European OECD countries’ average corporate tax rate is 21.5%. 

The rapid expansion of the data centre sector and the elevated electricity demand can pose challenges for the electricity system. To safeguard the system’s stability and reliability, Ireland’s Commission for Regulation of Utilities published in late 2021 its decision on the new requirements applicable to new and ongoing data centre grid connection applications with three assessment criteria to determine if the connection offer can be made. First, the location of the data centre with respect to whether they are within a constrained region of the electricity system. Second, the ability of the data centre to bring onsite dispatchable generation and/or storage equivalent, at least, to their demand. Third, the ability of the data centre to provide flexibility in their demand by reducing it when requested by a system operator. For the third clause, data centre operators that offer their servers for hire will have to update their contracts to reflect the new regulations. These requirements showcase the local government’s inclination to grant connections to those operators that can make efficient use of the grid and incorporate renewable energy sources with a view of decarbonisation targets. ... 

Denmark currently hosts 34 data centres, half of them located in Copenhagen. As in Ireland, Denmark’s total electricity demand is forecast to grow mainly due to the data centre sector’s expansion, which is expected to consume 6 TWh by 2026, reaching just under 20% of the country’s electricity demand. Denmark is the hub for a new pan-European initiative, Net Zero Innovation Hub for Data Centers. The hub offers a space for collaboration between suppliers, operators and governments to enable progress towards the sector’s innovation and decarbonisation while meeting increasing regulatory demands. 

Data centres in Nordic countries – such as Sweden, Norway, and Finland – benefit from lower electricity costs. This is attributed to lower cooling demand due to their colder weather, and to lower electricity prices in comparison to other major data centre hubs, such as Germany, France and the Netherlands. The largest actor amongst Nordic countries is Sweden, with 60 data centres, and half of them in Stockholm. In August 2023, plans for a nuclear-powered data centre were announced utilising small modular reactors (SMR) technology on the east coast of Sweden, with a commissioning date envisaged for 2030. Given decarbonisation targets, Sweden and Norway may further increase their participation in the data centre market since almost all of their electricity is generated from low-carbon sources. 

In the United States, the largest data centre hubs are located in California, Texas and Virginia. In the case of Virginia, their economy was dominated in 2021 by the data centre sector expansion, attracting 62% of all of the state’s new investments and providing more than 5 000 new jobs. Northern Virginia is the largest data centre market in the country, collecting USD 1 billion in local tax revenues per year, with growth trending higher as companies, such as Amazon’s planned USD 35 billion expansion by 2040, continue to increase their investment in the state. New legislation is aimed at tightening regulations on data centre developments, including zoning rules, mandatory environment and resource impact assessments, as well as guidelines on water usage. In US northeastern states, the regional transmission organisation PJM expects data centres to increasingly drive electricity demand, forecasting a rise in summer peak load from 151 GW in 2024 to 178 GW by 2034. 

Artificial intelligence and cryptocurrencies are additional sources of electricity demand growth 

Market trends, including the fast incorporation of AI into software programming across a variety of sectors, increase the overall electricity demand of data centres. Search tools like Google could see a tenfold increase of their electricity demand in the case of fully implementing AI in it. When comparing the average electricity demand of a typical Google search (0.3 Wh of electricity) to OpenAI’s ChatGPT (2.9 Wh per request), and considering 9 billion searches daily, this would require almost 10 TWh of additional electricity in a year. 

AI electricity demand can be forecast more comprehensively based on the amount of AI servers that are estimated to be sold in the future and their rated power. The AI server market is currently dominated by tech firm NVIDIA, with an estimated 95% market share. In 2023, NVIDIA shipped 100 000 units that consume an average of 7.3 TWh of electricity annually. By 2026, the AI industry is expected to have grown exponentially to consume at least ten times its demand in 2023. ... 

