Will California Kill Its Data Center Industry?

Tuesday, 27 July 2010 11:10

Written by jeffrey clark

With the blighted economy, which is showing decreasing potential for a fast recovery and which may be signaling another upcoming downturn, jobs are becoming scarce, and many state and local governments are struggling to meet their budgets in the face of plummeting tax revenue. In response, some state governments have implemented tax incentives as a means of enticing companies to build data centers within their borders, thereby bringing into those states both new jobs and needed tax revenue. California, however, may be doing precisely the opposite.

California’s economy is larger than that of many nations, and the state’s government is voracious to the point of incurring a budget deficit on the order of $20 billion. According to Search Data Center (“Will pending law make California too costly for data centers?”), several potential legislative moves on the part of California’s government may make building and operating data centers in that state significantly more expensive. Certainly, such legislative changes could create an additional drag on the already beleaguered economy.

California has struggled with the problem of air pollution (smog is a well-known problem in Los Angeles, for instance), and its emission standards are some of the toughest in the nation. Thus, government-imposed standards that seek to protect citizens and the environment from dangerous pollutants are neither unreasonable nor unexpected. On the other hand, some legislation, both at the national level and at the state level, seeks to make changes on the basis of so-called climate science that predicts potentially dangerous climate change as the result of human activity (most notably, carbon emissions). In California, this legislation is in the form of AB 32 Scoping Plan, which is described at the California state government web site. The legislation calls for the creation of a cap-and-trade system, whereby certain emissions (labeled “greenhouse gases”) are limited, and companies are issued credits that permit them certain emission amounts. According to the web site, “Under cap-and-trade, an overall limit on [greenhouse gas] emissions from capped sectors will be established by the cap-and-trade program and facilities subject to the cap will be able to trade permits (allowances) to emit [greenhouse gases].” The companies can then trade credits, which (theoretically) encourages reduced emissions through economic incentives by allowing companies with low emissions to sell their credits to companies that have greater emissions.

A cap-and-trade system does not affect data centers directly, since data centers do not generally have any regulated emissions. Such a system does, however, affect the utilities that provide power to data centers. And as data centers become ever-greater consumers of power (EPA estimates suggest that data centers consume 1.5% of the total power output of the United States), their bills will rise, as most observers predict that a cap-and-trade system will invariably lead to higher costs for electricity.

In addition, California is also considering changes to Title 24 of its Energy Efficiency Standards for Residential and Nonresidential Buildings regulatory code. According to the California web site, this code was designed “in response to a legislative mandate to reduce California's energy consumption.” Furthermore, the code is “updated periodically to allow consideration and possible incorporation of new energy efficiency technologies and methods.” The new changes to the code would require that additional energy-efficiency measures be implemented in newly constructed data centers. Although greater energy efficiency is certainly a noble goal and is one that companies should strive for, it must be balanced against certain economic realities. A point of diminishing returns is eventually reached, and at this point, greater energy efficiency becomes financially burdensome, sometimes to the point that it cannot be sustained.

Regardless of where a company chooses to locate its data center, the possibility always exists that the legislative climate will turn foul. Although the above-mentioned bills in California have not yet been passed, they certainly have a chance of passage. Other similar (whether more or less stringent) regulations may also follow. In some other states, current legislation may be more favorable to data center construction. Nevertheless, if a company relies on the legislature to giveth, that company cannot be surprised when the same legislature taketh away. California appears to be less than palatable at the moment for companies looking for a place to build new data centers. Because the rest of the nation tends to eventually follow California’s example, companies would likely do well—regardless of where they maintain or build data centers—to stay ahead of legislation by implementing energy-saving measures whenever possible.

Author contact: jclark@datacenterjournal.com

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