> Firstly, who is deciding whether to "allow" open loop cooling?
Your government.
And I don't know why you put allow in quotes. This is a matter of laws and regulation, so it is used in its most literal meaning:
Forbid construction that does not account for the externalities imposed by its water and energy usage.
> And secondly, from what I gather, closed-loop sites require an order of magnitude more power than open-loop to run.
Are you suggesting that removing x kilowatts of input takes at least 10x killowatts?
Or are you suggesting they spend 10x more energy on the cooling than an open-loop system?
The latter might well be true - an open-loop system is after all trading water for energy in a very extreme way - if you have a water source with pressure the simplest water cooling system "just" routes water over radiators. In practice you'll want a bit more than that for most setups, but it can be very cheap if you can ignore the volume of water used.
That is still a regulatory issue. You can decide which resources are critical to you in a given location, and you restrict or allow different approaches accordingly, or require funding or licensing to suit.
> That's still going to have a large impact on local resources, especially as around 2/3 of power plants supplying data centers are also ocated in water-stressed regions
Still entirely a question of regulating externalities.
Not all power generation requires significant water use. Your government is free to e.g. require new data centre capacity to be accompanied by an according buildup of generating capacity with according restrictions on water use.
If that means data centres moves elsewhere, then so be it. That is part of the goal if you argue for pricing in and regulating externalities:
Ensure that the cost of operating in a way that doesn't negatively impact the community is priced in so that decisions are taken based on the actual full cost to society.
So to go full loop to my original comment (sorry): It's entirely a question of whether or not you want to allow it.
This is what governments are for.