CRC strengthens case for low-carbon IT

The principal green regulation affecting UK-based companies is the Carbon Reduction Commitment (CRC) Energy Efficiency scheme. It is already in operation but recent changes mean its full affects for IT chiefs have yet to emerge.

The legislation was announced in 2008 and came into force 1 April 2010. It was originally designed as a cap-and-trade arrangement for public and private organisations with an annual energy bill in excess of 6,000MWh.

After an initial registration period, qualifying companies were to buy carbon allowances from April 2011 at £12/tCO2e, allocated in the first year on forecasted consumption, in later years by auction. The legislation called for organisations to reduce energy consumption by five per cent each year or face increasing levies. Those organisations exceeding the target would be rewarded with rebates, as well as earning revenue from selling excess allowances to their carbon-profligate peers. The final twist to the act was a league table, published at the end of each year of operation, publicising the relative performance of every participant.

However, just before October’s Comprehensive Spending Review the coalition government scrapped the rebate for over-achievers and decided to retain all fees paid for allowances, transforming the scheme into a carbon tax.

Businesses that were hoping to turn a profit from the scheme were understandably miffed. But industry analysts pointed out that, while the loss of carrot was regrettable for some, a simple stick was easier for participants to administer, and the new rules left no doubt what government expected of business.

The change will help IT heads build a business case for low-carbon IT. There is no complex guesswork as to whether the rebate amount will make investment worthwhile. It is now a simple formula.

“The CRC plays straight into the financial arena: reduce emissions – ie power consumption – or pay a fine,” says Stuart Neumann, analyst at Verdantix.

More recently the government has said companies can buy allowances for 2011 in April 2012, based on real consumption, not forecasted. And it will delay allowance trading until 2013, not least while it “consults with industry”, ministerial speak for figuring out how the scheme will work.

So the financial implications of the CRC have yet to bite. Indeed, Simon Mingay, research vice president at Gartner, thinks IT heads would currently do better familiarising themselves with HMRC’s approved list of products on which the company can claim enhanced capital allowances.

“We always advise anyone overhauling a datacentre to employ a tax consultant to find out what incentives are worth chasing,” he says.

However, the matter of the CRC league table has yet to be decided, too. As businesses chase green consumers and investors, relative positions could be hotly contested in a war of reputation management. But who controls where an organisation appears in, say, a colocation arrangement where the customer is responsible for the servers and the service provider for the cooling, power distribution and lighting?

“Should carbon liability become an issue for the SLA?” asks Mark Bailey, partner in the intellectual property, technology and commerce team at Speechly Bircham. “What about the aspect of continuous improvement? Who has liability for the energy security and is that more important than who pays the carbon tax?”

Ironing out the CRC details will not be the final word on carbon taxes: energy secretary Chris Huhne told the CBI in November that the CRC “is just the beginning”.

One fear is that the UK’s stringent carbon tax regime will force datacentres offshore. Datacenter Dynamics Research Group conducted an online survey of 80 UK operators, a third of whom believe it will. But Bailey says latency requirements, data privacy laws, customers’ server-hugger mentality and similar carbon targets in other geographies will keep datacentres anchored to UK shores.

While many datacentre operators face the advent of the CRC with trepidation, others see it as an opportunity to differentiate themselves and have already signed up to voluntary regulation, such as the European Union Code of Conduct for datacentre Energy Efficiency. Participants commit to track their energy consumption over the course of a month and then follow an action plan of best-practice measures to progressively lower it.

In the UK some have pre-empted the CRC via the Carbon Trust Standard Certification, for example, awarded to datacentre operators Telecity and Savvis. Under this scheme, operators track power usage for three consecutive years and demonstrate they have processes in place for continuous reduction.