A cost on carbon looms in the U.S. as the urgency to address climate change intensifies. What are the implications of this for our energy-hungry cloud industry?
California implemented a cap and trade program in 2012 introducing a market-based price tag on carbon pollution, currently at $13 per ton. A bill in the U.S. Senate, the Climate Protection Act, would establish a fee on manufacturers, producers and importers of carbon-emitting substances. And it's not just governments taking action to account for carbon pollution. Last year, Akamai was one of 700 businesses to sign a declaration urging national action on climate change. A growing list [PDF] of major companies — including nine major oil and gas companies, such as Exxon, BP and Shell — apply an internal cost of carbon, ranging from $6 to $60 per ton, to account for this inevitable cost as part of their financial analysis of projects.
How would a fee on carbon affect Internet-intensive companies such as Akamai? Carbon fees typically apply to "primary emitters," energy-intensive industries that burn fossil fuel or emit other regulated greenhouse gases (GHG). That said, climate change regulations, such as the United Kingdom's Climate Reduction Commitment, also require companies above a set threshold of energy usage to report direct and indirect (electricity-associated) carbon emissions. The graph below, from a May 2009 Goldman Sachs SUSTAIN report, highlights the industries with the most exposure from their carbon-intensiveness as a function of market capitalization.
Less carbon-intensive industries and companies such as Akamai will be affected indirectly through higher operational and supply chain costs as the cost of carbon to primary emitters becomes folded into the cost of goods and services. Servers, networking and data center infrastructure, and the electricity to power them, likely will be more expensive. How much more will be a function of the fee on carbon, and the amount of carbon emissions embedded in purchased infrastructure and associated with electricity consumed.
Last year, Akamai collaborated with Life Cycle Analytics to calculate the embedded carbon emissions of a representative network server. It was estimated to be 368 kg CO2e. If we assume that that value is accurate for each of our 140,000 network servers, the total would be 51,520 metric tons of CO2e. At $20 per ton, that's more than $1 million in embedded carbon costs. The carbon cost of electricity to power that server is a function of the carbon intensity of that electricity.
According to the EPA's most recent eGrid data [PDF], California's collective electricity generation averages 0.300 kg CO2e/kWh while Colorado's coal-based electricity generation averages 0.833 kg CO2e/kWh. If the analyzed server consumes 230 watts year-round, it would be responsible annually for 0.6 tons CO2e in California and 1.7 tons CO2e in Colorado. That would cost about $12 and $34 per year, respectively, translating to $2.8 million to $7.9 million across our server network, including data center-related CO2e. That's assuming Akamai’s third-party data centers network-wide average a power usage effectiveness of 1.7 (70% of IT electricity consumption). That's not chump change.
No matter your industry, getting smart now about the carbon footprint of your supply chain, operations and product line is an important step towards understanding your financial exposure to a cost of carbon. Incorporating an internal cost of carbon into your project financial analyses is also a good idea. Akamai always has seen the wisdom in maximizing the performance per watt of our server infrastructure. When you multiply even a small number by a very large number, the result is motivating. Since 2009, we've had a target to reduce our network energy and carbon intensity by 30 percent per year.
To date, we've achieved net 83 percent and 76 percent reductions, respectively, as shown in the graph below. In addition, through server hardware and software productivity initiatives, we've decreased the number of servers needed to support network traffic by nearly 70 percent. Both efforts continue to contribute to reducing Akamai's cost of carbon exposure, improving the sustainability of our network and business.
In estimating the financial impact of a cost of carbon, we should not lose sight of the fact that this cost reflects what long has been an externalized cost — emitting carbon pollution into our atmosphere that drives climate change is the ultimate cost of carbon. Our environment has borne the brunt of the consequences to date. But we now know the true cost of carbon no longer can be ignored if we are to stave off the worst effects of climate change.
Cloud jigsaw image by Yabresse via Shutterstock.