In a tense and highly anticipated vote, Hamilton City Council has narrowly defeated a proposed one-year interim control bylaw that would have paused new artificial intelligence (AI) data centre developments.

The 10-6 decision stops Hamilton from becoming the first Canadian municipality to enact a moratorium on the rapidly expanding sector. Opponents of the pause, including Mayor Andrea Horwath, argued that a freeze risked scaring off over $2 billion in provincial and federal technology investments. Council members also raised concerns following closed-door legal advice that a sweeping municipal moratorium might not survive court challenges or successfully apply to already-exempt academic proposals, such as a project spearheaded by McMaster University.

But while the moratorium is dead, the local regulatory battle over how data centres impact municipal water infrastructure is just beginning.

“The zoning mission” for municipalities

Councillor Nrinder Nann, who championed the defeated bylaw, emphasized in an exclusive interview with Water Canada that the legal defeat does not stop the urgent need for local governments to catch up to the realities of data centre technology.

“The municipal framework will still proceed,” Nann said. “City staff are bringing back a report in Q3 of this year with a breakdown of what is within municipal, provincial, and federal jurisdiction as it relates to AI data centres… Even though we [didn’t get] the moratorium to pause development and give ourselves time to do this work, the work will still go ahead. It just means that an application can come forward tomorrow.”

For water utilities and municipal engineers, the central issue is that local planning codes simply aren’t built for the digital age. Most municipal frameworks still categorize data centres under broad “light industrial” or “warehouse” zoning.

“This is the mission right now for municipalities: to update our zoning codes to contemplate this land use that we’ve never contemplated before,” Nann explained. “In the case of Hamilton, [a data centre] would be permissive under our industrial zoning, and the closest classification would be a ‘data processing establishment.’ That’s a 15-year-old definition. We’re talking about archive data centers where you store your information—not the ones doing supercomputing or AI computing.”

The hidden water risks

As utilities grapple with the massive volumes of water required to cool these facilities, Nann warns that municipal leaders and water professionals must look past simple daily water intake and focus on the complete technological loop.

She highlighted the complex trade-offs of “closed-loop” systems, which are frequently marketed by developers as the greenest option because they recycle cooling water rather than continuously evaporating it.

“The closed-loop system is being espoused as the green, responsible way to use water. I think there needs to be some investigating of that too,” Nann warned, “because there are chemicals used in a closed-loop system… That has a finite recyclability. At some point, you’re either adding more chemicals in, or you’re going to need to off-gas. That off-gassing then will result in chemical particulate matter going into the air. And where do those particulates go on a windy day? They could go right back into our drinking water supply, or into natural water bodies.”

A local safeguard built on hard lessons

For Hamilton, a city defined by its rich industrial heritage and a complex history of environmental remediation, protecting its water is deeply personal. Hamilton Water has worked extensively in recent years to repair public trust and restore the heavily impacted Hamilton Harbour.

Nann credited the city’s highly dedicated water utility team and close partnerships with Indigenous water walkers for instilling a deep sense of environmental stewardship across municipal departments.

“Hamilton learned, and now we see ourselves as a leader going forward,” Nann said. “We have an obligation to slow down here and really study things… The lens of water is really important to make sure it is as central as energy and noise. This is about human and environmental health.”

Hamilton City staff are scheduled to present their initial jurisdictional and scoping report on data centres in Q3 of 2026, with an implementation plan projected for early 2027. In the meantime, with no pause in place, local water utilities remain on the front lines of assessing incoming, high-demand applications on a case-by-case basis.