In 2022, cryptocurrencies consumed about 110 TWh of electricity, accounting for 0.4% of the global annual electricity demand, as much as the Netherland’s total electricity consumption. In our base case, we anticipate that the electricity consumption of cryptocurrencies will increase by more than 40%, to around 160 TWh by 2026. Nevertheless, uncertainties remain for the pace of acceleration in cryptocurrency adoption and technology efficiency improvements. Ethereum, the second largest cryptocurrency by market cap, reduced its electricity demand by an amazing 99% in 2022 by changing its mining mechanism. By contrast, Bitcoin is estimated to have consumed 120 TWh by 2023, contributing to a total cryptocurrency electricity demand of 130 TWh. Challenges in reducing electricity consumption remain, as energy savings can be offset by increases in other energy consuming operations, such as other cryptocurrencies, even as some become more efficient. 

Efficiency improvements and regulations will be crucial in restraining data centre energy consumption 

The revised Energy Efficiency Directive from the European Commission includes regulations applicable to the European data centre sector, promoting more transparency and accountability to enhance electricity demand management. Starting from 2024, operators have mandatory reporting obligations for the energy use and emissions from their data centres, and large-scale data centres are required to have waste heat recovery applications, when technically and economically feasible, while meeting climate neutrality by 2030. An earlier EU regulation, applicable since 2020, sets efficiency standards for data centres enabling better control over their environmental impact. A self-regulatory European initiative created in 2021, called the Climate Neutral Data Centre Pact, sets targets to achieve climate neutrality in the sector by 2030. More than 60 data centre operators have signed on to the pact, including large operators like Equinix, Digital Realty and Cyrus One. 

In the United States, the Energy Act of 2020 requires the federal government to conduct studies on the energy and water use of data centres, to create applicable energy efficiency metrics and good practices that promote efficiency, along with public reporting of historical data centre energy and water usage. The Department of Energy (DOE) is supporting the local production of semiconductors and is funding the development of more efficient semiconductors over the next two decades. More efficient semiconductors reduce cooling requirements, thus supporting the decarbonisation of the sector. At a state level, regulators in Virginia and Oregon have already imposed requirements for better sustainability practices and carbon emissions reductions. 

Chinese regulators will require all data centres acquired by public organisations to improve their energy efficiency and be entirely powered by renewable energy by 2032, starting with a 5% share mandate for renewables in 2023. 

New fields of research can help increase efficiency and reduce energy consumption in data centres 

The primary drivers of data centre electricity demand are the cooling systems and the servers themselves, with each typically accounting for 40% of the total consumption. The remaining 20% is consumed by the power supply system, storage devices and communication equipment. The adoption of high-efficiency cooling systems has the potential to reduce electricity demand in data centres by 10%. Other cooling research shows that a 20% reduction in consumption can be achieved when operating with direct-to-chip water cooling and specific low viscous fluids to cool all other components. Machine learning can help reduce the electricity demand of servers by optimizing their adaptability to different operating scenarios. Google reported using its DeepMind AI to reduce the electricity demand of their data centre cooling systems by 40%. 

In the long term, replacing supercomputers with quantum computers could reduce electricity demand of the sector if the transition is supported by efficient cooling systems. Quantum computers deliver more and faster processing power than supercomputers while consuming less energy, but they need to be cooled to temperatures near absolute zero (-273°C) while supercomputers can operate at 21°C. 

Data centres are evolving towards more sustainable and efficient operations, including transitioning to Hyperscale Data Centres, which can run large-scale operations without a significant increase in electricity consumption. This transition is also financially attractive, with the global market for Hyperscale Data Centres projected to double in size by 2026 compared to 2023, reaching a value of USD 212 billion. 

Another promising field of research for decarbonising data centre operations involves time and location shifting of electricity demand. Software developments can allow operators to temporarily shift power loads with carbon-aware models that relocate data centre workloads to regions with lower carbon intensity at selected times. Simultaneously, such methodology has shown the probability of increasing the operational affordability by reducing costs of consuming low- emissions energy around the clock by up to 34%. Results of this methodology combined with other energy efficiency measures in place and on-site low-emission energy production have demonstrated that data centres can achieve a 64% share of carbon-free energy in their total electricity consumption, according to Google’s 2023 Environmental Report.

