Texas Welcomed Data Centers With Open Arms, But Now Abbott Wants Them to Pay Rent

Greg Abbott spent years courting data center developers with tax exemptions and a permissive interconnection framework, treating incoming investment as an unconditional good. As recently as late 2025, he described Texas as the "epicenter of AI development." In June, he sent a formal letter to the Public Utility Commission and ERCOT directing both agencies to immediately shield residential ratepayers from data center infrastructure costs. By July 1, at a campaign event in Bullard, he extended his position considerably, calling for an outright prohibition on new data center construction in rural parts of the state.

As of May, the grid operator reported pending connection requests totaling 439 gigawatts of capacity, roughly five times the grid's all-time peak demand, with approximately 89 percent of this volume attributable to data centers. Energy analysts expect a significant share of those projects to stall, but even partial realization of the queue would place extraordinary strain on infrastructure never designed to absorb industrial demand at this scale.

Abbott's June directive assigns specific obligations to regulators. The PUC must require data centers to fully fund all electric infrastructure costs associated with their operations. The PUC and ERCOT must jointly submit a memorandum to the governor's office by July 17, summarizing actions taken under existing authority and recommending legislative measures necessary to protect residential and small business customers. The PUC faces a separate deadline of July 31 to initiate action reducing residential transmission costs. Abbott has also outlined a 2027 legislative agenda including mandatory water-efficient cooling systems, annual electricity and water usage reporting, the repeal of sales tax exemptions the state created to attract data centers, and noise reduction and setback requirements for facilities near residential areas.

The proposed repeal of those incentives sits at the center of the policy tension. Texas built its economic identity in part on the deliberate use of tax exemptions to recruit capital-intensive industries, and data centers arrived in significant numbers because the state pursued this strategy aggressively. Abbott now proposes to legislate those same exemptions away, raising legitimate concerns among free market advocates about regulatory consistency and the durability of future investment commitments in Texas.

Abbott's directive does not address what data centers are quietly assembling alongside the grid debate. A July 9 investigation by Floodlight and the Texas Tribune found that developers exploit a permitting loophole allowing construction of private gas-powered plants through minor permit categories that exempt operators from public notification requirements and environmental review. Texas leads the nation in this buildout. According to a July 2026 analysis by the Environmental Integrity Project, 32 of the 74 proposed behind-the-meter natural gas power plants tied to data centers nationally are located in Texas. At maximum permitted capacity, those 32 Texas facilities alone could emit 287 million tons of greenhouse gases annually, the equivalent output of 61 million gasoline-powered cars.

Pacifico Energy's GW Ranch in Pecos County holds what the Texas Commission on Environmental Quality designated the largest air pollution permit ever issued in the United States, authorizing up to 33 million tons per year of greenhouse gases from a 7.65 gigawatt gas-power complex, roughly five percent of Canada's total annual emissions. OpenAI's Stargate campus in Abilene, built through the same minor-permit pathway, operates 10 gas turbines and 62 backup diesel generators permitted to emit 1.6 million tons of greenhouse gases and 1,000 tons of air pollutants annually. Omaira Garcia, an Air Force veteran, lives 500 yards from Stargate's gas plant. She told Floodlight she learned of the project only after construction began in 2024.

In rural Hood County, eight data center projects were proposed over ten months, and local officials possessed no legal authority to reject any of them. A March Quinnipiac poll found 65 percent of Americans oppose having an AI data center built in their community. San Marcos became the first Texas city to enact an outright ban, voting 4-3 on June 16 to reclassify data centers through a zoning change excluding them from city limits entirely. Cities including Lockhart and Kerrville have moved toward restrictive zoning short of a formal ban, watching San Marcos to gauge the durability of its approach under imminent legal challenge.

This challenge arrives through Abbott's own legislative record. State Sen. Paul Bettencourt announced plans to contest the San Marcos ban under House Bill 2559, legislation Abbott signed in 2025 restricting municipalities from issuing indefinite moratoriums on certain property developments, and under the 2023 Death Star Law, which prohibits cities from enacting ordinances contradicting state law. Land use attorneys and city officials argue HB 2559 governs moratoriums and does not reach zoning reclassifications, leaving the legal outcome genuinely unsettled. Abbott signed the statute Bettencourt now deploys against the communities Abbott claims to be protecting.

The Republican coalition on this issue has fractured along recognizable lines. Bettencourt represents a faction viewing uniform, top-down state guidelines as the correct framework for managing data center growth. State Rep. Helen Kerwin has praised Abbott's directive and called for mandatory environmental impact studies before new development proceeds. Nearly 60 percent of planned or under-construction data centers in Texas sit in Republican House districts voting for President Trump, giving the intraparty dispute a practical electoral dimension. Abbott also faces Democratic challenger and state Rep. Gina Hinojosa in November's general election.

Abbott is not regulating an industry that arrived uninvited. He recruited it, exempted it, and handed it a regulatory environment purpose-built for speed over scrutiny. Omaira Garcia's gas plant, Hood County's eight unsolicited projects, San Marcos's legally precarious ban are not unintended consequences of someone else's policy. Abbott's office built this road and is now complaining about the destination.

@Santitos

@salinasmariasantos

Copyright © 2026 Maria Santos Salinas for FRONTeras.

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