Written by Jake Lehrer
We are 5 months away from the Texas Legislature meeting, and until then, residents and politicians face uncertainty as to how to regulate the growing AI-driven data center industry.
We invited a host of companies to come into the state, touting economic boom, jobs, and Texas as the leader in the development of AI. And granted, those components are there. But we have not, and still do not, fully understand the depth and breadth of what the long-term implications are for our state, communities, environment, and health.
Texas has broadcast that we are on the verge of being the AI epicenter of the world. AI is the new leading industry, like the internet before it, that is going to change the job market, free market competition, and national security. There are many components to AI that our nation and companies simply cannot ignore. Corporations will use it to beat the competition, and our nation will use it to stay ahead of our global adversaries.
“Whoever wins AI, just wins,” says President Trump.
The problem is, is that we are too far into something that we were not prepared for. Texas Public Radio puts it well: “data centers are no longer an emerging industry. Driven by cloud computing, crypto mining and artificial intelligence, they are spreading rapidly across Texas…”
Every heavy industry has shown that where there is a potential for economic booms, there is also the unknown aftermath. What new technology lets us do our jobs better and faster? But which jobs does it displace? What new industry will bring economic prosperity to a community? But what are the long-term impacts on the environment and health? With cryptocurrency, the promise of breaking ground in the economy sounded nice to invest in. But how much power would it consume?
What is new with AI Data Centers is that we had the time to really consider guardrails, but now that we’re here, we did not fully understand what they were capable of, and what is the most important piece of this issue in Texas is how fast they would be built. Now we are behind in meaningful policy to regulate an entire industry that has been growing since 2022.
If you open up the floodgates, with no water barriers to guide, then you just get flooding.
Once AI started becoming a forecasted industry, all major companies were going to jump on it. But they need the foundation of a data center to do it. Texas, having abundant land, lower prices, a more business-friendly environment, and allowing 121 data centers to qualify for sales tax exemptions, is very attractive to the competitive field that is now AI software. Wanting to also be ahead, we let the genie out of the bottle and made our three wishes without understanding the impacts and consequences.
Rapid Development
A core component of this issue is that the development outpaced understanding of the industry. A huge part of the rapid data center development is the sales tax exemption. While this has been going on for a while, cryptomining facilities’ tax breaks only forecasted in the state millions in lost tax revenue. However, with AI Data centers, over the next two years, Texas will lose out on $ 3.2 billion.
Advocates for data centers worry that ending the sales tax exemptions in Texas would slowly kill the data center industry expansion and development in Texas, and thus lose Texas all the money and jobs it will bring. Plus, do the other taxes that data centers pay, and the data centers that do not qualify for sales tax exemptions, offset that 3.2 billion lost in revenue?
Opponents cite that it is an insane amount of lost revenue to the state, over something that the industry might not even need. Sales tax exemptions are not the sole reason that an industry develops in a given area. So even if you repeal the sales tax exemption for data centers, will that even slow their growth in the Lone Star State?
Greg Abbott’s Audits
Governor Greg Abbott has directed the Public Utility Commission of Texas and the Electric Reliability Council of Texas to pause all applications from data centers wanting to connect to the state grid for power, for this very reason. ERCOT reported there were applications that totaled 474 GW in new electricity demand, 90% from data centers.
Additionally, due to our lack of knowledge, the audit is to find out about planned data center demand on the grid, water and power usage, tax incentives, and impact on communities.
According to the Governor’s Office, the audit includes:
- Information detailing the extent to which data centers are paying their own way or depending on the state for financial assistance.
- The extent to which data centers are providing their own power or depending on the ERCOT grid for that power.
- The extent to which data centers are bringing their own water and reusing their own water as opposed to using water needed by local communities.
- The extent to which data centers are using measures to reduce impacts on neighboring property owners and communities, including noise mitigation, light controls, setbacks, traffic improvements, emergency response coordination, and other community protection measures, understanding that each community is unique.
- Information detailing the ownership and controlling interests in the project.
The Data Center Coalition believes that the audit is a good idea to separate good actors from bad ones. Who are the data centers that want to be good stewards of the resources they use and the communities they impact, versus who are the ones that do not care?
“Texas has become a global leader in technology and innovation, and now, Texas is leading the national path forward for how to meet growing demand for digital infrastructure while protecting residents, businesses, and ratepayers from rising power costs,” QTS Co-CEOs Tag Greason and David Robey said in a statement.
