Chancellor George Osborne announces datacentre carbon tax break in Autumn Statement

Datacentre operators will be exempt from blanket carbon taxes and will instead be allowed to reach a separate climate change agreement (CCA) in line with other energy-intensive industries such as manufacturing, chancellor of the exchequer George Osborne announced in his Autumn Statement.

The announcement was welcomed by industry campaign group techUK, which has long argued that blanket carbon taxes such as the carbon reduction commitment (CRC) would be economically damaging to the industry while doing little to reduce emissions.

Emma Fryer, associate director of climate change programmes at techUK, said: “The chancellor has recognised the contribution that technology makes to the economy and removed a barrier to growth and inward investment.”

The CCA scheme has been in place since 2001 and allows certain industries to commit to tough energy efficiency targets that also ensure they can remain competitive in a global market. This is the first time such an agreement has been applied to the technology sector. 

“Negotiating the agreement has been a long and tortuous process because CCAs were designed with manufacturing rather than digital services in mind,” said Fryer.

Without a CCA we would have seen the UK become an increasingly unattractive location to operate datacentre

Emma Fryer, techUK

Under the previous regime, datacentres would have been required to pay a levy based purely on the amount of energy they consumed, rather than on how efficient they were. So, for example, a highly efficient, virtualised colocation facility would have had to pay the same as a inefficient old-style datacentre running ten times fewer servers but consuming the same amount of energy.

The industry argued this would make UK-based datacentres uncompetitive against overseas facilities that were not subject to blanket taxes, resulting in more offshoring by UK companies and less inward investment. 

“Without a CCA we would have seen the UK become an increasingly unattractive location to operate datacentres. The UK would have lost investment, expertise and capability to other countries, at significant economic cost,” said Fryer.

“People may not think offshoring datacentre activity is much of an issue but that is because they underestimate the contribution datacentres make to the UK economy. They are not just fancy sheds full of computing equipment. Datacentres enable and power service economies in the way heavy industry used to power manufacturing economies.”

The new agreement will only apply to the datacentre industry, not to large users operating their own datacentres, which is likely to boost the trend towards datacentre outsourcing and cloud computing. 

“A CCA will encourage the right behaviour among datacentre operators and drive the market away from a distributed IT model that is less energy efficient towards one in which computing activity is consolidated into efficient, purpose-built facilities,” said Fryer.