Cap and Trade Rules
Cap and Trade Legislation and What It Could Mean for the Data Center

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

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 itís 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 RECís (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 ITís participation in this
maturing environmental trading market. For a deeper discussion on tradable
certificates refer to my recent brief. ďREC and EEC know the differenceĒ

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
arrayís 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.


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