July 27, 2008

Data Centers and Carbon Pricing

Here in the U.S. the likelihood of an official “price of carbon” continues to grow. Both Sen. McCain and Sen. Obama favor a cap and trade system, which would put a hard cap on annual emissions and use a trading system to distribute rights to emit greenhouse gasses.

If you operate large datacenters (or anything else that uses lots of electricity), its a good time to take stock of your electricity usage and where you’re getting it from. Under most proposed systems, your electricity providers will be purchasing enough rights to cover their annual emissions, and its a pretty safe bet that those costs will be passed through to you in the form of higher rates.

Here’s how to calculate the range of your exposure. First, for each location collect data on your electricity usage and where that electricity is coming from.  Second, find out the emissions rate for each source of electricity. This will usually be expressed (in the U.S.) in pounds of CO2e per kilowatt-hour. You should be able to get the emissions rate from your utility, or if you’re producing your own electricity then someone in your organization will be able to help.

Now you’ve got the raw data, so you can multiply the electricity from each source by the emissions rate for that source, which will give you a total pounds of CO2e. Then divide by 2,200 to turn the number into metric tons. Now we have our total emissions. The last step is to multiply this by the expected price for carbon. Obviously this depends on the target reductions, how the market is structured and what the current price is, but at this point we can do “what if” scenarios easily.

Let’s run through an example of a 1MW datacenter. With about 9000 hours in the year, that’s roughly 9 million kWH per year (1000kW * 9000 hrs/year = 9M kWH/year). For this example we’ll use the U.S. emissions average, which is around 1.3 lbs/kWH, resulting in 11.7M lbs of emissions, or a little  more than 5,300 metric tons. Currently on the European Climate Exchange CO2e emissions permits are selling for around $40/ton, so with these assumptions we could expect our electricity rate to increase between $200K and $250K per year.

A couple of notes. First, we used an average, U.S. emissions rate. Real rates can vary from 0 (no emissions) to over 2.0 (usually coal generation). Make sure you’re using the right number!

Second, in our example, if we were paying 6 cents/kWH for electricity today, then our electric bill for this datacenter today would be $540K/year. In this scenario the additional hit from the cap and trade system would be significant, so its worth doing the calculation to find out what your hit might be.

And finally, remember that the number we calculated is what the utility will pay. What they charge you may be higher or lower depending on their overall strategy.

With this data in hand, you can start to put together an energy strategy. Example actions include increasing the amount of low-emissions energy you purchase, moving datacenters to areas with lower emissions rates, and investing in efficiency projects within the datacenter.

Dave Douglas is Chief Sustainability Officer at Sun Microsystems.

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