Data centers pose energy challenge for Texas

Data centers, or locations that store large amounts of computing software, are popping up all across Texas. However, data centers don’t just contain the infrastructure that sustains the information technology (IT) industry; they also carry a significant environmental cost. In the information age of artificial intelligence (AI) and machine learning, the demand for data centers is exploding. Texas could take steps to regulate these facilities to ensure that they don’t harm our environment and waste our resources.

Data centers are big business in Texas. 

Up to 70% of a data center’s operating costs come from power, so Texas’ cheap electricity prices make the state a desirable location for data centers. Texas checks in as the second biggest data center market by inventory in the country, behind only Northern Virginia. Texas currently hosts 329 data centers, with many more data centers proposed. In just the past month, six new centers joined the grid. The Dallas-Fort Worth area, which is already home to a whopping 159 data centers, is experiencing a “data center boom.” In July, Microsoft filed a permit for a new $482 million data center project in Castroville, just west of San Antonio.

Data centers have a big environmental impact

Energy use. Data centers come with a large environmental toll as these facilities are extremely energy-intensive. Compared to the typical American home, they use ten times the amount of energy per square meter. According to ERCOT CEO Pablo Vegas, data centers and crypto mining could account for two-thirds of ERCOT’s forecasted doubling of Texas energy demand by 2030. This booming industry could pose a challenge to the grid in transmission-constrained areas like the Permian Basin.

Photo by ERCOT | Public Domain

While most data centers require electricity 24/7, the crypto industry touts its ability to shut down and stop using energy when the grid is stressed and the cost of energy is high and in emergencies. However, Bitcoin companies may be manipulating the market through their participation in demand-response programs. In short, crypto miners are paid by ERCOT to reduce their demand, turning a program designed to stabilize the grid into a subsidy. For example, Bitcoin mining company Riot Platforms made $32 million from shutting down its operations in August 2023, nearly four times the amount it made from cryptocurrency. 

“We want data centers, but it can’t be the Wild Wild West of data centers and crypto miners crashing our grid and turning the lights off,” wrote Lieutenant Governor Dan Patrick on social media platform X.

Water use. Beyond their energy consumption, data centers also require complex cooling systems that use copious amounts of water. Researchers estimate that, in 2027, AI alone could be responsible for the withdrawal of up to 2.4 million olympic-size swimming pools of freshwater. This is over half the amount of freshwater the United Kingdom withdraws in a year.

Noise pollution. Data center cooling systems often host noisy fans or AC units, which can burden surrounding communities with noise pollution.

Crypto mines, which have a similar physical infrastructure and environmental impact to data centers, present even less tangible benefit to society than IT or AI, a technology whose benefit is already dubious. However, they come with all the same costs. Residents of Granbury, Texas, claim that the deafening noise from a new Bitcoin mine in their town is causing serious health problems.

Endangering a clean & reliable energy future. In 2019, the energy required to power data centers reached 3% of global carbon emissions, a figure equal to that of the entire aviation industry. As data centers proliferate, a skyrocketing demand for power could spell trouble for efforts to achieve a greener grid. In the past decade, wind has overtaken coal as Texas’ second largest source of energy, and solar is on the rise. The development of a cleaner energy mix could be hampered by an increase in energy demand from data centers; this increase in demand could force more fossil fuels into the mix.

The vast amounts of energy consumed by data centers and crypto mines often mean that adding one of these sites to the grid requires the generation of more fossil fuel-based energy. For example, Marathon Digital opened a new Bitcoin mine in Granbury; now, Marathon has an agreement to use Constellation Energy’s Wolf Hollow II methane gas power plant next door.

What can Texas do to rein in the harmful impacts of data centers? 

Improve energy efficiency. While there is no single solution for reducing energy and water use in data centers, there are several opportunities for improvement. The U.S. Department of Energy’s Office of Energy Efficiency & Renewable Energy publishes a Data Center Master List of Energy Efficiency Measures. This extensive document details many ways data centers can improve energy efficiency. Liquid cooling systems use significantly less energy than air cooling systems. Upgrading room-based air cooling systems to row-based or rack-based ones can lead to a threefold reduction in energy use. While the servers in data centers can function effectively at 77 degrees, many data centers are kept at a frigid 65 degrees, using unnecessary energy. Furthermore, Energy Star-certified servers can reduce energy consumption. Data center operators have the knowledge and tools to make their facilities more efficient.

