Gov. Greg Abbott of Texas proposed new regulations for the state’s booming data center industry on Wednesday, including repealing some tax incentives and requiring water-efficient technologies, as Republican leaders grapple with balancing economic growth and local opposition.
Mr. Abbott, a Republican seeking re-election a fourth term, sent the recommendations to state regulators and directed them to take immediate steps to ensure certain costs associated with data centers were not passed along to local consumers. He also pledged to work with state lawmakers to roll back sales tax exemptions and other costly incentives for data center developers.
Data center companies, particularly those supporting the artificial intelligence industry, have flocked to Texas, lured in part by the state’s promise of minimal regulation. With hundreds operational and more on the way, Texas is poised to become the country’s leading data center market within three years, according to a recent report from Bloom Energy.
But local communities targeted by these developers, many of which are in rural and largely Republican areas, have pushed back because of concerns about water use, noise pollution and utility costs.
With his announcement on Wednesday, Mr. Abbott appeared eager to act on those concerns from potential Republican voters in an election year, while putting off many of the final decisions. The full extent of any new regulations won’t be clear until the State Legislature meets next year.
Mr. Abbott is taking action now, he said in a letter to regulators, as the industry’s expansion requires massive infrastructure and resource investments.
Data centers could use up to 9 percent of the state’s water by 2040, according to a recent study by the University of Texas at Austin. The state has also received requests for new data centers that far outstrip the current supply of electricity.
“The rapid scale of data center development requires oversight to ensure everyday Texans are not burdened with the costs of infrastructure driven by data center expansion,” Mr. Abbott wrote in the letter, to the state’s Public Utility Commission and the Electric Reliability Council of Texas, the state’s grid operator.
He directed them to “prevent data centers from shifting development risks and costs onto Texans.”
While Mr. Abbott has encouraged companies to invest in the state, calling Texas the “epicenter of A.I. development,” he has also warned that the industry’s expansion has to be controlled. He recently signed into law new transparency requirements for companies using A.I. The governor has also banned certain A.I. technologies on state devices that he said could be exploited by “hostile foreign actors.”
Some local leaders have complained that they lack the power to block data center construction or expansion. The state A.I. law pre-empts any A.I. regulations at the local level.
The governor’s proposals did not suggest giving local communities more authority over data centers or A.I. technologies. Instead, he said, state lawmakers must pass new laws requiring companies “to reduce impacts” on their neighbors through noise-reduction technology and other means.
State Representative Gina Hinojosa, the Democrat challenging Mr. Abbott for governor, accused him of “backtracking” from an anti-regulation stance now that incentives for data centers have become unpopular.
“Greg Abbott has zero credibility here,” she said in a statement. “No one believes that the arsonist is going to put out the fire.”
Dan Diorio, the vice president of state policy for the Data Center Coalition, said the national industry group would work collaboratively with the state but warned against cookie cutter regulations.
In a statement, he said many data center developers have already done much of what Mr. Abbott wants, including shouldering the full cost of the infrastructure, like transformers and breakers, needed to support their power and energy needs.
“There is no one-size-fits-all solution when it comes to facility design, cooling technology, or regulation,” Mr. Diorio said.
Some environmentalists in Texas quickly embraced Mr. Abbott’s proposals. Luke Metzger, with Environment Texas, a group that has pushed for data center regulations, applauded the recommendations and said lawmakers should also regulate air pollution coming from these facilities.
“Lawmakers should take steps to minimize these emissions and encourage cleaner alternatives,” Mr. Metzger said in a statement.
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