A major oil company is seeking a state tax break in Texas worth hundreds of millions of dollars to build a massive power plant. The energy won’t be going to residential customers, though. Instead, the gas plant will be used to power a data center whose eventual tenant could be Microsoft.

Chevron subsidiary Energy Forge One has filed an application with the State Comptroller’s board to obtain a tax abatement for a power plant it’s building in West Texas. In late January, the comptroller’s office made a recommendation to support the application’s approval—the first such approval under the program for a power plant intended solely for data center use.

In March, following news reports that Microsoft was looking into purchasing power from the Energy Forge project, Chevron said that it had entered into an “exclusivity agreement” with Microsoft and Engine 1, an investment fund involved in the project. In January, Microsoft pledged to be a “good neighbor” in communities where it is building data centers, including promising to pay a “full and fair share of local property taxes.”

The potential tax abatement for the project comes as big tech companies are battling rising public fury about data centers and electricity costs. It also comes as lawmakers start to cast a more critical eye on ballooning incentives for data centers, some of which have cost some states—including Texas—$1 billion or more each year.

Chevron spokesperson Paula Beasley told WIRED in an email that all tax incentives under consideration for the Energy Forge project “apply solely to the power generation facility” to “support new energy infrastructure, and do not extend to any future data center facilities that may be served.” Beasley also said that there is currently “no definitive agreement” with Microsoft for this power plant.

“Microsoft is in discussions with Chevron,” Rima Alaily, Microsoft’s corporate vice president and general counsel for infrastructure, said in a statement to WIRED. “No commercial terms have been finalized, and there is no definitive agreement at this time.”

Chevron is applying for a tax abatement for the project under Texas’ Jobs, Energy, Technology, and Innovation (JETI) Act. Passed in 2023, the program is intended to incentivize businesses to build large infrastructure projects in the state in exchange for guarantees to bring jobs and revenue. Accepted projects get a cap set on the amount of taxable property they can be charged through local school district taxes.

The Pecos-Barstow-Toyah school board approved the project’s application at a meeting in February. The state pays for the tax abatement, so the school district itself does not lose out on any money.

According to documents from the state, the Chevron project could net more than $227 million in savings for the company over a 10-year period, depending on the eventual size of the project and investment. The application says the plant will provide “over 25 permanent, full-time jobs,” though there’s no requirement to do so because it’s considered an electricity generation facility.

The planned gas plant won’t connect to the grid, instead providing “electricity for direct consumption by a data center,” according to its application. So-called behind-the-meter gas plants have become increasingly popular for data center developers facing yearslong waits to connect to the grid. According to data from nonprofit Global Energy Monitor, the US at the start of the year had nearly 100 gigawatts of gas-fired power in the development pipeline solely to power data centers, with several more massive gas projects announced since the data was published.

A WIRED analysis of less than a dozen power plants being constructed to explicitly serve data centers, including the Chevron project, found that these power plants are permitted to emit more greenhouse gases than many small- to medium-size countries. The Energy Forge plant alone could emit more than 11.5 million tons of CO₂ equivalent annually—more than the country of Jamaica emitted in 2024. Beasley told WIRED that the plant “is being designed to comply with applicable environmental regulations, including all applicable federal and state air quality standards.”

West Texas is a major fossil fuel production hub, which has helped it emerge as a hot spot for both data centers and behind-the-meter gas development. However, Energy Forge’s JETI application notes that the site is one of six across the US under consideration. Without tax incentives, the other sites would be “more attractive locations” to build a gas plant, according to its application, and “Texas would lose the opportunity to attract billions of dollars in new tax revenues.”

This type of claim on applications for tax abatements is pretty routine, says Nathan Jensen, a government professor at the University of Texas at Austin. An earlier version of the JETI program, originally created to draw more manufacturing jobs to Texas, handed out incentives to businesses with little oversight, often giving millions in tax breaks to companies already planning on building in the state. While the JETI program significantly curbs the problems and excesses of the old program, Jensen says that the guardrails for a project like Chevron’s are still relatively low.

The JETI tax incentive isn’t the only tax break the power plant could receive. According to county documents, the Energy Forge project could also be eligible for a local incentive that exempts all or part of a property’s value from taxes for up to a decade, under another part of the Texas tax code.

Developers have taken advantage of other tax abatements across the US. A report released in April from Good Jobs First, a corporate watchdog group, found that at least three states—including Texas—are losing more than $1 billion in revenue each year from data center sales tax abatements.

A bipartisan group of politicians in Texas, including Republican lieutenant governor Dan Patrick, have expressed mounting concern about the impact tax breaks for data centers are having on state coffers. In March, Patrick ordered the legislature to “study the cost and consequences” of the sales tax exemption—which the state projects could balloon to $3 billion by 2029—and “make recommendations providing safeguards to ensure that Texans benefit from data center investment.”

In January, Microsoft rolled out a series of pledges on its website, promising to “add to the tax base” in communities where it operates. “We won’t ask local municipalities to reduce their local property tax rates when we buy land or propose a data center presence,” the pledge states. The company did not respond to questions about whether this pledge extends to projects owned by other entities that the company intends to use to power its data centers, or to data center developers that may be building data centers in which Microsoft will be a tenant.

Greg LeRoy, the executive director of Good Jobs First, notes that Microsoft’s pledge doesn’t mention tax abatements (the amount of value a person or business’s property is assessed at), which are different from tax rates (the number used to calculate the amount of taxes owed for the property).

“If they don't say, ‘We will refuse tax abatements,’ then they've got their fingers crossed behind their back,” LeRoy says of Microsoft’s pledge.

Tax breaks given to projects like data centers are difficult to track across states: the Good Jobs First report found that 14 states don’t disclose how much revenue they might be losing on data center abatements. As behind-the-meter power becomes an increasingly popular option for data center developers, though, it’s not clear how widespread the practice of asking for tax abatements for these specific facilities is.

There are no other behind-the-meter power plants currently being funded by the Texas JETI program or in the application pipeline. Data centers are specifically excluded from being eligible for the JETI program.

Jane Flegal, a senior fellow at the Searchlight Institute and a climate official under President Biden, is the author of a recent report that suggests ways to use the AI boom to incentivize tech companies to help pay for needed upgrades to the grid. Tax abatements, the report says, should be restructured to make sure that data center builders connect power to the grid, making behind-the-meter gas options less attractive. Flegal also advocates for permitting reform to make sure that more clean energy can get added to the grid as quickly as possible.

“We should fix our tax code so it's much more progressive, and we should tax the shit out of these people and use federal money to plan and build a grid that benefits all of us,” she says. “Alas, that is not where we are.”