Demographics

Bourdieu, anyone? 'Climbing the Ivory Tower: How Socio-Economic Background Shapes Academia' (CESifo Working Paper Series No. 11577) by Ran Abramitzky, Lena Greska, Santiago Pérez, Joseph Price, Carlo Schwarz and Fabian Waldinger comments

We explore how socio-economic background shapes academia, collecting the largest dataset of U.S. academics’ backgrounds and research output. Individuals from poorer backgrounds have been severely underrepresented for seven decades, especially in humanities and elite universities. Father’s occupation predicts professors’ discipline choice and, thus, the direction of research. While we find no differences in the average number of publications, academics from poorer backgrounds are both more likely to not publish and to have outstanding publication records. Academics from poorer backgrounds introduce more novel scientific concepts, but are less likely to receive recognition, as measured by citations, Nobel Prize nominations, and awards. 

Legal Privilege

The joint Attorney-General’s Department (AGD) and Treasury discussion paper 'Review of the Use of Legal Professional Privilege in Commonwealth Investigations' comments 

 On 6 August 2023, the Australian Government announced a joint Attorney-General’s Department (AGD) and Treasury review of the use of legal professional privilege (LPP) in Commonwealth investigations to present options for government to respond to concerns that some claims of privilege are being used to obstruct or frustrate investigations undertaken by Commonwealth agencies. This review is part of a larger package of responses to strengthen regulatory arrangements to ensure they are fit for purpose in light of the systemic issues raised by the PwC matter. 

Key Issues 

1. LPP is fundamental to our legal system 

LPP is a long-standing principle of the Australian legal system which supports access to justice and the rule of law. LPP protects the confidentiality of certain communications that are made for the dominant purpose of giving or receiving legal advice (advice privilege) or for use in or in relation to existing or reasonably anticipated litigation (litigation privilege) – this is referred to as the ‘dominant purpose test’ for LPP. LPP belongs to the client, not their lawyer. A communication can be oral, written or recorded. A client can be an individual, company or other entity such as a government agency (the client). Lawyers owe professional duties to their client, which include an obligation to protect the confidentiality of the client’s information. 

LPP is recognised by common law and statute, including in the Evidence Act 1995 (Cth) (Commonwealth Evidence Act) where it is called ‘client legal privilege’. The Commonwealth Evidence Act applies to all proceedings in the federal courts. It provides that evidence will not be adduced if, on the client’s objection, the court finds that doing so would result in the disclosure of certain types of confidential communications or documents made or prepared for the dominant purpose of legal advice or litigation. 

The common law of LPP (also sometimes referred to as ‘client legal privilege’) applies more broadly, including in non-court processes such as Commonwealth investigations. The common law also applies to the pre-trial stages of a proceeding to which the Commonwealth Evidence Act applies (for example, producing documents under a subpoena). Under the common law, LPP is ‘an immunity from the exercise of powers which would otherwise compel the disclosure of privileged communications’. This means that where the common law of LPP applies, a person generally cannot be compelled to disclose communications that are covered by LPP in a Commonwealth investigation. Disputes about whether a communication is privileged are determined by a court. 

LPP does not apply in all circumstances. For example, legislation can modify the common law, including as to when and how a person can claim LPP. It can also provide that LPP does not apply during a particular type of investigative process, even where the dominant purpose test is met (noting however this is a rare occurrence). LPP can also be waived by the client, and does not apply to communications made in furtherance of an illegal or improper purpose. 

LPP promotes the public interest by encouraging clients to make full and frank disclosures to their lawyers, ensuring there is a relationship of confidence between the parties to support the effective provision of legal representation and advice. Without LPP clients may be reluctant to discuss matters frankly and may therefore not receive proper legal advice and representation. 

