Carbon Dioxide, Cap and Trade, and the Data Center

Posted: February 05, 2010 in Articles
Region:

ABSTRACT

Regardless of what you may think about anthropogenic global warming (climate change caused by human activity) or the recent scandal centering on the ethics and motivations of certain climate scientists, carbon dioxide is a substance that is in the political dog house.

FULL DOCUMENT

Regardless of what you may think about anthropogenic global warming (climate change caused by human activity) or the recent scandal centering on the ethics and motivations of certain climate scientists, carbon dioxide is a substance that is in the political dog house. Residents of member states in the European Union have already seen the institution of a cap and trade system designed to reduce carbon dioxide emissions through government regulation; residents of the United States may well be in for a similar system.

Although data centers generally do not, by themselves, spew carbon dioxide into the atmosphere, their operation does require large amounts of energy. Much of this energy is generated through fossil fuels, resulting in carbon dioxide emissions from power plants, for instance. Thus, data centers (although perhaps not mentioned specifically in discussions of this topic) are a target of emissions legislation.

 
In the European Union (EU), the Emission Trading Scheme (ETS) governs the carbon dioxide output of over 10,000 industrial and energy entities. Under this system, EU member states allocate a certain number of European Unit Allowances (EUAs), each of which represents one metric ton (1,000 kilograms, or about 2,200 pounds) of carbon dioxide. (This is the “cap” portion of what is commonly called a cap and trade system.) The sectors outlined in the EU ETS program include power and heat generation, oil refineries, metals, pulp and paper, and energy intensive industries. Companies that exceed their allocated quota of carbon dioxide emissions can purchase EUAs from more conservative companies who have emitted less than their allowance. The system creates a market through which these companies can buy and sell EUAs. (This is the “trade” portion of cap and trade.) Companies that exceed their emission allowance are fined per metric ton of excess emitted carbon dioxide.
Again, data centers are not necessarily explicitly mentioned with regard to this scheme. As these facilities use more and more power and as the threshold for mandatory inclusion in cap and trade schemes such as the EU ETS gets lower (thereby including more companies and industries), however, data centers will increasingly be faced with the prospect of carbon dioxide trading as a necessary part of operation. For instance, under the EU system, companies that consume over 6,000 megawatt hours of energy per year will face mandatory inclusion in the ETS, with non-compliance leading to fines. This limit does not mean that a data center must run at 6,000 megawatts; for an entire year, the data center need only run at an average consumption of slightly under 700 kilowatts to qualify for mandatory inclusion in the ETS. And this is just the data center—it says nothing about the rest of the company!
In the face of the EU’s ETS cap and trade system, many companies in the UK have outsourced or considered outsourcing their data centers in an attempt to avoid the troublesome need to trade EUAs. In addition, the ETS system, although it does not explicitly include carbon taxes at the present time, does pave the way for simple implementation of an EU-wide carbon tax. Thus, in the face of increasing government regulation of carbon dioxide emissions, and in light of the continuing debate over whether global warming is truly caused by human activity (and specifically by carbon dioxide emissions), UK companies’ outsourcing of data centers is not surprising. Places such as Iceland, with its cold climate and abundant geothermal energy, offer attractive alternatives that can be both financially and environmentally beneficial.
The question thus becomes whether the data center in the United States will face a similar future of cap and trade, carbon taxes, and government regulation. Although an increasing consciousness of matters involving the environment is one factor driving such legislation, the recent scandal surrounding various climate scientists and their tactics has increased the cloud of suspicion over anthropogenic climate change theories. Thus, whether cap and trade legislation will be passed at the federal or even state level is not entirely clear. A cap and trade system similar to that of the EU’s ETS has passed in the House of Representatives but has yet to pass in the Senate.
A cap and trade or carbon tax system may be more likely to pass at the state level, but certain states (such as West Virginia, where coal is the focus of a large portion of the economy) probably won’t be interested. Legislation at the state level could also prompt movement of companies to other states, causing an additional strain on already tight government budgets as tax revenue decreases. Data center operators may therefore have a difficult time foreseeing their future in the United States when it comes to cap and trade and carbon taxation—for now at least, the United States Senate is standing in the way of Federal-level implementation of an EU-style scheme. The response of the states is likely to be a mixed bag if no action is taken at the Federal level, however.
 
Monday, 01 February 2010 / Written by Jeffrey Clark