Carbon Taxes Will Drive Outsourcing

The UK’s energy-cutting CRC scheme may be in limbo at the moment, but if you run a data centre, you do not have the option to wait and see what happens.

As you all should know by now, the Carbon Reduction Commitment was designed as a complex cap-and-trade scheme to penalise and reward the UK’s biggest organisations for their energy efficiency. Last October, as the government tightened all our belts, it took the incentives out and made it a green “stealth tax”.

It could be so easy

This made things simpler. If you use more than 6,000MWh of electricity a year (if you are hospital that means you have the equivalent of 400 beds) you will have to pay for the carbon emitted by your electricity supplier, at £12 per tonne. That works out at roughly a ten percent tax on your electricity bill.

But the story didn’t end there. There are more changes in the wind, and they were spelt out to me in a BrightTalk webinar about adapting to the CRC, where I was joined by a panel of experts.

Last week it emerged that the whole scheme is being questioned. The government is looking for further ways to simplify the scheme, and you have until the 11 March to submit your views on the site of the Department of Energy and Climate Change.

But don’t tell the government to scrap the scheme altogether. That is not an option. Apart from the fact that it wants the money – roughly £1 billion a year by 2015 – the government needs this scheme as a way to force people to reduce their energy use.

In the next five years or so, a huge gap will emerge in our electricity supplies, as old nuclear plants are decommissioned, and dirty coal plants fall foul of European clean air laws.

There’s no time to build enough nuclear power plants, and renewables are too uneven in their energy production, so unless we cut energy use, we will have brown-outs.

So what can we do?

One possible path to simplify things further would be to combine the CRC tax with a Climate Change Levy which will be applied to all large businesses, and to implement a Labour government promise (in the Climate Change Act) that manadatory carbon reporting would be in company legislation by 2012.

If that happens, or something like it, what effect will it have on you?

Well, the drivers for more efficient data centres will be there as power costs rise, and we can be very sure that levies and taxes will increase the size of this rise. A scheme in Tokyo similar to CRC has more or less doubled the cost of electricity for large companies.

As it stands, the CRC rules will push people towards outsourcing. This is partly because outsourcers aggregate servers together, and can apply economies of scale, but unfortunately it is also because of what has been termed “carbon laundering”.

Carbon laundering pushes the cloud

CRC fees are applied to whoever pays the electricity bill, and there is no provision for them to be passed up between landlords and tenants.

What this means is that if you own your data centre, and it is a big one, you will be liable for the tax. If you have outsourced your data – perhaps just transferring it to a company that manages it on your behalf – you are not.

Owners of co-location space and cloud data centres have been very vocal in their complaints about the charge, but in fact I think it will put business their way. They can centralise the effort of carbon accounting.

Ten percent on their electricity could destroy their margins though, and may send business abroad – perhaps not in Europe, where similar levies will be applied, but to Iceland which has a deliberately favourable tax regime for data centres.

It’s very clear that companies and individuals – including my co-presenters Liam Newcombe of the BCS and lawyer Mark Bailey of Speechly Bircham – will be fighting hard for a rational apparoach to CRC.

I suggest that you add your voices to theirs in the CRC consultation. And when you have done that, I suggest you measure your data centre power usage and look at ways to reduce it, check your contracts and see if outsourcing makes sense for you.

And get fired up for carbon accounting. One way or another, you will have to do it.