UK CRC – Policy challenges in dealing with the critiques

Posted by John Stanley

As I mentioned in a previous post, the concerns that the UK’s IT industry has raised over the CRC present several public policy challenges. In this post, I’ll make a few points about each of the critiques.

(1) “Under CRC rules, you can’t claim credit for renewable energy for which you receive subsidies”

An article last year in eWeek Europe, provocatively entitled “Companies Threaten to Kill Green Energy Over Government Rules,” points out that companies like Sun and BT are rethinking planned renewable energy projects because the government rules undermine the business case. The rules force data centers with on-site renewable generation to choose between counting the energy as renewable under their CRC tally, or receiving payments from selling Renewable Obligation Certificates (ROCs) to utilities. Many projects need the ROC payment subsidies to be economical, and it’s confusing to project owners why their green energy wouldn’t then count as green when they report to CRC.

However, allowing data centers to count a single renewable energy project under CRC and simultaneously sell ROCs for it would be double-counting the renewables benefit, and that’s not reasonable.

The UK government has created two separate requirements, so that different groups can each do their part. (A) Utilities are required to do their part by procuring more renewables, and (B) data centers are required to do their part by cutting their fossil energy use. You can’t count a single renewables project toward both of these requirements; it messes up the accounting and reduces the overall number of projects that get done. Allowing this would be like letting your company’s sales team take a single deal closed over the weekend and count it towards sales quotas for both this week and next week. This throws your revenue numbers off, and it allows a slack sales team to get away with one deal instead of two.

So, I don’t consider it a flaw that the CRC considers a renewable energy project that sells ROCs to be non-green. That project used to be green, but the owner took the “greeness,” bundled it into a ROC, and sold it to a utility. The utility now owns the “greeness,” not the project operator.

However, I do support the data center industry’s sentiment that the government should aggressively encourage renewable energy. But let the government do it with additional incentives, not obfuscated accounting tricks.

(2) “The CRC encourages companies to outsource / offshore their carbon, rather than actually reducing it”

Another criticism of the CRC is that it might just cause companies to outsource energy-intensive data center operations, rather than improving efficiency.

This criticism presents much more of a public policy conundrum. It would indeed be tragic if UK companies simply moved their data centers to somewhere else in Europe, or even to China, where the electricity could be even more carbon-intensive. This wouldn’t reduce emissions, and it would export the jobs and economic benefits associated with the data centers out of the UK.

One possible correction might be something like an import tariff on data center services from countries that don’t regulate their carbon emissions. That way, companies would have no cost incentive to cheat the system by shipping their energy-intensive data centers to places with lax rules. However, doing this would be a major challenge. First, a data center service is not like a shipping container full of bananas; it’s much more difficult to quantify data center services, stop them at the border, and assess the appropriate toll. Second, even if you could do that, free trade laws in the EU prohibit many kinds of import tariffs.

On the other hand, the prospect of waiting until all countries regulate their carbon emissions, so that there’s no incentive for offshoring, is equally discouraging. If countries can’t move together, and everyone is afraid to move first, how is anything ever going to get done?

Hence the conundrum.

(3) “The CRC penalizes growth by focusing too much on absolute emissions reductions rather than relative intensity metrics”

This is another big challenge. What if a data center company doubled its actual CO2 emissions, but quadrupled its revenues and services provided? The company has clearly gotten a lot more efficient in terms of reducing CO2 per dollar of economic benefit, and it should be rewarded for its success.

On the other hand, if CO2 emissions go up by 10x, and Gross World Product goes up by 100x, we’d still face potentially catastrophic climate change. The atmosphere doesn’t give us credit for our factor-10 improvement in CO2 per dollar. (To put it another way: We still cook. We’re just rich enough that we can cook in a golden pot.)

If we want to tackle global warming, we need to find a good way to reward efficiency while meeting calls for a global reduction in absolute emissions.

No easy answers

With the possible exception of #1, these three criticisms of the CRC are very reasonable, but it’s also very hard to simply give the critics what they want. I hope lawmakers and we in the industry can work together to find a more creative solution.