Furthermore, the legislature could require all data centers to follow strong energy efficiency standards. Power Usage Effectiveness (PUE) is a metric used to measure data center energy efficiency, with a PUE of 1.0 meaning the site is 100% energy efficient. The average PUE has stagnated around 1.6 for a decade; proposed energy efficiency legislation in Virginia would require a minimum PUE of 1.2 for data centers. Texas could adopt PUE requirements for data center energy efficiency, to limit waste and protect grid resource adequacy. Data center cooling infrastructures could follow strong water efficiency standards.

Texas could also require detailed reporting on the electricity and water use of existing data centers and crypto miners. Grid managers and utilities also need corresponding detail on proposed data center and crypto miner facilities, to enable better energy and water forecasting and planning for these high-impact energy and water users.

Regulate the external impacts of data centers. There are a variety of legislative solutions to reduce the impacts of data centers on the grid and communities around them. Texas could lower its noise code limit of 85 decibels, the highest in the nation, to a level that protects human health above noisy industry. According to the European Environmental Agency, noise at or above 55 decibels can make people sick. The risk of hearing loss begins at around 70 decibels, well below Texas’ limit.

Texas could eliminate all existing and new tax breaks for data centers. Given the enormous strain data centers place on the grid, Texas should think twice before offering incentives, including tax breaks from counties, schools, and the state sales tax, that would only worsen this strain. At a minimum, Texas could tie these incentives to meeting energy efficiency standards.

Data centers should eventually run entirely on renewable energy. The development of technologies like battery storage systems and geothermal energy allow for data centers to run 24/7 on renewable energy. Carbon credits, whose efficacy in reducing emissions is questionable, should not be an option to offset emissions that break these standards.

The state could also incentivize, or even require, on-site wind or solar power generation for data centers–this can prevent power losses from electric transmission conversions, save energy for the rest of the state, and reduce data centers’ carbon footprint. The American Enterprise Institute notes that microgrids, or local power grids independent of but connected to a larger grid, can benefit data centers by lowering energy costs, enabling decarbonization efforts, and supporting resilience and flexibility. However, simply incentivizing all on-site power generation would add dirty diesel generators.

Curtail unnecessary activity. Last year, the Texas Senate approved a bill, SB 1751, that would restrict the ability of crypto miners like Riot to take advantage of “demand response” schemes, but the bill never passed the Texas House. Texas could pursue this legislation to stop crypto miners from abusing this energy conservation program. Furthermore, Texas could also consider a moratorium on crypto mining, as its environmental and energy costs are simply too high to justify. Texas has an opportunity to prevent more situations like the one in Granbury.

Action from other governments. Lawmakers across the country have proposed legislation that addresses the environmental toll of data centers. However, turning these bills into law has been difficult. A bill in the Oregon House that would have required data centers to eliminate all greenhouse gas emissions by 2040 died after extensive lobbying efforts. In the 2024 legislative session, Virginia lawmakers proposed 17 bills regulating data centers. One would have tied tax exemptions to energy efficiency and renewable energy standards; another would have required quarterly reports on data center energy usage. All were either abandoned in their respective committees or shelved until 2025.

Earlier this year, the European Union (EU) approved new legislation tracking key sustainability measures of data centers. This is an important first step toward regulating data centers’ energy and water consumption. Singapore released its Green Data Center Road Map, a plan to ensure the country’s data center industry develops sustainably. As more governments regulate data centers, which are often run by multinational corporations, it makes even more sense to adopt similar energy efficiency standards.

Without action, data centers will continue to strain the energy grid, burn dirty fossil fuels, and cost Texans money. Texas lawmakers have an opportunity to regulate data centers and ensure that this booming industry doesn’t harm our state.