Kate's Comment

Intellect, the UK’s high-tech association, succinctly summed up the perverse effects of the CRC in their response to the proposed legislation:

“The current design of the scheme will encourage transfers of carbon liability, rather than a net overall reduction in emissions across the UK.”

“The current design of the scheme will only encourage energy efficiency in a context of stunted growth. At the heart of this problem lies the proposed design of the league table, and the suggested metric to be used for ranking and recycling purposes.”

In this article I will look at how the CRC works in the context of data centres, why it will will not significantly reduce our carbon emissions, and how the it threatens to stifle growth and innovation in a sector vital for our economic and environmental health.

Data centres use in the region of 2.2-3.3% of Britain’s total grid power. While that is a considerable amount, ICT has been repeatedly identified as a key mechanism through which our society will reduce our carbon emissions. The World Wildlife Fund have identified ICT as the way to “save the first billing tons” of carbon, and the Global eSustainability Initiative SMART 2020 report has identified now the intelligent application of ICT can reduce our annual global emissions by 15% by 2020.

Data centres lie at the heart of ICT’s potential to reduce our collective carbon emissions. We, the ICT sector, are not the enemy; we are part of the solution to climate change.

Further, data centres are absolutely key to our national prosperity. Britain’s knowledge economy now employes 41% of the population, and will account for 50% of GDP by 2010. Data centres are the backbone of UK Plc, vital to the resilience of public services and the competitiveness of British business. The ICT sector, powered by data centres, promises to be one of the engines of economic growth which can lift us out of recession, and must be allowed to do so.

We are not idle about our The European IT industry, through Digital Europe (formerly EICTA) has already committed to reducing its carbon emissions by 20% by 2020. The UK has taken a leadership role in on data centre energy efficiency. The British Computer Society in particular has been a key player in the development of the EU Code of Conduct for Data Centres, and the globally-leading cost and energy data centre simulator (in partnership with the Carbon Trust). We, the UK data centre industry, have our house well in order.

The CRC scheme is part of the UK government activity seeking to cut carbon emissions by 80% of 1990 levels by 2050. The most effective way to achieve this goal is to encourage energy users responsible for emissions to reduce their energy consumption on the one hand, and adopt efficiency measures on the other.

However, the government’s scheme plans to allocate the entire carbon liability to the utility bill payer, irrespective of whether the bill payer is in fact using the energy, or a key player in the decision to use this energy.

The basic mechanism for the purpose of this discussion is that any organisation that consumes greater than 6,000 Mega-Watt Hours (mWh) electrical energy per year is automatically captured and all of the electrical (and some other) consumption of that organisation and all subsidiaries is totalled to represent the carbon of the organisation.

6,000 mWh per year is equivalent to a continuous load of 685 Kilo-Watts (kW), roughly 500 kW of IT equipment load in a moderately well-run data centre, which is around 5,000 efficient modern 1U servers (assuming 100W per server). For a poorly run monolithic ‘old school’ data centre with an excess of power and cooling infrastructure, using 3-4 year old servers it might be as few as 2,000 machines.

Operators will have their energy use base lined and then be required to report their energy consumption. The organisation then has to purchase allowances to cover the total carbon in a similar way to the power generators under the EU ETS6. This is intended to add direct financial incentives for the carbon associated with the electrical energy consumed by the data centre operator.

Data centre operators do have the ability to reduce the carbon footprint in newer more modern data centres, and by taking advantage of the relentless improvements in the energy-efficiency of IT equipment. They could contract out the carbon liability of the utility bill back to the customer. At Memset, we have that facility already; it is a trivial matter to put a customer’s approximate share of our total energy consumption onto invoices.

The customer would then would be incentivised to alter its behaviour and chose more energy-efficient criteria in the data centre. An example might be choosing to migrate older servers into a virtualised environment. Furthermore, the high price of energy is already an incentive for operators to encourage their customers to embrace more environmentally friendly solutions; electricity already accounts for roughly one third of our direct costs.

However, as the government’s CRC scheme places the onus to reduce emissions on the organisation which pays the electricity bill, not the end-user, responsibly organisations like us cannot pass the carbon down the supply chain and thus encourage our customers to reduce their usage.

As a result of this, it makes no sense to own your own data centre, and I expect to see a massive increase in data centre outsourcing. That will actually be a good thing for my business, but I so firmly believe that the CRC as it stands will be detrimental to our emissions overall that I am speaking out against it.