Commonwealth investigations underpin trust in our systems 

Commonwealth regulatory and enforcement agencies have an important role in ensuring safety and maintaining the economic and social wellbeing of the Australian community. Parliament has passed legislation which gives Commonwealth agencies particular functions and powers, including powers to ensure compliance with legislative requirements and to respond to instances of non-compliance. There is a public interest in Commonwealth regulatory and enforcement agencies carrying out their functions, and exercising relevant powers, effectively. For example, it is in the public interest to promote public confidence in regulated firms, sectors and professions, safeguard critical systems, markets and government revenue, protect the rights and safety of Australians and ensure the delivery of public goods and services. 

To support their functions, Commonwealth regulatory and enforcement agencies often have enabling legislation which provides for compulsory information-gathering powers in their civil, administrative and criminal investigations. The kinds of compulsory information-gathering powers available to Commonwealth agencies depend on the agency’s functions, applicable legislation and the seriousness of the conduct being investigated. For example, a search warrant may be issued under the Crimes Act 1914 (Cth) and executed by a police officer in relation to all Commonwealth offences. Some Commonwealth agencies have regulatory functions which trigger the monitoring and investigation powers in the Regulatory Powers (Standard Provisions) Act 2014 (Cth), which include entry, search and seizure powers that can be exercised where consent is given by the occupier of the premises or where a warrant has been issued. Commonwealth regulators can often issue a notice to produce documents or answer questions related to their investigations.  Other Commonwealth agencies also have bespoke information-gathering powers, including the power to inspect documents or books. Commonwealth agencies may also undertake voluntary information-gathering processes, such as issuing requests for information. The compulsory information-gathering powers of Commonwealth regulatory and enforcement agencies are not absolute. There are safeguards and limitations on the use of these powers in Commonwealth legislation and under the common law. One example of a statutory safeguard is a legislative requirement to apply for a warrant to ensure judicial oversight of the exercise of particular powers. Common law safeguards include privileges such as the privilege against self-incrimination and LPP. 

3. LPP claims can be made in Commonwealth investigations A 

person can claim LPP under the common law in almost all civil, administrative and criminal Commonwealth investigations. In rare instances Commonwealth legislation abrogates LPP, and this legislation has been subject to Parliamentary debate and scrutiny by relevant Parliamentary committees. The process for claiming common law LPP in a Commonwealth investigation will differ based on the information-gathering power exercised. For example, the recipient of a compulsory production notice must be given a reasonable opportunity to claim privilege on their behalf or, in the case of lawyers, on behalf of their clients. If there is a dispute about LPP that cannot be resolved between the agency and the person and/or their legal representative, either party may apply to the court to determine the dispute. 

4. There are concerns about some LPP claims in Commonwealth investigations 

LPP has a fundamental role in the Australian legal system and Commonwealth regulatory and enforcement agencies consulted in the initial phase of this review have emphasised that they recognise the importance of LPP. AGD and Treasury acknowledge that many individuals and entities who make LPP claims during Commonwealth investigations do so appropriately and in accordance with the law. However, there is concern that some LPP claims are being used improperly in Commonwealth investigations. 

Stakeholders, including regulatory and enforcement agencies, have observed instances of behaviours related to LPP which have the effect of obstructing and frustrating Commonwealth investigations. For example, this may include claiming LPP over communications where the party does not have a reasonable basis for asserting that the communication is privileged, failing to engage with agency requests for additional information in a timely way, or making broad claims over communications requested or seized by an agency. 

These behaviours can have various impacts on Commonwealth investigations. It is important to note that while these behaviours may impact Commonwealth investigations, this does not mean that they are intended to obstruct or frustrate an investigation. There can be many reasons why a particular LPP process is time consuming or complex – this does not necessarily mean that the LPP claim is improper. However, as outlined further below, there is concern that bad actors may seek to take advantage of current LPP processes that can be complex, lengthy and costly to intentionally obstruct or frustrate Commonwealth investigations. There is also concern that current processes may not always support people who are trying to claim LPP appropriately and in good faith, but are considering a large volume of communications that may be relevant to a compulsory information-gathering process. The purpose of this section is to explore the environmental, behavioural and procedural issues that stakeholders have identified with the use of LPP claims in Commonwealth investigations. This analysis is supported by stakeholders’ qualitative feedback. While quantitative data about the scope of these issues is limited (including because issues often only become apparent if a dispute is resolved by the courts or the disputed communication becomes available through other means), some relevant illustrative data does exist. For example, the large market segment of the Australian Taxation Office, as at the preparation of this paper, has around 27 active cases with unresolved LPP claims totalling around 133,000 claims. Approximately 75% of these active cases involve claims made over a year ago. Issues related to the use of LPP claims in Commonwealth investigations have also been directly raised by stakeholders, and in reviews and inquiries over decades. 

