If You Ignore It, It Won’t Go Away…

The deadline to register for the CRC Energy Efficiency Scheme may have only just passed, but many companies left it until the last minute, no doubt hoping that it, like the Housing Information Packs, would just disappear when the government does yet another policy ‘U-turn’.

Despite the swathing cuts to public services and Quangos, the CRC is still in force, albeit all pretence of it being neutral has been removed and it is now simply a ‘green’ tax. High tech industries, especially the data centre sector, are going to have to get up to speed on the scheme very quickly in order to minimise any losses as a result of it.

The CRC scheme was introduced by the previous government with the aim of reducing carbon emissions of the largest users of electricity. It is targeted mainly at businesses who pay for their electricity on the half hourly market, and of those, around 5,000 will have to participate in the scheme fully.

These companies have to register on the Environment Agency’s CRC portal, which requires the uploading of significant data and the identification of key individuals responsible for ensuring the company’s compliance. Organisations that have to fully sign on to the scheme must record and monitor their carbon emissions, and will have to buy allowances (carbon credits) depending on how much their emissions change each year.

The CRC scheme is going to cause problems for data centre owners. As a bare minimum, there will be compliance costs of thousands of pounds per year for every company in the scheme. For older, more established data centres, the problem becomes more acute as you cannot easily retrofit new energy efficient power and cooling systems.

While you have to purchase CRC carbon credits, under George Osborne’s spending review, they will no longer be refunded, even if you are able to bring your emissions down relative to the other companies in the scheme. For the data centre industry, the CRC scheme was always going to be, and has now been explicitly confirmed as, nothing more than another tax.

For growing businesses, however, the effects are much worse, as there is only a 20 per cent allowance given for an increase in emissions caused by growth. It doesn’t take too much effort to work out that any data centre that grows will create more emissions, but even if this growth is as energy efficient as possible, it will be financially punished.

What is most shocking about this is that the Department of Energy doesn’t seem to have consulted the Department for Business Innovation and Skills when it implemented the CRC scheme, as the way it is implemented directly punishes fast-growing businesses. The data centre industry is one of the fastest growing in the UK, and the CRC scheme is hardly the recipe for the private-sector led growth we need to take the country out of recession.

The majority of data centre owners will have no choice but to pass the costs of the scheme onto their customers. Many clients will stick with UK-based data centres, such as those selling online to the UK market who need to be here to maintain a UK IP address. However, there may be a loss of business for those data centres that pass on the CRC costs to their clients for the in-house services they provide, such as mail servers, that don’t need to be kept in the UK.

We will, of course, see data centres being actively managed to reduce carbon footprints, although this is more about simply maximising profit margins by reducing the principal operating cost than anything to do with being green. Any impact on the rankings in the CRC tables may be used as a marketing tool, but for the lower tier data centres, the achievable per rack pricing in the marketplace will be a stronger driver on the type of energy efficient cooling installed, rather than the CRC regime.

Although you could argue that harsh restrictions are needed to protect the environment, the fact of the matter is that the CRC scheme won’t result in less carbon emissions. If there is to be a scheme at all, it should be a charge on the end users and not the data centre operators. It is a simple fact of business that economics will always be the driver for reducing costs, and so people will find creative ways of reducing power usage.

For data centre owners, it will always end up as a cost/benefit analysis between the capex required to upgrade existing cooling equipment versus the costs of not reducing emissions under the CRC scheme. The CRC scheme alone won’t be responsible for changing business behaviour.

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Robin Ellis is group commercial director at BlueSquare Data.