The UK’s Carbon Reduction Commitment (CRC) is being “reformed” so that the Treasury keeps revenue raised through the carbon pricing scheme, rather than using revenues to offer rebates to companies that reduce their carbon output. The British government is citing a budget deficit as the driving factor in its decision to restructure the program.
“Revenue raised from the CRC Energy Efficiency Scheme will be used to support the public finances (including spending on the environment), rather than recycled to participants,” the statement said. The UK government will now collect about ₤1 billion per year (US $1.57B) that was initially slated to be recycled to CRC participants.
Impact for Data Centers
Under the CRC, companies and public sector bodies that use over 6,000 MWh of electricity a year have to register and purchase carbon allowances in line with the amount of energy they use each year. Data center providers face potential impact from the CRC, given the volume of energy used in major facilities.
The change in the CRC plan is prompting outrage from large businesses, who say the change converts the CRC into a straight carbon tax. Here’s a sampling of headlines :
- Large Firms Face ‘Green Stealth Tax’ (BBC)
- UK’s Carbon Tax Bombshell takes Business By Surprise (Reuters)
- Fury over Green Stealth Tax in Spending Review (Telegraph)
- UK’s Carbon Tax Bombshell takes Business By Surprise (GreenBiz.com)
Among the data center companies that have registered in the high-emission bracket are Digital Realty Trust, Interxion, Equinix, TelecityGroup, SunGard, Savvis and HP, among others.
While the changes simplify the impact of the CRC, allowing a straight calculation of cost based on energy usage, they also eliminate one of the stated benefits of the plan: the opportunity for companies to gain additional benefits by improving their energy efficiency. The existence of the recycling option also provided political cover, as it allowed proponents to assert that the measure wasn’t a direct tax on carbon output.
“This change in the recycling payments will clearly have a substantial impact on the UK data centre sector,” writes Liam Newcombe, CTO of Romonet, a UK firm that makes energy tracking software for data centers. ” No longer is CRC simply a complex regulatory burden that will cost a lot of money in compliance and reporting. It is now an expensive tax as well. A medium sized colo data centre can expect to add £500,000 to its annual opex for the purchase of allowances in addition to the compliance costs.
Costs for Colocation Providers
“There are clear impacts to the data centre market,” Newcombe adds. “Colo providers are now likely to have to add a direct ‘CRC tax’ to customer power bills as metered power times a multiplier. Those service providers whose contracts do not allow them to pass on such new charges face a more difficult decision, with power cost as the major part of their cost of delivery the 10% increase will substantially reduce and possibly eliminate their margins.”
The larger worry among some UK providers is that the additional cost overhead from the CRC will prompt customers to move IT services elsewhere – a prospect made easier be the emergence of cloud computing models. Others believe the carbon tax could have a chilling effect on new data center development in the UK.
What’s your opinion? Share your thoughts in the comments.