We are currently in a national and Texas-specific data center development boom driven by tech companies pushing artificial intelligence and cloud storage. Texas has 392 data centers today, the second most of any state in the country behind Virginia and over 100 more than it did in September 2024. The growth of the Texas data center industry has received significant recent coverage in outlets statewide. Coverage has primarily focused on concerns around energy and water consumption, but there are also pressing environmental risks that have more direct impacts on neighbors.
The threats posed by data centers are particularly severe in low-income communities that have historically been disproportionately exposed to harmful environmental pollutants. These threats have been amplified by relatively recent federal policy changes that incentivize private investment in low-income communities. Local and state policymakers must get up-to-speed on this issue and build guardrails to protect Texans.
Data Centers Are Bad Neighbors
Concerns about data centers have tended to focus on demand on local utilities due to massive consumption of energy and water. In some cases, data centers’ extreme power needs lead to shocking increases in electricity bills – a recent Bloomberg investigation found that monthly electricity costs increased by up to 267% over five years in areas located near data centers. This cost increase affects the entire energy grid that supplies the data center, making the negative impact regional. But data centers have more direct impacts on immediate neighbors.
Data centers rely on emergency generators that can create harmful local air pollution associated with higher local rates of asthma among residents. Ideally, generators are only used in emergency situations or during testing procedures. However, there are dozens of documented cases from across the country of data centers installing unpermitted emergency generators or violating air quality regulations. Even in ideal, permitted conditions, generators still contribute to local air pollution and add to public health costs. And as the number of data centers increases, so does the power demand, potentially increasing the need for power from generators.
HVAC systems that are regularly used to keep data centers cool create a shocking level of noise pollution. Unlike air and noise pollution from theoretically intermittent generator use, these noises are constant. Residents living near data centers have compared the noise to the sounds of an airplane engine, a freight train, a huge leaf blower, or a helicopter.
The stories of neighbors and the somewhat limited research available on this growing industry led the Virginia’s Joint Legislative Audit and Review Commission to conclude that “The industrial scale of data centers makes them largely incompatible with residential uses.”
In many ways the air and noise pollution caused by data centers is similar to the pollution caused by highways, and there is ample research to show the potential impacts of this pollution on community well-being. Air pollution from living near highways is associated with poor lung health, potentially fatal heart problems, and increased mortality. Constant noise pollution is associated with development of type 2 diabetes, heart problems, declines in fitness, increased stress and blood pressure, and poor sleep and impaired cognitive performance.
The threat posed by data centers is real, and that threat is particularly dangerous for low-income communities. People of color and low-income renters in federally subsidized housing are already disproportionately subjected to dirty air and loud ambient noise as a result of living near highways and other air quality hazards. Data center development near housing risks reinforcing this pattern. One review found that nearly one in five data centers was located in a community already highly overburdened by environmental pollutants (as defined by the Environmental Protection Agency).
Opportunity Zones Accelerate Data Center Development in Low-Income Communities
Opportunity Zones (OZs) are turbocharging environmental justice concerns about data centers in low-income communities. OZs, a federal policy originally created by the Tax Cuts & Jobs Act of 2017, are designated low-income areas identified by a state’s Governor as needing investment. Investing in OZs allows private investors to get preferential tax treatment in return for their investment.
While the State of Texas provides state-specific incentives for data centers including a state sales tax exemption, investors have additional benefits available to them if they invest in an Opportunity Zone. On top of the investor tax benefits outlined in the Tax Cuts & Jobs Act of 2017, the One Big Beautiful Bill Act included new benefits and updates that incentivize data center development in OZs specifically. These incentives, combined with increasing demand for data storage capacity and relatively low energy costs in Texas, have spurred Texas’ data center development even further.
OZs’ explicit focus on low-income communities and targeting of investment in data centers signal increased risk of harm to low-income, already-vulnerable communities. OZs are not inherently bad. They have the potential to spur investment in areas that need it, including investment in housing for low-income people. In fact, OZs have been called “one of the most significant drivers of housing production over the past decade.” However, as with any policy tool meant to support disinvested communities, they must be used thoughtfully to maximize community benefit.
Local and State Policymakers Can Have an Impact
Both local and state policymakers should be careful when leveraging OZ incentives for investment, so as not to put low-income residents in harm’s way.
What types of investments and what land uses can be near each other is largely a local issue governed by land use and zoning rules. Local jurisdictions should be careful to prevent and mitigate risks data centers pose to tenants, particularly in low-income areas already historically burdened by environmental hazards. Data centers are an industrial land use, not a tech office, and should be treated as such.
Recent proposed rulemaking on the state level shows how the unique intersection of data centers, Opportunity Zones, and low-income housing subsidies could lead to negative health outcomes for vulnerable tenants.
The Texas Department of Housing and Community Affairs (TDHCA) updates the rules that guide the award of Low-Income Housing Tax Credit (LIHTC or HTC) funds annually. These funds are the single largest source of funding for new affordable housing in the country and in Texas. The recently released draft of the rules for how to spend next year’s funding proposes a new incentive for applications if the property is in an OZ – but there is nothing in the current or proposed rules that would prevent a federally subsidized affordable housing development from being built next to a data center. TDHCA could add guardrails in the rules to ensure that this incentive does not harm low-income tenants. The draft rules are currently available for public comment through October 10th.
The Texas data center industry is booming, and local and state governments must balance the need for investment with the health and quality of life of low-income people.
