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Obama's 'cap and trade' energy plan could hit data centers

April 6, 2009
By Patrick Thibodeau, ComputerWorld Magazine

Data centers are part of the greenhouse gas problem, and their operators may soon start paying to help fix it under President Barack Obama's proposed cap-and-trade energy plan.

The cap-and-trade scheme is designed to impose higher costs on power generators that don't use so-called clean energy sources. The government would cap overall carbon dioxide emissions and then auction off permits enabling companies to exceed the limits - essentially adding an indirect tax on some forms of energy, such as coal-fired electricity.

Power bills likely would increase as utilities forced to buy the permits passed the added costs on to their customers. And over time, the pool of permits would decrease, sending electricity costs further upward unless generators switched to cleaner energy sources.

The White House has yet to detail the mechanics of its cap-and-trade plan, and a major battle is expected in Congress. But Obama appears to be committed to the idea. His proposed budget for the next fiscal year includes funding for a cap-and-trade program. And at a March 24 press conference, he reaffirmed his support for the new approach, saying that it would start "pricing the pollution that is being sent into the atmosphere."

Data centers clearly are among the facilities that would be in the bull's-eye of a cap-and-trade program - either directly or indirectly.

"It's a new metric for the data center, and [IT managers] must deal with it," said Luke Leung, director of building services engineering at A. Epstein and Sons International Inc., a building design and construction firm in Chicago.

Leung has run some estimates of what a cap-and-trade rule might mean for a 100,000-square-foot data center. Assuming that the facility emits about 16,800 tons of carbon annually, it could see additional costs of $252,000 per year if emissions permits are priced at $15 per ton, or $756,000 if they cost $45 per ton, he said.

Costs are expected to vary by region, though. For instance, Leung said that carbon costs likely would be higher in Chicago, which relies heavily on coal, than in New York, where nuclear power is more prevalent.

Even though the outcome of the congressional debate is unknown, Jim Smith, chief technology officer at Digital Realty Trust Inc., is already preparing for the advent of cap-and-trade.

Digital Realty, a data center operator in San Francisco, runs 75 IT facilities in the U.S. and Western Europe. Smith's goal is to ensure that he has all the information he needs to understand the potential impact of a cap-and-trade program on the company. That includes being able to meter energy consumption to the point where he can specifically see how power is being used inside the data centers.

With more accurate and detailed consumption data in hand, Smith said he could then ask his staff members this question: "If this is the new landscape, how is it going to affect our business?"

Digital Realty's response to a cap-and-trade program may include focusing on states with lower power costs for data center expansions and new facilities. For instance, the company has seven data centers in Virginia. But that state generates a lot of its power from coal. If electricity costs go up significantly under a cap-and-trade approach, "we're going to stop investing in Virginia," Smith said.

In Nebraska, the Omaha Public Power District charges residential consumers 7 to 8 cents per kilowatt-hour, putting it on the lower end of the electricity cost scale nationwide. But a cap-and-trade program would likely increase rates because the utility gets 60% of its energy from coal, said Marc Nichols, who is in charge of sustainable energy and environmental stewardship at Omaha Public Power.

For the utility, cap-and-trade "will do nothing but increase the cost of the product dramatically," said Nichols, who worries that prices may have to be raised by as much as 50% to 100%.

In January, Omaha Public Power announced a plan to generate 10% of its electricity from renewable sources by 2020, with a substantial portion of that expected to come from wind power.

Nebraska has some built-in advantages for pursuing renewable energy: It's the sixth-windiest and ninth-sunniest state in the U.S. And with its low power costs as a lure, the state is actively working to attract data centers. For instance, Yahoo Inc. said last fall that it planned to spend at least $100 million to build a data center in an Omaha suburb.

But Nichols said there are concerns about the reliability of wind and solar power because they're dependent on environmental conditions. "We need some time to develop additional technologies that will help us reduce carbon," he added.

A cap-and-trade program may force companies to take additional steps beyond looking for low-cost-energy locales in which to build or expand data centers.

Some businesses may be tempted to shift processing workloads to Google Inc., Microsoft Corp. and other cloud computing vendors that are building IT facilities in areas with relatively clean power sources, said Tad Davies, executive vice president at Bick Group, a St. Louis-based designer and builder of data centers.

In addition, companies that have backup data centers in areas with cheaper energy might opt to develop internal clouds so they could easily shift computing resources to those facilities, Davies said.

Higher energy costs also could be used to justify full IT outsourcing moves. "Every data center manager and CIO is asking that question anyway," Davies noted.

It's possible that data centers could be directly affected by cap-and-trade regulations targeting their energy use. If so, a big question is whether the rules would apply to corporate data centers or only to commercial ones offering hosting, collocation and disaster recovery services, said Tom Deaderick, director of OnePartner LLC's commercial IT facility in Duffield, Va.

A couple of things may work in Deaderick's favor if cap-and-trade does become a reality. First, OnePartner gets its electricity from the Tennessee Valley Authority, which uses hydropower to generate much of the energy it produces. And Deaderick said the company's data center, which was completed last year, was built with efficiency in mind; among other features, it has the means to accurately measure its energy usage.

But there's no way to accurately gauge the potential impact of a cap-and-trade initiative. "Everything is depending on how they arrange these regulations," Deaderick said. "It could go a lot of different ways."

There is a sense of inevitability among analysts, though, that the White House and Congress eventually will agree on a new energy-pricing plan.

"Anticipating zero-carbon pricing ... those days are gone," said Pat Concessi, an energy consultant at Deloitte Touche Tohmatsu.