Saturday, February 28, 2009

Cap and Trade Legislation and what it could mean for the data center.

In his speech the other night the President put us all on notice that a Cap and Trade policy is likely to become a reality in 2009.

For those who are unfamiliar with the term Cap and Trade it is an environmental policy designed with the intent of reducing undesired emissions by mandating emission levels and establishing caps and in the words of the eloquent bureaucrat it provides environmental accountability without inhibiting growth and rewards innovation, efficiency and early action. Please excuse my skepticism.

Fundamental to a Cap and Trade policy is what is referred to as allowances. These allowances represent the authorization to emit up to a predetermined cap. An emission source that does not reach it’s allocated cap can trade or bank unused allowances. Emission sources that are unable to limit their emissions and meet the cap can purchase unused allowances to offset their overage. This widely based phenomena is called environmental trading, with its genesis dating back to the Clean Air Act Amendments of 1990 which legislated an environmental trading program designed to attack the then significant issue of acid rain.

The focus at this time was to reduce the emissions of such pollutants as sulfur oxide (SOX), nitrogen oxide (NOX) and mercury. Fast forward to 1997 and the Kyoto protocol which called on nations to reduce their emissions of CO2 and while the US did not sign the Kyoto agreement our legislators did pick up on the cap and trade notion for carbon dioxide. Such legislation is now an apparent reality in our near-term horizon. Kyoto also caused the formation of an international trading system to trade in CO2 credits which established tradable certificate with REC’s (renewable energy Certificates) making their first appearance. REC and EEC (Energy Efficiency Certificate) certificates are now becoming part of the Green IT lexicon and represents IT’s participation in this maturing environmental trading market. For a deeper discussion on tradable certificates refer to my recent brief. “REC and EEC know the difference”

Data centers produce about 0.3% of the world Co2 emissions compared to 0.6% for the airline industry and 1% for the steel industry. Translate CO2 emissions to energy consumption and you will begin to appreciate how cap and trade legislation is going to directly impact data center operations. While the producers of the energy are the ones who will be subject to CO2 caps it is the consumer of energy who will shoulder the burden and pay the cost.

To illustrate the point;
Assume an average energy consumption across a mixed population of storage array’s is equivalent to 80w/usable TB. With a PUE[1] of 2 the utility company has to deliver 160W/hr to the data center for each TB of online storage in use.
1PB of online storage installed will consume 160KW/hr which equates to an annual consumption of 0.92MW/yr.
0.92MW translates to 939 short tons of CO2.
If legislation declares the carbon cost at $50/Ton[2] of CO2 the annual carbon tax/PB would be over $45K. This is $45k straight off the bottom line and contributes zero to IT productivity.

This simplified scenario serves to underline the potential financial consequence of cap and trade policies and associated carbon tax and highlights the impact that such policies could have on already tight IT budgets. However, the legislation is not yet written so time will tell the magnitude of its impact.

Bottom Line:
According to the Uptime Institute, data centers consume range from 8% to 30% of the total energy consumed by an enterprise. This suggests that a carbon cap, a.k.a. carbon tax, is going to hit IT intensive organizations hard by putting pressure on already fragile budgets and corporate bottom line returns.
This legislation may be the catalyst that finally gets the C-level executive to pay attention to energy conservation policies and commit the force and energy of the executive office to realistic conservation efforts. Not through any altruistic motivations but basic self preservation.

[1] PUE; Power Usage Effectiveness, a metric developed by the Green Grid to determine the energy efficiency of a data center. PUE = Total Facility Power/IT Equipment Power
[2] While we will have to wait until the legislation is published there is a debate that suggests that $50/Ton is an understatement.


TJC said...

Energy economics are extremely complex, but suffice to say that California has the highest energy rates in the country, but the lowest energy bills. There are innumerable ways to save energy in data centers, which of course consume energy at about a 10x rate to an average office. Disk drives are an obsolete mechanical device (I know this is not yet well understood), and simple things like cooling hot power supplies inside every data cabinet are just convenient, not highly logical.
I have little doubt that ther creative types in IT will deliver enormous power consumtion reductions when driven to focus on the issue, and it is time from an environmental pollution, sustainability, and national security standpoint to do so.

BillM said...

TJC: While I have sympathy for a number of your sentiments and agree that we should drive to a more energy efficient environment (data center and otherwise) I do have issue with lack of pragmatism in some of your statement.
1. I do not have the data so not able to comment on CA energy bills but must confess I do have trouble accepting the statement.
2. Your comment on HDD is premature. Hard drives are not obsolete. I do agree that their role will change with the integration of affordable SSD but to think that they will disappear in the near future is an error. Your comment has the flavor of the much used "Tape is Dead" statement.
3. DC powered Data Centers is what I think you are referring to and agree it has promise. A ways to go however before it gains any meaningful adoption.
4. All right minded folks want to reduce pollution and establish a sustainable energy strategy. However my objection is the use of politically motivated legislation based on science that is still open to debate to pass a political agenda that the citizens will pay for but derive little benefit. Cap and Trade with its convoluted offset credit mechanism is ripe for manipulation, and it will be.