Data Centers in Texas: A Review and Call for Innovation and Regulation

Read the report here.

Executive Summary
Data centers are increasingly integral to the modern economy, but without prompt action, this industry threatens
to strain an over-burdened electrical grid, deplete limited water supplies, raise costs for Texans; harm public
health; and overwhelm local governments and utilities. Texas is second only to Virginia in U.S. data center
development and is on track to surpass Virginia by the end of the decade. Within Texas, the San Antonio-Austin
South-Central Texas region saw a four-fold increase in data center development between 2023 and 2025 and
now ranks among the top global markets for expansion. Hyperscale facilities built for AI purposes and
cryptocurrency mining facilities are driving this regional growth, and they consume energy and water supplies
at a scale that Texas’ regulatory and planning systems were not prepared to absorb.

Data centers already use enough power to supply over half of Texas’ homes and could drive a 70% increase in
statewide electricity demand by 2031. Texas data centers could use roughly 494,091 acre-feet of water by 2030,
with impacts expected to be concentrated on the individual communities where the facilities are located.
Because the State Water Plan relies on historical data and surveys, this sudden increase in demand will not be
reflected in official planning until at least 2032, worsening an already projected 5 million acre-feet shortfall in
water supplies by 2070. Wastewater from data centers may also overwhelm local utilities and could impact
downstream water quality.

Data centers’ planned reliance on fossil-fuel energy, along with their cooling procedures and general facility
operation, could exacerbate other types of pollution and public health impacts in the state. Texas’ data center
tax exemptions also cost the state more than $1 billion in 2025 and are projected to cost at least $9 billion in
total between 2025 and 2030, not accounting for city and county-level exemptions, even as individual facilities
create few permanent, local jobs. No Texas or federal law to date requires facilities to disclose water or energy
use, and non-disclosure agreements routinely shield project details from local officials and the public. Local
governments and entities lack the appropriate tools to respond to the pressures data centers are putting on local
water supplies and utility rates.

Data Centers in Texas: A Review and Call for Innovation and Regulation highlights international and national
policies and recommends Texas, its local governments, regional entities, and utilities adopt policies that could
serve as guardrails against the adverse impacts of data center development. These include policies to improve
data gathering and state and local planning; allocate costs fairly; improve and expand local regulatory tools;
limit incompatible land uses; improve transparency; limit detrimental energy and water use; and limit increases
in pollution and public health impacts. The paper also recommends data center operators themselves adopt
measures to limit potable water use; reduce demand on local water supplies; limit fossil-fuel energy generation
and its public health impacts; and demonstrate their investment in being responsible neighbors in their
community.

Recommendations for state and local governments, state agencies, and utilities:
 Mandate water and energy use reporting and public access
 Create new rate class for data centers for energy use
 Create new rate class for data centers for water use
 Mandate upfront investment in infrastructure and no increase on residential rates
 Require data center water use to be included in state plan
 Require metering of water and energy use
 Expand and reform groundwater conservation district authority
 Eliminate or limit tax exemptions for data centers
 Limit cryptocurrency mining and prohibit new facilities
 Expand county authority for land use regulation
 Provide county authority for moratoriums
 Expand municipal authority for moratoriums
 Remove strict limits on municipal and county budgets
 Uphold Rights to Deny or Reduce Service within a Water Supply CCN
 Improve public transparency and participation requirements
 Encourage community benefit agreements and community investments
 Require renewable energy generation
 Limit use of backup fossil fuel generators
 Invest in energy efficiency and water conservation
 Cap noise pollution at EPA limit

Recommendations for data center operators:
 Utilize liquid immersion technologies
 Utilize rainwater harvesting systems
 Utilize atmospheric water harvesting systems
 Utilize recycled produced water
 Utilize recycled municipal wastewater
 Utilize brackish groundwater
 Utilize solar and battery storage sources
 Utilize existing abandoned infrastructure
 Locate certain infrastructure underground
 Treat discharge water to drinking water quality