4.1 The changing operating environment 

AGD and Treasury heard from all stakeholder groups consulted that the landscape in which Commonwealth investigations are undertaken and legal services are provided is changing, and this is creating challenges for Commonwealth agencies, clients and lawyers in relation to LPP and Commonwealth investigations. Advances in technology mean that large volumes of electronic material can be within the scope of compulsory information-gathering processes exercised during Commonwealth investigations. Stakeholders noted that the number of communications subject to some information-gathering processes can be in the hundreds of thousands, and that terabytes of data may be received by Commonwealth agencies exercising their investigatory functions. This can make it more time consuming and expensive for clients and lawyers to review material requested or seized by a Commonwealth agency, in order to identify privileged communications. It may result in delays and broad claims of LPP over large categories of communications, which can impose compliance costs and slow down Commonwealth agencies’ investigations. It can also increase reliance on digital and AI tools to support document review. While relying on AI and digital tools can make identifying privileged communications more efficient, without adequate oversight and appropriate review, it may result in improper LPP claims. 

The way legal services are sought and provided has also changed. In recent decades there has been a growth in multi-disciplinary firms that concurrently provide legal and non-legal services to clients. Services may include consulting, assurance, transaction support, and/or taxation consulting. Clients also continue to seek legal services from traditional law firms and also from lawyers who work in-house. However, clients may choose to seek advice from several professional advisers on a single issue (for example, lawyers, accountants, consultants). These ways of seeking and providing services often require lawyers to work closely with professionals from other disciplines. This can result in the creation of communications that have a range of purposes, which can make it more difficult to assess whether the dominant purpose test for LPP is met. The mere fact that a lawyer has drafted or possessed a communication will not in itself meet the dominant purpose test or substantiate a claim for LPP. Documents prepared by that lawyer may still need to be assessed for LPP in order to respond to a compulsory information-gathering process. 

The following case study demonstrates some difficulties that Commonwealth regulatory and enforcement agencies may encounter when dealing with numerous LPP claims, including the time and resource intensive nature of disputing LPP claims and the delays in progressing the underlying investigations in relation to which the LPP claims are being made. 

Commissioner of Taxation v PricewaterhouseCoopers [2022] FCA 278: In February 2019, the Commissioner of Taxation commenced an audit of a PwC client (Flora Green, the second respondent). In the course of the audit, the Commissioner of Taxation issued notices to produce to a PwC Australia partner and the second respondent. In response, LPP was claimed by PwC Australia (on behalf of its clients), Flora Green or other members of the same multi-national enterprise over approximately 44,000 documents. 

In 2022, a decision of the Federal Court of Australia considered LPP claims made over approximately 15,500 disputed documents. In its decision, the court noted that whether the disputed documents were privileged was to be determined by reference to the content, context and relevant evidence relating to each document. The court considered a sample of 116 documents and more than half of those were found not to be protected by LPP. The court noted that the fact services were provided by a multi-disciplinary partnership was a critical part of the context in the case. The court also identified some documents that appeared to be “routed” through a lawyer to obtain the protection of LPP. 

4.2 Procedural and behavioural concerns in the LPP claim process 

Stakeholders consulted in the initial phase of this review have noted that issues related to LPP claims can arise at various stages of a Commonwealth investigation. The purpose of this section is to explore these issues. To support this analysis, Figure 1 outlines a high-level summary of the key phases for LPP claims in Commonwealth investigations. This figure is indicative only, noting that processes differ across investigations and the steps involved in a particular LPP process will depend on the circumstances and applicable legislation. For example, the process may differ if LPP is claimed during an oral interview. 

