Carbon: Risk or Opportunity?
Up until the fall of 2008, businesses in the European Union (EU) and in particular the United Kingdom (U.K.) were preparing for new legislation on the emission of green house gases. When the global financial crisis struck, carbon lost its number one spot at the top of the list of corporate priorities. It didn’t take long, however, for businesses to realize that being ‘green’ by reducing energy use (and thus CO2) also saved them money. As a result, the financial crisis gave many CO2 programs a new lease of life, an injection of momentum from the senior execs charged with cutting costs.
The U.K. was the first country in the world to pass into law carbon reduction legislation targeting secondary emitters of carbon. Policymakers wrote the U.K.’s Carbon Reduction Commitment Energy Efficiency Scheme (CRC) as a result of this law. The CRC became fully effective in April 2010. The EU has had carbon cap and trade for almost three years now but it was targeted only at the primary emitters of carbon, the power generation companies, and extremely large industrial emitters of carbon (iron and steel smelting for example), rather than everyday businesses that happen to use a great deal of energy. U.K. CRC is designed specifically to target that second group.
The advent of carbon trading on an international scale means that it is only a matter of time before almost every energy-intensive nation has a plan similar to the CRC. Many proponents say carbon trading has much more to do with energy security than climate change. The scientific evidence around climate change is hotly disputed, and while global warming provides a nice public relations cover, most western governments worry about the continuity and scarcity of raw materials with which energy can be generated.
Remaining fossil-fuel supplies are limited, and much of that supply can be found in impoverished or politically unstable countries. Alternatives need to be found, and technology needs to be made viable for nations such as the U.S., which is the world’s largest consumer of oil.
The question is whether mechanisms such as U.K. CRC are the right way to go about slowing down consumption of energy as well as reduce greenhouse gas emissions. Can regulatory mechanisms have any material impact on the growth in energy use and poor energy-efficiency figures published every day, particularly in the ICT and data center sector?
First, U.K. CRC targets organizations based on their energy consumption. If a business draws more than 600 kilowatt (kW) instantaneous load across the enterprise (roughly 6000 MWh per annum) then the organization is captured within CRC and required not only to report its carbon emissions but also to purchase carbon allowances from the government. Interestingly this applies across all sectors, private, public, education, health care, etc. The only real escape clause is for organizations already signed up to a climate change agreement, a sector-based agreement to reduce green house gases, or for organizations already within the European Emissions Trading Scheme (EU-ETS).
ICT and data centers are not specific targets of the CRC but inevitably fall foul of the rather low energy consumption trigger that puts organizations into the scheme. Enrollment requires annual reductions of carbon emissions, and even though some growth is permitted (for growing businesses) the growth metric, as it’s called, is capped at 25 percent per annum.
The CRC does not allow businesses to pass on carbon liability. A colocation provider, for example, is liable for all the energy (and thus carbon emissions) produced. These obligations cannot be passed down to customers. Basically, the company incurring the energy bill is the one legally required to report and reduce carbon emissions under the scheme.
The U.K. CRC includes a public league table, which distinguishes it from a simple cap-and-trade scheme. In fact placement on the league table (which is not sector based) is what determines liability for missing a reduction target at the end of the year or bonus for beating it. The league table is what many believe ‘spoils’ the scheme by making it neither a demand- nor supply-side policy, meaning no one quite knows how it will turn out, including the Department for Energy and Climate Change which created it.
Liam Newcombe, secretary of the BCS Data Center Group said, “Summing up your ‘League Table’ position is your relative performance against your baseline year, with a relative weighting for growth, measured relative to the relative performance of everyone else, with a relative weighting for their individual growth…simple right!”
This system is all rather contrary to other tried and tested market transformation schemes. EU-ETS ‘taxes’ the source or supply, which shows in the cost per kilowatt-hour, whereas programs like Energy Star drive changes via the demand side. Vendors make servers that are more energy efficient because consumers are educated and informed by Energy Star program and drive up demand with the vendors. U.K. CRC is neither of these and really no one can predict the outcome.
