Data Centers Help Power Texas Growth

Originally published on Substack. 

Texas policymakers have a critical policy choice. The Texas House State Affairs Committee hearing on Thursday, April 9, at 10 am CT, is set to discuss data centers and their influence on the state.
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This hearing is not just about electricity or water demand. It is about whether Texas will remain competitive in the industries shaping the future, including AI, cloud computing, logistics, finance, and the digital infrastructure behind daily life.

The committee’s own charge recognizes the links between data centers, economic growth, workforce needs, national security, regulatory reform, and grid reliability. The best way to secure these issues for Texans is to allow markets to work rather than top-down, big-government policies, such as moratoria, heavy regulation, taxes, government spending, and similar approaches. Stop legislating out of fear; start thinking about first principles.

Start With First Principles

Data centers are not some niche luxury for a few tech firms. They are part of the backbone of modern commerce and communication. They help power GPS, cloud services, online banking, streaming, AI tools, and real-time business operations.

They are being built in many states, with Virginia leading the way in the number of data centers in operation or under construction. Texas is close behind Virginia in second place for the number of those data centers, but is first when including the announced data center builds.

Check out this graphic provided by the Committee to Unleash Prosperity.

The real question is not whether Texas should want data centers. Of course it should. The real question is whether Texas will build the energy and water systems needed to support growth or blame demand for exposing policy failures.
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I’ve argued before that Texas should compete for data center investment instead of regulating it away; policymakers should stop blaming data centers for failures rooted in bad utility policy; anti-innovation energy policy can short-circuit America’s future; and intervention often backfires when innovation is at stake.

Those are not separate arguments. They are the same argument from different angles: when the government blocks supply, prosperity suffers.

The Problem Is Not Demand

Let’s grant critics their best point. Data centers use electricity. Some use water. Large new facilities require planning. But that still does not make data centers the problem.

A growing economy uses more resources. That is what growth looks like. The policy issue is whether the market is free to internalize costs spontaneously and whether supply can expand. The committee itself is studying how SB 6 (bad electricity bill passed in the 2025 regular session), ERCOT’s large-load process, and co-located resources can support resilience and reliability.

Grid strain is not proof that data centers are bad. It is often proof that policy has constrained supply.

What Electricity Critics Miss

The loudest arguments against data centers usually rely on gross electricity numbers. Those numbers sound scary, but they do not tell the whole story.

What matters is the net burden on the system and whether firms can solve problems through markets. Data centers can use private contracts, co-located generation, backup systems, and flexible load strategies. And the claim that data centers automatically drive up power prices is weaker than many assume.

A recent Committee to Unleash Prosperity summary of Institute for Energy Research findings argues that rising electricity demand can spread high fixed grid costs across more kilowatt-hours, helping moderate per-unit price pressures, while state policy plays a larger role in price differences.

That does not mean costs don’t matter. It means the answer is to allow large users to bear the costs they create through market prices and allow supply to expand. That is a serious market-based answer. Blanket restrictions or heavy regulation are not.

What Water Critics Miss

Water criticism often gets even sloppier. Opponents cite headline numbers as if every facility used the most water-intensive setup under worst-case conditions. But operating reality is more nuanced.

Many facilities can reduce water use through more efficient cooling technologies, including closed-loop systems and other innovations that sharply reduce ongoing water needs. And where water is genuinely scarce, the answer is not panic from Austin. The answer is to let pricing, contracts, property rights, reuse, and innovation allow firms to internalize those costs.
That is how markets should work.

Don’t Copy Scarcity States

Texas should not import the politics of decline from states now moving toward moratoria, tighter restrictions, and anti-data-center activism. Those policies do not stop digital demand. They just move jobs, capital, tax base, and strategic advantages elsewhere. Texas became an economic powerhouse by building, not by panicking.

Three Points for Policymakers

1. Do not confuse demand with danger. Data centers are a sign of growth, productivity, and modern infrastructure needs.
2. Allow cost internalization through market prices, not regulation, taxes, or growth suppression. When power or water is scarce, structural rules mean firms bear those costs through prices, contracts, and technology rather than broad political restrictions.
3. Choose abundance over barriers. Faster permitting, more generation, better water pricing through privatization with clear property rights, and more private infrastructure solutions are better answers. As I’ve argued in my work on utility reform and innovation over intervention, the durable answer is more supply, not fear or scapegoating.

Speak Up

The committee may be avoiding oral public testimony, as only invited testimony is allowed, but Texans can still be heard in writing. The hearing notice states that electronic public comments are open to Texas residents until the hearing adjourns.
Please submit a public comment here by noon CT on Thursday, April 9, and tell lawmakers to support data centers, reject anti-growth restrictions, and focus instead on energy and water abundance.

Texas can either build the infrastructure of the future or watch other states do it instead. Texas must build for national, economic, and personal security.