Unveiling the UK Government’s Comprehensive Spending Review last week, Chancellor George Osborne announced a major change to the Carbon Reduction Commitment (CRC). The Chancellor stated that the money collected by the scheme over the next four years could be transferred to the Treasury (UK plc) coffers instead of being returned to participating companies in the form of rebates.
Unsurprisingly, this rather swift change of the goal posts has led to cries of ‘stealth tax’ from critics.
Since last week’s Spending Review announcement, a whole line of analysts and specialists have formed an orderly queue, waiting for their turn to denounce this change and to claim that the implications for UK’s data centre industry could be catastrophic as operators seek to build new facilities in other countries instead.
The data centre industry was originally brought into the scheme as it produces an annual 2% of the UK’s total amount of the greenhouse gases. The original mechanics of the scheme was that each participant would monitor their emissions and purchase allowances to emit carbon dioxide (CO2). In theory, the more CO2 an organisation emits, the more allowances it would need to purchase, so there is a direct incentive to reduce emissions.
According to some commentators, UK data centre operators will now face a direct tax on energy consumption at £10 to £15 per tonne of CO2 allowances with 1 tonne of CO2 equating to roughly 500kWh of grid electricity. The Treasury now expects the scheme to raise £715m, £730m, £995m and £1,020m for the public purse over the next four fiscal years.
But it’s not just the data centre industry that is crying ‘foul play’. The British Retail Consortium has called the Government’s green credentials into question after details of the plan became known. According to the BRC, retailers, who have massive property portfolios, will also be hit hard by the plan.
BRC director general Stephen Robertson said: “We’re surprised and dismayed that the £1bn per year participating businesses will put in to the CRC scheme is no longer to be recycled to participants but is instead to be pocketed by the Exchequer.” He also stated that this move had now removed a major source of incentive for business to reduce carbon emissions.
Richard Lambert, CBI director general, said: “A scheme that was meant to change behaviour by encouraging energy efficiency has now become another stealth tax.”
And let’s be honest, did we not think that this change of heart was at all surprising? Its timing may have caught us out, but a simple carbon taxation scheme has long been mooted.
Chris Huhne, the UK’s Energy and Climate Change Secretary commented: “We are obviously going to look at the whole agenda of green taxes because it was in the coalition agreement that we would be raising green taxes as a share of overall taxation.
“If you look specifically at the CRC, there was an awful lot of criticism from business of the amount of administration and compliance costs that the CRC was imposing. From our point of view, it looked like it was being imposed with very little effect on carbon reductions. The advice I received was that the impact on carbon reduction was effectively coming from the tax side and not from the very complicated, very baroque, system of recycling.”
Not quite the horse’s mouth, but pretty clear all the same. The CRC was flawed; green taxation was an election pledge, put two and two together and yaah! We have ourselves a £1bn carbon tax windfall.
However, what seems to have been overlooked by many of the commentators this week is that the CRC in its original format was unnecessarily over bureaucratic and in some cases completely illogical (why were Schools forced to compete with Supermarkets for carbon credits?), and in many cases actually penalised businesses that were actively implementing best environmental practise.
And yet whilst the promise of a possible rebate together with a PR boosting top 10 position in the League Table beckoned, the voices of discontent were somewhat muted.
If you look at the data centre industry as an example, you might find a data centre operator running an estate at 50% occupancy capacity, giving them scope to double their installed racks. Simple logic dictates that every new rack installed will consume more energy and therefore add to the overall CO2 emissions. A successful operator, actively marketing and selling services, would hope to be adding a healthy rate of new customers to their facilities each month.
Every new customer will increase the power consumption burden on the operator – So what does that operator do? Turn custom away? Ask customers to leave? or bite the bullet and endeavour to reduce emissions wherever possible? (which incidentally is exactly the same scenario faced by the DC operator under the original CRC scheme – the money is just going to UK plc).
Quite simply the answer is to grit the teeth and get on with it. Perhaps the silver lining in this unexpected development is that it will actually encourage organisations to concentrate on becoming more energy efficient than they had intended. Many organisations will quite possibly consider colocation from their own in house data centre into a DC operator’s facility where they can be twice as efficient due to economies of scale – or may even consider losing some of their IT infrastructure altogether by moving to the cloud.
Server virtualisation, cold aisle containment, use of renewables, resale of power back to the grid, power management, Hot Gas Re-Heat (HGRH) technology and responsible procurement are all areas which all data centre operators should be considering as standard, and in the main are. Green IT has always been about a holistic view rather any particular aspect, and it should always have been driven by a need to reduce costs whilst improving business performance – not a position in a league table.
Yes, what the UK Government has done is possibly underhand and is a cause for justifiable concern from those industries affected by the decision, but somewhere over the next few months we can only hope that the whole question of Green IT and taxation is reviewed and a more workable framework introduced.
If the Government retains the CRC funds, it will need to demonstrate that they are utilised for sustainable and environmental benefit – not more Quangos, misplaced marketing campaigns or ineffective green schemes that cost more to administer than they deliver in benefits. Real cash subsidies for businesses using cleaner fuels might be a start. Diverting funds to non profits actively working in the fields of climate change and conservation might be another.
Whatever Mr Osborne and his Treasury chums decide upon, they will need to do so quickly – for the longer the ‘next steps’ remain unclear, and questions raised remain unanswered and the more vocal the dissent.