As you may know, there has been uncertainty within the UK as to whether data centres are covered under EU ETS (European Emissions Trading Scheme). As EU ETS is aimed at large scope 1 emitters and therefore only covers fuels that are burned (oil, coal etc), one could be forgiven for thinking that data centres would not be troubled by this legislation. However, facilities with standby power provisioning of 7MW and above could be caught under EU ETS, depending on the exact characteristics of the generator array. This is because EU ETS obligations are defined by generating capacity not by emissions.
Although implementation should be identical across the EU we understood that the EU ETS has been interpreted differently across Europe: in some countries standby generation for the purposes of emergency supply only is explicitly excluded. In other countries it is included but the national regulator is not interested in identifying data centres as potential participants. In the UK standby power is explicitly included.
EU ETS is a cap and trade scheme and participants have to buy carbon allowances in order to be able to burn fuels on participating sites. It is relatively cheap to comply with in terms of purchasing carbon allowances because data centre scope 1 emissions are very small and the current carbon price is very low. However, compliance is a real misery for participants because of the way in which the scheme insists on exact auditing of the most miniscule emissions. So while the cost of carbon allowances is only likely to be a few hundred pounds per site, the administration costs may easily approach £10,000 for that site.
So we sought to establish whether the UK interpretation reflected the policy intention (we already believed that it was correct in terms of the letter of the law) and to establish whether the UK might be indulging in a bit of lily gilding/gold plating.
On Tuesday 21 January we had a useful meeting with the deputy head of EUETS implementation who was helpful and candid. Here are the main findings from that discussion.
- UK Govt (DECC) have interpreted the legislation correctly. It does cover standby generation for the purposes of emergency supply.
- DECC's interpretation does (unfortunately) reflect the policy intention.
- The real reason for the inclusion of standby power is to shut down loopholes previously exploited by large and cynical emitters with powerful and aggressive lobbies. As a sector for which the scheme was not intended we are therefore the "collateral" from previous conflicts / system abuses.
- The law is very unlikely to change before Phase IV (2020) but there will be a revision phase before then.
- The Commission team will provide some guidance and explanatory documentation to ensure that the legislation is clear.
- The Commission team was genuinely concerned by the discrepancies between cost of allowances and cost of administration for data centres. As a result they will take this case to their Compliance Committee. This Committee is tasked with trying to find practical solutions to this kind of problem. They may seek further evidence and technical help from us here. Obviously we'll cooperate fully.