The BCS (The Chartered Institute for IT) published a white paper detailing a number of possible outcomes and impacts on the U.K.’s ICT and data center sector. One impact was a slow migration of ICT services to data centers outside the U.K., or even just a stronger biasing of servers going into the non-U.K.-based data centers of large multinational enterprises. That would be one of the simplest ways to ‘improve’ under CRC, move up the league table, and look good against your competitors, although that is certainly not good for U.K. PLC.
Another possible outcome is that businesses simply expunge themselves of their carbon liability, carbon laundering! CRC does not follow the contract chain, so a business can simply outsource its data center and offices to someone else (or sell them and lease back) to rid itself of its carbon liability. The ruse puts another name on the energy bill and transfers the problem to them. The real risk here is that data centers end up being owned by a handful of businesses that don’t care so much about their public profile because they don’t really have one instead of a large mobile operator or supermarket chain which would be greatly concerned about where they appeared on the league table.
The CIOs of supermarket chains in the U.K. spent a lot of money on improved logistic systems that reduce not only product waste but also the CO2 emitted by their diesel-based supply fleets. Yet despite their good work, these businesses cannot predict where they will appear in the league table. Lack of predictability is something most businesses cannot tolerate.
If all data centers, are owned by a handful of mega-operators, healthy market competitiveness would be lost, but the greater risk is that the legislators could then find it much simpler to target the sector specifically when looking at the energy and carbon footprint of those few operators.
The IT and data centers sectors may make poor use of energy. The ICT sector is inefficient in its use of energy and needs to improve; data centers are inefficient and also need to improve. That said, these sectors are improving, and in relative terms, are probably moving faster to improve almost any other industry.
Nations that engage in schemes similar to the CRC risk stifling the development and growth of the ICT, which has a major role to play in mitigating the use of energy and thus carbon emissions in almost every other sector. There are plenty of examples, telepresence, simulation of new drugs verses years of lab testing, and e-enablement of services.
Part of the challenge we have as an industry is building the business case for energy efficiency. Far too many people still say that the return on investment for their business to invest in energy efficiency measures is poor, so they don’t bother. Romonet (the author’s company) is one of many trying to address this issue by showing actually just how much money almost any business can save by implementing energy-efficiency measures.
In the data center, the simplest of these measures are best practices. Europe has a set of best practices for the data center developed by the European Commission and the BCS Data Center Specialist Group.
Romonet invented the world’s first energy and cost modeling software tool for data centers. The core software was released in 2009 under an open-source license. Romonet’s software is helping businesses across the world gain a better understanding of energy and cost efficiency through predictive modeling. The software tools can predict a fully loaded cost per delivered kWh to within 95 to 98 percent accuracy before the data center has even been built!
Some nations have realized the potential of ICT to mitigate carbon elsewhere. The Japanese have coined a nice phrase. They say reducing the carbon footprint of IT and reducing carbon by IT and thus recognizing that simply trying to cap the amount of energy used within this sector will only damage the changes of really significant reductions in others. Remember while energy in ICT and data centers is growing rapidly across the world it’s still below 10 percent of worldwide carbon emissions.
Sidebar: About the CRC
The CRC Energy Efficiency Scheme (CRC) is a new regulatory incentive to improve energy efficiency in large public and private sector organizations. It is a mandatory scheme that aims to improve energy efficiency and reduce the amount of carbon dioxide (CO2) emitted in the U.K.. This is vital to achieving overall targets of reducing greenhouse gas emissions by 2050 by at least 80 percent compared to the 1990 baseline. CRC will affect large organizations in both the public and private sector.
Organizations that meet the qualification criteria, which are based on how much electricity they were supplied in 2008, will be obliged to participate in CRC. Participating organizations will have to monitor their emissions and purchase allowances, initially sold by the government, for each ton of CO2 they emit. The more CO2 an organization emits, the more allowances it has to purchase. So there is a direct incentive for these organizations to reduce their emissions.
All organizations that had at least one half hourly meter settled on the half hourly market in 2008 will be required to do something under the CRC. Government estimates indicate that around 20,000 public and private sector organizations will be required to participate in some way. The majority of these will simply be required to make an information disclosure once every few years that tells the administrator about their electricity usage. Around 5,000 organizations will be required to participate fully. This means they must not only record and monitor their CO2 emissions but also purchase allowances equivalent to their emissions each year.