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Smart BI reveals cost savings in environmental practices

by Faye Merrideth, www.sas.comWednesday, April 28, 2010

Article written by: Alyssa Farrell and Randy Betancourt

External pressure for transparent environmental performance information is increasing – in every industry and geography, and for every executive. Therefore, the need for insightful dashboards that return accurate, timely knowledge is a burgeoning demand for BI vendors today.

In particular, energy consumption is a quantitative value that is well-suited to Web-based, dashboard technology. This has the benefit of encouraging more frequent tracking and also communication of information throughout the organization. It is very important to know where you are in terms of energy consumption before you can start to quantify improvements. A project that promises to deliver a 75 percent reduction in energy consumption for a specific IT asset sounds like a no-brainer. After all, many have estimated that the cost of energy for an IT asset over the course of its life cycle is equal to the up-front cost of the capital investment. But what if that asset accounts for less than 5 percent of your IT energy footprint? It would be more prudent to look at projects that can shave 10 percent off your highest energy consumers. Unless you know what is driving your consumption today, you cannot target reductions in areas that make the most financial sense for the business.

A current project underway at the Poste Italiane Group is breaking down energy information silos1. Poste Italiane uses software from SAS to analyze energy efficiency in more than 250 facilities, including those with the highest energy consumption – such as data processing centers, executive centers and the largest branches. Its analysis identified best practices that, when implemented, led to immediate reduction in energy consumption and a total 7 percent reduction in CO2 emissions. Future developments include correcting operational and maintenance behaviors for the systems and (indirectly) buildings.

While it seems straightforward to measure energy consumption, the data is challenging to obtain. Evaluating energy and carbon consumption requires actual data, or enough information to make relevant allocations from other data sources. One of the most significant challenges many organizations face is to identify if the necessary data exists and, if it does, who owns it. 

Once the owner is identified, you may find it surprising that fellow colleagues are reluctant to share the data about electricity and fuel consumption. While “data hoarders” are not unfamiliar corporate enemies, the dynamics of gathering data for environmental measurement is a unique situation because the data providers are not sure how their information will be used. Will it constrain them in the future? Will they look bad in comparison to other parts of the business? This uncertainty can compound natural aversion to sharing data across organizational silos.

Lastly, the data simply may not be available due to lack of monitoring systems in place. An organization must weigh the cost of implementing such a system with the data management efficiencies and analytical decision support that it will provide. In the end, if there is no alignment or incentives for the line of business to care about the cost of energy, then it will not aggressively take on a reduction initiative. The line of business, therefore, should own the budget for power consumed in its operations, and should be able to keep and reinvest any savings generated from energy consumption initiatives back within its own department.

The same can be said about the business owner’s responsibility for measuring and reducing carbon emissions. As the liability for carbon increases, ownership should reside with the party responsible for the activities that generate greenhouse gas emissions – whether that is distribution or information technology. Let’s first understand more about calculating carbon emissions.

The carbon footprint of an IT asset, facility, product or organization is actually much more than the measurement of CO2 alone. It is the measurement of six greenhouse gases (GHGs) listed in the Kyoto Protocol: carbon dioxide (CO2); methane (CH4); nitrous oxide (N2O); hydrofluorocarbons (HFCs); perfluorocarbons (PFCs); and sulphur hexafluoride (SF6). The carbon footprint is expressed numerically in carbon equivalents (CO2e), which is the universal unit of measurement to indicate the global warming potential (GWP) of each of the six gases, expressed in terms of the GWP of one unit of carbon dioxide. (From The Greenhouse Gas Protocol: Corporate Accounting and Reporting Standard (Revised Edition); www.ghgprotocol.org)

A carbon footprint is a numerical value that can be used to compare similar assets within an organization. For example, a CIO may evaluate the CO2e per square foot in a data center in Atlanta, with one running in Delhi, India. Aside from kilowatt-hours (kwh) consumed, the largest variable in that equation is the source of generated power – the combination of coal-fired plants, nuclear operations, hydro power or other renewable sources that make up the energy supplied to that facility.

A carbon footprint also has a financial value. As proposed legislation may limit GHG emissions for many companies, an organization may need to buy the right to emit more than its allowed limit if it cannot find ways to reduce internally or if those reduction strategies are more costly than the credits available for purchase. 

Carbon markets have been established in many regions of the world, both voluntary and regulatory. The largest market is the European Union’s Emissions Trading Scheme (EU ETS). The value of a carbon future on this market is typically the baseline for most financial models that estimate the carbon cost of an asset or activity. However, establishing a value for carbon also means being able to assess the impacts of proposed regulations during the life cycle of the IT asset. Most CIOs today are not factoring a shadow cost of carbon into IT procurement decisions, primarily for two reasons: 1) inability to gather trustworthy data, either internally or from the vendor; and 2) not currently charged for carbon emissions. While their planning attempts take into account the future cost of carbon, the legal landscape is unclear. Financial models evaluate their assumed carbon costs under a variety of proposed US legislation.

In order for market uncertainty to be resolved, organizations will need to participate and support the legislative development process. A clear decision on carbon regulation is needed in order to minimize confusion about carbon pricing. The price signal will force businesses (including CIOs) to make different decisions based on new environmental criteria. 

Measuring energy consumption and carbon emissions are related, but not equal, endeavors. Energy consumption is generally measured as the kwh used by a particular stationary or mobile asset. These kwh may be produced by a third-party provider (electric utility) or an on-site power generator and are typically metered for billing purposes. Most data centers have a power management plan that provides uninterrupted power supply via battery and generators if the electric supply from the utility is unavailable. The kwh provided by the batteries and generators may not be metered for kwh, but rather for run time. An accounting of energy consumption from these sources is therefore an educated estimate.

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