... 

LPP Claim Phase 

In the LPP claim phase clients and lawyers assess the information captured by a particular compulsory information-gathering process, and provide relevant documents and information or assert LPP claims. Where LPP is claimed, Commonwealth regulators and enforcement agencies may ask the person claiming LPP to provide information to support their claim. Commonwealth agencies seek information about LPP claims in order to determine whether the claim has been made on reasonable grounds or ought to be disputed (for example, a claim may be disputed because the agency is concerned that LPP has been claimed over material that is not privileged). Agencies consulted have emphasised they do not seek to compel the production of privileged communications (such as legal advices) where LPP applies. 

Under some legislation, parties are required to provide information to the agency about their LPP claim. For example, under the Australian Securities and Investments Commission Act 2001 (Cth) a lawyer must provide particulars about certain LPP claims. If a lawyer fails to provide this information, the Australian Securities and Investments Commission can apply to the court to make an order for the person to comply with this requirement. However, this type of legislation is rare. More often, Commonwealth regulatory and enforcement agencies publish or provide voluntary guidance about the information a person should provide when making an LPP claim. As this guidance is voluntary, it may not always be followed. This can delay Commonwealth investigations, particularly if the Commonwealth agency has to make several requests to the person for further information about their LPP claim. In some cases where information about the LPP claim is not provided voluntarily, a Commonwealth agency may apply to the court to seek that information, so that it can determine whether to dispute the LPP claim. This can delay the Commonwealth investigation. In many cases, legal action may not be pursued having regard to time and costs involved. 

Feedback indicates that there can be many reasons why there are delays in assessing and claiming LPP, and why information requested by an agency to support an LPP claim may not be provided. In some cases, it may appear that a party is attempting to obstruct or frustrate investigations; for example, in order to conceal evidence, delay the Commonwealth agency from identifying individuals/entities involved in wrongdoing or the breadth of wrongdoing, or avoid penalties or reputational damage. However, we have also heard that there are other reasons why delays may occur. This may include growing complexity in organisational arrangements, or information-gathering processes that capture a large volume of communications (as explored above). Different types of information (or information in different formats) may be required or requested in relation to LPP claims, depending on the type of Commonwealth investigation – we have heard this can impact time and cost for those responding to an information- gathering process. Some parties may also be concerned that voluntarily providing certain information about a communication to a Commonwealth agency might waive LPP. 

AGD and Treasury have heard that there may be changes to existing LPP claim processes that could improve these matters. For example, it has been suggested that greater consistency between LPP processes across Commonwealth investigations could reduce the time taken to claim LPP or provide information about an LPP claim in Commonwealth investigations. In some cases, there may be opportunities for Commonwealth agencies to work more collaboratively with a person or their lawyers to clarify what information they are seeking or identify categories of communications (noting that this already occurs in some cases and will not be appropriate in all instances). Statutory clarification may support lawyers and their clients to confidently provide particulars to a requesting agency, without fear of waiver. If LPP claims are made without a proper basis or with an improper intent, legislative change may also be needed to deter this behaviour (see Remedies and/or Penalties below). 

Dispute Resolution Phase 

Stakeholders have expressed a common concern that existing processes for resolving disputes about LPP can be lengthy and costly for all parties involved. There are no standard rules for resolving disputes about LPP claims during Commonwealth investigations. Regulators and enforcement agencies consulted have reported that it can take years to resolve LPP claims once a compulsory information-gathering process is initiated. 

Currently, where a Commonwealth agency disputes an LPP claim, this may be resolved in several ways. The agency and the person claiming LPP may agree to resolve the matter through alternative dispute resolution (ADR). One example is arbitration of the dispute by an independent third party such as a barrister. ADR may offer a quicker form of resolution compared to seeking a decision in court. ADR may also be employed if a court has only determined privilege claims in respect of a sample of the disputed documents. However, there may be a limit to the number of communications an independent third party can feasibly review which, given the large volumes of information potentially involved, may limit the effectiveness of this voluntary process. ADR can also involve substantial costs to parties and may not be appropriate in all circumstances. For example, if a decision about privilege could have significant or precedent-setting implications for one of the parties, they may prefer to have their dispute determined by the court. 