Outsourcing a corporate data centre or entire ICT department would, under the current
allocation approach result in the carbon also being outsourced. While clear ‘carbon dumping’ could otherwise lead to reputational damage, data centre outsourcing is a common practice; there would be no way of determining whether the outsourcing that might take place post CRC implementation was driven by genuine business reasons, or a desire to shift the carbon liability.

Furthermore, as energy costs in the UK are currently less competitive than in continental Europe, the additional carbon costs could encourage businesses to offshore. Data centres are by nature geographically flexible. Off-shoring to the continent is a realistic possibility, and the cost of running a data centre in the UK may tip the scales in its favour. This in turn will have wider implications for jobs in the UK, and data and application security.

That said, if organisations do outsource the bulk of their energy-consuming activities to more efficient third parties, the overall net emissions for the UK will reduce, and the CRC will have proved fit for purpose. However, the current design of the performance league table inhibits this from being the case.

The league table is an apparently simple mechanism for the processing and comparison of the carbon reported by each CRC organisation, but will actually create utterly perverse incentives.

The current proposals suggest that rankings in the table will be determined by two metrics: absolute growth in emissions, and relative growth in emissions. After the initial phase of the scheme, the former metric is expected to be weighted at 75%, and the latter at 25% (though it is unclear how DECC reached these figures). As a result, any business growth, even if accompanied by increased overall energy efficiency, could result in an organisation dropping down the league table!

For a data centre, our energy consumption is directly related to our revenues, and as previously mentioned the sector’s continued growth is key to supporting UK PLC and delivering ICT’s promise of reduced carbon emissions across society. The CRC as it stands will reputationally damage data centres who dare grow.

Further still, for companies like Memset that are already leading the market in terms of energy efficiency, and for whom the opportunities for improvement are very few, the CRC is quite simply unfair. It will have been much better to start out as being really bad and then to artificially manage a slow improvement in energy efficiency in order to maximise the league table position. We will look significantly worse than our horribly energy-inefficient competitors, which will result in the customers being mis-directed to use more carbon-intensive providers.

In summary, the CRC as it stands will encourage “carbon laundering” with the outsourcing (or even off-shoring) of data centre operations to avoid brand value damage, will inhibit the growth of one of the UK’s most important business sectors, and will encourage end-users to use the least efficient providers.

The CRC is already changing business behaviours in negative ways. We (as a managed hosting provider) were planning to invest in a leading, semi-experimental, “super-green” data centre in Surrey, which would incorporate a number of the latest innovations in efficient data centre design, and push the boundaries of the technologies further.

However, because the CRC penalises companies that pay the electricity bill it no longer makes sense for us to own and operate a data centre, since instead we can just rent space and power from an existing data centre and let their brand get hit by the league tables, not ours. In this case, the CRC has been directly responsible for stopping an award-winning leader in the field of green IT from investing in the next stage of innovation.

Further, as it stands the CRC may make it more economical to offshore part of our data centre operations; as long as the servers are within a hundred miles of their users it does not matter for 99% of applications.

This is especially frustrating since we already have the capability to account to our customers for their carbon usage (we have been able to do that since becoming Carbon Neutral!), so we could easily pass the carbon levy / “credits” along to our customers. That in turn would further incentivise them to minimise their indirect energy usage through us.

As the CRC stands it will make managed hosting providers with UK-based data centre operations (like Memset) less competitive to those not under the jurisdiction of the CRC (like Amazon EC2), regardless of how well-managed and how efficient we are.

The CRC at present creates the incentive to launder, rather than reduce, carbon emissions and rewards organisations good at playing the ‘carbon game’, not those who are most energy-efficient.

The legislation is a threat to UK skills and employment. From the British Computer Society’s review of the proposed CRC legislation:

“The combined impact of the incentives created by the CRC driving outsourcing of ICT and data centre services both within and outside the UK is likely to reduce the number of skilled jobs in this sector as well as removing the most significant opportunity afforded by this political will, the development in the UK of world leading, exportable skills and technology in energy constrained ICT. “

Finally, contrary to its purpose, the CRC threatens to impede growth and innovation in the data centre industry, and thus inhibit ICT’s ability to deliver the massive carbon savings so clearly identified by numerous reputable sources.