Understanding US Government Carbon Tax: Cap-and-Trade

A data center with 1000 servers running at 13% utilization with a Power Usage Effectiveness (PUE) of 2 will be producing approximately 2000 metric tons of CO_{2 per year. If we estimate that each Cap-and-Trade permit (per metric ton) will cost $15, a 1000 server data center will pay $30k in Cap-and-Trade taxes per annum.}

The goal of Cap and Trade is to reduce greenhouse gas emissions including carbon dioxide throughout the economy using cost effective methods. The program is yet to be finalized.

What is The Cap?

Large emitting companies will have a limit on the amount greenhouse gases they can emit. Each ton of GHG emitted by the company must be covered by a permit. The number of permits will be reduced over time allowing less pollution until the crucial reduction goal is met.

What is The Trade?

A set number of permits are issued per year ensuring that the overall reduction of greenhouse gases is achieved. Efficient companies who successfully emit less than their target can then trade their remaining permits to companies who are not able to reduce their emissions, acting as a reward for the efficient companies.

What is a successful program?

A successful Cap-and-Trade program would limit the rise in global temperature to approximately 2.0 degrees Celsius / 3.6 degrees Fahrenheit above pre-industrial levels by 2050 as part of a larger plan to abate global warming. In order to achieve this, US Government will have to lower the cap until emissions are reduced to 80 percent below 1990 levels by 2050. Initially the government would auction off the permits for around $10 to $15 per metric ton of CO₂ or its equivalent[1].

The program is initially estimated to generate in the region of $50 billion rising to $300 billion. Revenues are expected to be used to help offset costs to businesses and shareholders of affected industries and to help low to middle income Americans cover the cost of energy price increases which may occur as a result of the switch to renewable energy sources. It will also be used in the development of green technologies and trading.

Recommendations for Reducing Carbon and Taxes:

Employ the use of a reporting tool for measuring and monitoring energy use and sever efficiency. This will aid decisions such as decommissioning underutilized servers and the reallocation of workloads to use servers more efficiently, all of which will decrease energy consumption including cooling costs, reducing your overall carbon emissions.

Lower carbon emissions = Lower taxes

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[1] Center for American Progress: Cap and Trade 101 (2008)