Ignoring carbon regs could spell disaster for datacenters

Caps on carbon could mean volatile energy prices -- and even jail time

In the business world, nothing induces a healthy round of hand-wringing and cold sweat like the specter of governmental regulation. For better or worse, lawmakers in the United States and beyond have passed such regulations as HIPAA (the Health Insurance Portability and Accountability Act) and Sarbanes-Oxley, acts that have forced organizations to change the way they run their operations. IT departments have certainly felt the pain as they've struggled to ensure their organizations are in compliance -- and, at times, struggled to play catch-up when certain regulations have seemingly caught company executives flat-footed.

If your organization has at least one datacenter, it's time to prepare for a new round of regulation, such as the United States' Waxman Markey bill, warns Jim Smith, CTO at Digital Realty Trust, owner and operator of datacenters around the globe. Carbon taxes or cap-and-trade systems both in the United States and abroad will cause fluctuation in energy prices; plus, they'll force companies to measure and report greenhouse gas emissions. Further, even companies headquartered in the United States might feel the regulatory sting from the United Kingdom.

[ Digital Realty's Mike Manos has urged datacenter operators to unite to ensure regulations actually make sense. | Another reason to cut carbon emissions: the threat of lawsuits. ]

"There is regulatory risk heading our way as energy efficiency and other global climate change and economic issues have come to the forefront," cautions Smith in a recent video in which he discusses the impact of carbon regulation. "[I]n the last maybe 18 months, I have spent a good third of my time dealing with this topic."

Brace for volatile energy prices
Among the effects of a cap-and-trade system or a carbon tax, it's "going to change the face of power economics in the United States," Smith says. "It's going to have an intersection of carbon as a price -- carbon externalities will be priced in the power market -- and it's going to have a collision with the state of deregulation in the United States."

The level of utility regulation varies from state to state, Smith notes: "You've got markets like the ERCOT grid in Texas that are highly deregulated and functional, very well deregulated markets that are primarily driven by gas. And these are in contrast to some of the East Coast markets that are primarily coal-driven and heavily regulated."

If you pair those two opposites and add carbon regulation, you end up with volatile energy prices, Smith warns. "For end-users like those of us on the datacenter side that consume quite a bit of energy, the main impact is: You need to plan for the volatility of your energy costs. Things are going to change. I can't tell you exactly how they are going to change because it remains to be seen, but you need to be prepared for changes in your budgets and your actual costs."

Think beyond your borders
Leaders at U.S.-based organizations with datacenters (or other operations) in Europe shouldn't ignore U.K. regulations, Smith warns. The United Kingdom recently passed an emissions trading scheme called the Carbon Reduction Commitment (CRC), which aims to reduce carbon emissions in large, non-energy-intensive organizations by 1.2 million tons of carbon per year by 2020. The CRC will have an impact on datacenters.

"If your company has operations in the United Kingdom and you are operating a power bill of scale, you are subject to CRC. And CRC is going to deliver a mechanism whereby you have to report your power usage, you're going to pay a tax on that usage in the future, and then depending on your performance, you may get all of that back or your peers may get some of that tax delivered to them if they improve more than you," Smith explains.

Start your measuring
If the prospect of lower energy bills hasn't led your organization to measure energy consumption, perhaps the threat of regulation will. "In terms of this criminal penalty perspective, senior management teams are at risk, and that by itself will generate the legal analysis that everyone needs," Smith says.

[ Technology providers such as CA are offering increasingly sophisticated tools for measuring energy consumption and carbon emissions. ]

Thus, companies need to get a move on measuring CO2 emissions and preparing to report them. "If you are not prepared to report, you're going to run afoul specifically of the CRC regulations. And in other markets [where these regulations are planned], pan-European markets and the U.S. market, the first phase will also be reporting. The governments and regulatory agencies are going to want to know what's happening out there and you are going to need to report," Smith says.

Watch the video of Smith in its entirety.


Copyright © 2009 IDG Communications, Inc.