AUSTIN, Texas — Texas Governor Greg Abbott has put forward a series of proposals aimed at regulating the state’s rapidly growing data center industry, seeking to balance economic development with mounting local concerns. The measures include repealing certain tax incentives and mandating water-efficient technologies for data centers, a sector that has attracted significant investment amid an emerging artificial intelligence (AI) boom.

Abbott, a Republican campaigning for a fourth term, directed state regulators on Wednesday to take immediate steps preventing the transfer of infrastructure costs from data center developers to consumers. He signaled plans to work with the Texas Legislature to phase out sales tax exemptions and other costly incentives for companies building data center facilities.

Texas has become a focal point for data center expansion, with hundreds of operations currently online and many more planned. A recent analysis by Bloom Energy projects that Texas could become the nation’s largest data center market within three years. The industry’s growth has been supported by the state’s permissive regulatory environment and favorable tax policies.

However, the expansion has met resistance from some local communities, particularly in rural areas that tend to lean Republican. Residents and officials have raised concerns about data centers’ substantial water consumption, noise levels, and the burden on local utilities. A University of Texas at Austin study estimated that data centers could account for up to 9 percent of statewide water use by 2040. Additionally, energy demands from proposed centers often exceed existing electricity supply capacity.

In a letter to the Public Utility Commission of Texas and the Electric Reliability Council of Texas, Abbott emphasized the need for oversight to ensure that ordinary Texans do not bear the financial risks and infrastructure costs tied to the data center boom. He instructed regulators to prevent companies from shifting these expenses onto local communities.

While Abbott has previously welcomed data center investments and declared Texas the “epicenter of A.I. development,” he also underscored the necessity of managing growth. The governor has recently enacted legislation requiring greater transparency from companies deploying AI technologies and has prohibited certain AI tools on state government devices over concerns about exploitation by foreign actors.

State and local officials have limited authority to regulate data center construction or AI technologies, as the state’s AI law preempts local regulations. Abbott’s proposals stop short of granting local governments more control, instead calling on lawmakers to require noise reduction and other mitigation measures by data center operators to lessen neighborhood impacts.

The governor’s stance has drawn criticism from Democratic gubernatorial candidate Gina Hinojosa, who accused him of reversing his longstanding pro-growth approach in response to political pressure. “Greg Abbott has zero credibility here,” she said, characterizing his efforts as insincere.

Representing the industry’s perspective, Dan Diorio, vice president of state policy for the Data Center Coalition, expressed a willingness to cooperate with regulators but cautioned against uniform regulatory mandates. He noted that many developers already fund infrastructure upgrades themselves and that data center designs vary widely.

Environmental advocates in Texas responded positively to Abbott’s moves. Luke Metzger of Environment Texas called the recommendations a step forward but urged lawmakers to also address air pollution and promote cleaner technologies within the sector.

With final decisions on data center regulations deferred until the state legislature convenes next year, Abbott’s proposals mark an early effort to address growing tensions between economic expansion and resource management in Texas.