What is closed-loop cooling in a data center?

How it works

Computer equipment in a data center gives off heat. Cooling systems generally rely on air cooling or liquid cooling, according to a Congressional Research Service (CRS) report dated July 31, 2026. Liquid systems generally use water to carry the heat.

In an open-loop water system, heat passes directly into the water. That water may then go to a cooling tower, where some of it evaporates and carries heat into the air. In a closed-loop system, two separate fluid systems are kept apart. Heat moves between them without the fluids touching, the CRS says. The water circulates in a sealed system with no direct exposure to the environment.

The CRS says open-loop systems need more water than closed-loop ones. It also says closed loops may produce less wastewater during normal operation. Both kinds still produce wastewater during maintenance, construction and commissioning.

Does closed-loop mean no water?

Not always. A closed loop still has to shed its heat somewhere. The CRS notes that evaporative cooling or another method may be used with a closed-loop system. It says evaporation-based systems are generally more energy efficient than waterless ones. Air-cooled chillers use no water but use more energy.

Microsoft has described one design that avoids evaporation. In a December 2024 post, it said the design recycles water through a closed loop filled during construction. It said each data center would avoid more than 125 million liters of water a year. It said the trade-off is a nominal increase in annual energy use.

Where the term comes up

In 2026, closed-loop cooling came up in a Texas state directive and a local development agreement. On August 3, 2026, Texas Gov. Greg Abbott told the state utility commission and grid operator ERCOT to audit data centers seeking grid connection. He also told them to collect details on each project's cooling technology. That includes whether it will be air-cooled, closed-loop or another water-efficient system.

In Taylor, Texas, the city council approved a development agreement for a data center campus on October 8, 2026. The city says the site must use a closed-loop cooling system with reclaimed water. Reclaimed water is treated wastewater. The city gives an initial fill volume of 1.575 million gallons for the whole site.