Wednesday, 27 May 2009

The impact of carbon legislation on data centres/IT services

In a blog last Friday I mentioned that there is concern in the data centre industry about the future impact of emissions legislation. Government action on emissions reduction has the potential to significantly impact data centre users and providers, with a knock-on impact on IT services as a whole.

The UK's Carbon Reduction Commitment (CRC) is a case in point. It's a mandatory, cap-and-trade emissions reduction scheme aimed at companies who’s electricity consumption exceeds 6,000 MWh in 2008 and are not included in other schemes, e.g. the EU ETS. The main details are as follows:

- Companies will need to monitor all emissions and complete an annual report. The expectation is that 20,000 companies will need to make information disclosures to see if they need to participate, with 4,000-5,000 companies expected to be included in the scheme.

- Participants will have to buy allowances equivalent to their emissions, initially with a three year fixed-price introductory phase. First sale is in April 2011, covering 2010 and 2011 emissions

- The capped phase and full auctioning will start in 2013. The price of allowances will be dependent on demand each year.

- Companies can trade allowances, so additional allowances can be bought at auction.

- A league table of company performance will be published, based on changes in emissions relative to previous years and changes in emissions per unit turnover/revenue.

- Bonus/penalty will be made based on positions in the table (the scheme will be revenue neutral). Companies will receive a repayment proportional to 2010/2011 emissions ranging from +/- 10% in the first year to +/- 50% in the third year of the scheme.

How will it impact the IT industry? The requirement suggests that any company running a data centre of more than 5,000 square feet/c120 racks will be included (but the scheme will cover all the company's emissions).

Won't companies move their data centres offshore? It's possible that some might, but most large corporations probably won't want to be seen avoiding their emissions responsibility in this way. In any case, schemes will spread - the UK government is talking to other countries interested in adopting similar initiatives.

Will there be a move to outsource to pass the commitment on? That is more likely. By using someone else's facilities the responsibility passes to that supplier, so the use of hosted/managed data centre space is likely to increase.

Is that good news for the data centre industry? Yes and no. The down side is that more business means more emissions. Hence data centre companies will be low down on the league tables and lose out on bonuses. Estimates are that energy costs could be 7-9% higher by 2015 (relative to 2010) as a result of the scheme and companies will also be seen to be poor environmental performers.

Can the cost be passed on to customers? Clearly higher energy costs will mean higher charges by data centre providers. New contracts are likely to reflect expected changes, although existing long-term contracts could cause problems for providers. In the longer term data centre companies may choose to install electricity meters on racks and charge customers more directly.

What about managed services, e.g. Software as a Service? Well all services that use data centres will potentially be impacted, so the implications will be felt across the IT services sector.

There are other questions and implications of the scheme too detailed to go into here, but it is in its final consultation phase in the UK and unlikely to change significantly. The UK ICT industry was slow to get involved in the discussions, something that other countries could learn from.

If readers have any specific examples of the implications of such legislation for their business then we would be interested to hear.

And as always, get in touch if you would like to better understand how climate change is impacting the IT sector and players and the implications and opportunities for your company.

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