However, the audits are only to approve connection to the state grid. Data center construction and development can still happen. They just cannot connect to the state grid. And if a data center is building its own electrical infrastructure, then they do not have to abide by the audits. Amazon’s Pecos County 8,000 Acre data center will have its own power plant; some projections say the largest in the country.
What is Passed to the Consumer?
Residents in other parts of the state have been feeling the rising electricity costs due to infrastructure costs. The industry is moving too fast. The Texas Observer asks: Who pays for work on the grid that will be needed to maintain these projects? When the grid needs work to supply power to a data center, who pays for that?
Water
Another issue that Texans are still in the dark about is water.
The Texas Water Development Board sent out a mandatory survey in June, and only a handful of companies responded to it. There is already not enough transparency and too much unknown, not what you want when it comes to large amounts of water and power usage. This is another reason for the audits.
Texas is already water-strained, and in several areas of the state, residents are already under city ordinances on water restrictions. Already, data centers in use consume 25 billion gallons of water annually. But that is based on what we know. Not all AI data centers have shared how much water they use.
According to a research paper by UT Austin: Water Use Requirements for Data Centers in Texas: A White Paper on the Evolving Demands of Water Use in Data Center Infrastructure in Texas, “AI computing and hyperscale cloud infrastructure pack enormous power into ever-smaller hardware, converting nearly all input energy into heat. As component densities rise, extreme heat fluxes demand sophisticated cooling solutions that are often heavily reliant on water.”
“Texas’ State Water Plan does not include projected demand growth for data centers,” the Houston Advanced Research Center reports. “Because there are already unmet needs, including the current 4.8-million-acre-foot shortage as determined by the Texas Water Development Board (TWDB), data centers’ unknown unmet needs are poised to place unprecedented stress on local water supplies across the state.”
A Legal Lack of Transparency
So far, there are certain protections in place where we probably will not get public knowledge on how much water a data center uses, how it will efficiently use or reuse water, how much power it will use, and other details that shield companies so they can compete with others. Basically, in the realm of competition, companies don’t have to say everything to the public, but only to regulators, to protect themselves from their competing companies.
It’s been tough for residents, and even local officials, to get information on data center development. Local officials usually find out about data center development and planning after things have already gotten underway.y
Local Officials Conundrums
Cities and counties are being creative in making it harder for data center development. Can they kill it with bureaucracy? Cities can only have moratoriums up to 180 days, not indefinitely. And moratoriums now take longer to implement. Changing a city’s development and zoning codes and specific use permits has also been a tool used against rapid data center development. San Marcos, due to its size, is using its home-rule laws to ban data centers.
However, communities trying to ban data centers are being challenged. State law does not allow local authorities to pass indefinite moratoriums and outright ban certain property developments. They open themselves up to lawsuits.
Texas values private property, free enterprise, and business growth. We don’t want the costs associated with the development of these data centers, but how many Texans want the government to tell them what to do on their land? That’s not a very popular thing in this state. Local officials are in the crossfire, having to explain to their constituents that there’s only so much they can do with regard to what someone wants to do on their property with a company, versus protecting the community at large.
On the one hand, there are many unanswered questions about the full impact of not just one data center in a community, but a host of them across our state. On the other hand, a person who has the private property to make a deal with a company to develop a data center has the right to do so. Those deals are made without a city or county having to know. And usually they will not know until development is underway.
We’re Going to Have to Wait
Texas does have a booming economy. And it is nice to dominate entire industries; being the leader in headquartering Fortune 500 companies and even establishing our own stock exchange is good to have and be proud of. But your citizens also have to feel proud of this as well. There is nothing wrong about being the boom state. But when we don’t understand what comes with that growth and “boom,” that is not a good place to be in as a resident, as a consumer, and especially as a voter this election year.
The overall issue is we are trying to dominate in an industry we do not fully understand and where we are at right now cannot do much to regulate it. City officials can only do so much, and county officials are limited almost completely. Even Governor Abbott cannot do much outside of calling for a special session. He may not even be legally able to call a moratorium until the legislature meets. The only way he could do so is if he calls a disaster declaration, and that’s probably not going to happen.
While our elected officials can make promises now, I am certain nothing meaningful will happen until the Texas Legislature meets to make laws around this industry. This is not a new industry, but its applications and rapid growth are new. What that tells me is that it is high time to construct meaningful laws, fair across all heavy industries, if Texas wants to be the industrial powerhouse, while also protecting its land, resources, and residents.
By Jake Lehrer
Staff Writer