The government's Carbon Reduction Commitment is aimed at the largest users of energy
Carbon Reduction Commitment could hurt small firms
/v3-uk/news/2006686/carbon-reduction-commitment-hurt-firms
27 Jan 2010, Dan Worth , V3
Small businesses and cloud computing initiatives could suffer if the government's proposed Carbon Reduction Commitment (recently renamed the CRC Energy Efficiency Scheme) comes into force in April, according to a datacentre provider.
Daniel Lowe, managing director of UKSolutions, told V3.co.uk that the proposal had not been properly thought through, and does not fit with the government's desire to establish a digital economy.
"The CRC levy will punish firms who have made the move to use specialised datacentres to manage their data in order to take advantage of the security, availability and power efficiencies they provide," he said.
The duty will be levied against corporations that consume more that 6,000 megawatts of electricity per year. Lowe explained that datacentres will mostly fall into this band, and will invariably pass on this cost to customers.
"Small businesses could be hardest hit by the CRC, and many could stop using datacentres for hosting, and instead use their own services, which are not as efficient, and ultimately cause more power to be used," he said.
Lowe also argued that the CRC could affect the uptake of cloud computing, as the increased hosting of services on datacentres will lead to further energy use, potentially increasing the cost to firms.
Datacentres still need to reduce their own power levels, but Lowe argued that the efficiency ratio of the power they use makes the industry better than most.
However, David Symons, director of global environmental consultancy WSP Environment & Energy, cast doubt on how much the duty would actually add to bills.
"We estimate year-one bills will only increase by a maximum of three per cent, and if businesses follow the goal of the commitment they can save money anyway by reducing energy costs," he said.
Symons conceded that the CRC could see small businesses footing bills they would otherwise not face if they ran their own datacentres, but is sceptical that this will turn companies away from specialist providers.
"There is a possibility there will be new costs for firms but, for the first few years of the CRC, any decision to outsource to a datacentre would not be affected by this possibility, especially given the raft of benefits a managed service offers," he added.
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Data Centres and the CRC
There are two main reasons why data centre operators will struggle to perform well under the CRC. These are:
1) The CRC is focussed mainly on companies achieving an absolute reduction in CO2 emissions rather than a reduction in carbon intensity, meaning that growth industries such as the IT sector will perform badly under the scheme.
2) Whilst there are mechanisms in place to transfer emissions where businesses are sold from one party to another, there is no such mechanism to cater for outsourcing of services such as data centre operations. This means that the data centre operator will have to soak up the additional burden.
David Symonds is correct to point out that the financial burden in the first year of the scheme is likely to be small as the level of financial risk is set at ± 10% of the value of allowances purchased, however it should be pointed out that this increases each year by 10% to a level of ± 50% of allowances purchased in year 5 of the scheme. In addition when the fixed price of allowances set at £12 per tonne of CO2 (which equates to about 0.6 pence per KWh of electricity used) is removed at the end of year 3 additional exposure to the scheme is likely as the price of allowances rises.
This financial burden will be significant, and will lead to UK data centre operators being uncompetitive against organisations that sit outside the scheme (in the Republic of Ireland for example) who do not have the burden of the CRC to pass on. Existing UK data centre operators are also likely to increase the level of offshoring over time in a process known as ?carbon leakage? where organisations slowly transfer operations (and therefore emissions) outside of scheme boundaries in order to make it appear that they are reducing their emissions and in doing so benefiting from the scheme. The net result of this however remains that UK data centre operations and cloud computing will simply move offshore with the loss of thousands of highly skilled IT service and support jobs.
Other energy intensive industries have set up Climate Change Agreements through their trade associations which exempt them from participation in the CRC, perhaps the data centre industry should seek to do the same thing.
Posted by Rupert Butt, 28 Jan 2010