If one of the parties applies to the court to resolve the dispute, these processes can be lengthy and costly. This may be due to the time needed to prepare a case to be brought before the court, or the reality of large document cases, where it may not be feasible for the court to review and rule on thousands of LPP claims. In these instances, the court may consider a sample of the communications in dispute. While the sampling of communications can help mitigate some of these volume related pressures, we have heard that there are limitations in the practice of selecting sample communications for the court to consider. One reason for this is that one party (the person claiming privilege) has access to all of the communications in dispute and the other (the Commonwealth agency) does not and may be required to a select a sample without seeing the communications. 

These lengthy processes can undermine enforcement action, particularly where there are statutory time limits for bringing action. For example, the promoter penalty laws in the Taxation Administration Act 1953 (Cth) require the Commissioner of Taxation to bring an application to the Federal Court of Australia within a specified period. Some stakeholders have suggested that issues about delay could be addressed by implementing new mechanisms to support the court process, for example through the adoption of court-appointed LPP examiners who would consider the underlying communications and adjudicate claims, or through the appointment of special registrars to consider LPP disputes. 

Remedies and/or Penalties 

If a person breaches a Commonwealth law, they may be subject to a criminal, civil or administrative penalty. Criminal and civil penalties are imposed by the courts, where a breach is proven beyond reasonable doubt (for criminal penalties) or on the balance of probabilities (for civil penalties). Administrative penalties can be imposed by an agency or regulator. 

There are existing Commonwealth penalties that may apply in relation to LPP claims. For example, under the Criminal Code (Cth) it is a criminal offence to knowingly give false or misleading information to a Commonwealth entity (for example, when information is provided to comply with a notice to produce).  Under the Australian Securities and Investments Commission Act 2001 (Cth), if a lawyer fails to provide required particulars about an LPP claim, there is a penalty of 3 months imprisonment.  Some other Commonwealth legislation, including the Taxation Administration Act 1953 (Cth), makes a person liable to pay an administrative penalty for making false or misleading statements.  The Tax Agent Services Act 2009 (Cth) also provides a range of sanctions for registered tax practitioners that breach code of conduct obligations relating to honesty and integrity, and making false or misleading statements. 

In addition to existing penalties in Commonwealth legislation, lawyers also have professional obligations, including duties as officers of the court and under state and territory legislation. If a lawyer breaches these professional obligations, they may be subject to disciplinary action. Based on consultation to date, AGD and Treasury are not aware of any disciplinary matters involving misuse of LPP by a lawyer. AGD and Treasury have heard from some Commonwealth agencies that current settings may not adequately deter improper LPP claims. We have heard that possible options to address this may include expanding existing penalties or creating new targeted penalties in Commonwealth legislation to deter improper LPP claims (these could include criminal, civil or administrative penalties). However, it has also been noted that improper behaviour related to LPP may never become known unless, for example, a client makes a complaint that they were not properly advised about LPP or communications that have been subject to an LPP claim later become available through another means.

The resultant discussion questions are 

1. Do you agree with the key issues identified in this paper? Are there other key issues you think should be considered in relation to the use of LPP claims in Commonwealth investigations? 

2. Are there options for reform that you think should be considered in relation to the use of LPP claims in Commonwealth investigations? For example, options for reform related to guidance and training, LPP claim processes, dispute resolution, or remedies and/or penalties. 

3. Are there approaches in other jurisdictions that you think AGD and Treasury should consider? 

4. What risks should the government consider when evaluating options for reforms to the operation of LPP processes in Commonwealth investigations? 

5. Do you have any other views you wish to share at this time (noting that there will be a further opportunity to provide comment on possible options for reform in 2025)? 12