In the UK over the Christmas period one of the songs that you will repeatedly hear, and that confounds even the best memories, is about the receiving of increasingly numerous and bizarre gifts. The original always seems to end up in a race to the finish and partial collapse as well as the enthusiastic chanting of "Five Gold Rings". If you aren't familiar with the original then please do view it here The Twelve Days of Christmas: what are the lyrics to the song? - Classic FM or a very entertaining version here: Twelve Days of Christmas - YouTube.
Anyway, enough of that hilarity. The concept of multitudinous gifts – and the need to remember them all - has put me in mind of the plethora of policies currently being developed or reviewed by the EU. Whilst this might prove harder to sing, here are twelve things that data center operators may want to keep abreast of heading into 2023. And if you end up humming "EU Green Deal," then you can thank me later!
1 - EED: Energy Efficiency Directive, Recast
My first featured gift does what it says on the tin. It is actually second-hand as it upgrades existing rules on energy efficiency, consumption, reporting and transparency. Data centers are explicitly targeted and will be obliged to disclose detailed information including performance against a variety of efficiency metrics. There is an active dialogue underway on proposals to report data that is not sustainability-related or may be impractical to gather and to introduce an A-G labeling system. On the plus side, the proposals address the worst-performing part of the sector by extending scope to include smaller facilities that to date remain unregulated. Operators should be engaging in the policy dialogue if not already involved.
2 - The European Taxonomy
This is about identifying business activities that are sustainable. Like the better-known work of Carl von Linné, the European Taxonomy is a classification system but in this case it groups business activities by sustainability criteria as opposed to grouping organisms by homologous features. The objective is to identify activities that qualify as sustainable investments. The good news is that data centers are classified as sustainable but only if they meet certain criteria relating to energy stewardship and climate change resilience. By providing this referencing system, the taxonomy works in tandem with CSRD, below. Operators should check the provisions of relevant standards and whether they meet the requirements.
3 - CSRD: Corporate Sustainability Reporting Directive
This is about transparency. Companies must disclose information on their sustainability performance and how they manage social and environmental challenges. Demonstrating sustainability credentials robustly to increasingly ESG-conscious investors should enable companies to protect shareholder value and it allows investors to be confident that they are funding activities that are sustainable. The CSRD is a financially regulated reporting mechanism and uses the taxonomy as a referencing tool. More data center operators will be captured by CSRD because it expands the scope of previous policies.
4 - ESPR: EcoDesign for Sustainable Products
This focuses on ensuring that products are designed to minimize environmental impacts. While enterprise operators need to keep an eye on related developments on server efficiency, the key issue here for data centers, especially CSPs, is a draft recommendation to define digital services as products and thus bring them under EcoDesign requirements. One to watch carefully and ensure the process is properly informed.
5 - The Green Deal
This is the EU’s overarching sustainability strategy. It is not a regulatory instrument per se but an umbrella that identifies policy areas, sets objectives and coordinates action through a complex and interconnected hierarchy of strategies, action plans and legislation, supported by funding, studies, and projects. Its eight pillars include ambitions relating to climate change mitigation, clean energy, circular economy, energy efficiency, pollution reduction and biodiversity. It also accommodates cross-cutting themes such as ensuring a just transition. We gave it the No. 5 slot as, like the chorus line of five gold rings, it is a repeated theme and a common thread that runs through everything on this list. Just remember that Green has two syllables in this case!
6 - IED: Industrial Emissions Directive - Recast
This is another pre-loved gift. IED is all about minimizing pollution, which for data centers primarily relates to emissions from standby generators that impact air quality. The legislation is being revised to increase the level of ambition, minimize pollution and remove potential loopholes. This may influence design and sizing of new sites and certain generator models may be subject to supply constraints. There are also some more problematic proposals relating to supply chain scrutiny, onus of proof and transformation planning, although details of how these will apply in practice have not yet been defined. Operators should engage in the policy dialogue.
7 - CSDDD: Corporate Sustainability Due Diligence Directive:
This is about supply chain transparency. The objective is to drive socially responsible corporate behavior through the value chain (both supply and customers) by creating a legal compliance framework for international agreements relating to human rights and the environment. Proposals to define ICT as a high risk sector may extend scope to all data center operators active in the EU. At an early stage so one to watch.
8 - UCPD: Unfair Commercial Practices Directive
This is all about banning greenwashing. This is another pre-loved gift, dating from 2005 and differs from others in that the amendments made under the Green Deal are already in force. Aimed at protecting consumers, it outlaws green claims that are unfair or misleading. Currently, implications for data centers are limited but future regulation may broaden scope to include business to business activity and the Circular Economy Action Plan states that companies will be required to adopt product and organizational environmental footprinting methods in order to substantiate green claims. One to watch.
9 - F-Gas Regulation Recast
This is about reducing emissions from refrigerants. F-gases are fluorinated hydrocarbons with very high global warming potential that are used in cooling. This recast increases the ambition of existing legislation, and will restrict access to problematic substances, drive adoption of climate-friendly alternatives, address illegal trade and tighten up requirements to reduce leaks. Operators can anticipate supply chain constraints and must comply with tighter requirements regarding disposal and renovation of equipment, recovery of gases and record keeping. One to monitor and plan for.
10 - Nature Restoration Law
This addresses the depletion of natural systems and biodiversity and, logically, sits within the Biodiversity Strategy under the Green Deal. There is also an obvious link to the Task Force on Nature Related Financial Disclosures which may become a template or reference point for policy instruments in the same way that other voluntary measures have provided the basis for regulation. This is at an early stage and implications for data centers are unclear, and likely to relate to new developments.
11 - CBAM: Carbon Border Adjustment Mechanism
This is about preventing carbon leakage and is a supplementary measure to EU ETS. By imposing a charge on embedded carbon in certain products, it prioritizes imports from outside the EU that meet EU climate standards over those that do not. The objective is to ensure a level playing field for EU industry, which must meet ambitious carbon standards. A simplified scheme will start in 2023, where the priority is to gather data. Commodities covered include steel, cement, electricity and hydrogen. It is not yet clear whether and how this will impact operators but worth a watching brief.
12 - Regulation to Accelerate Deployment of Renewable Energy Projects
This proposed regulation is at an early stage and its impact on operators is not yet clear, but it is worth keeping an eye on in view of the fact that data centers are obliged to be climate neutral by 2030 and have high ambitions relating to renewables adoption. The regulations will help to remove delays in permitting, will target projects that are quick to deploy and least environmentally injurious, and will create the presumption that such projects are in the public interest. At the same time, you should keep an eye on developments like proposals for a European Hydrogen Bank and revisions of the internal electricity market.
So that is my twelve. While these may lend themselves to a bit of seasonal fun, there is nothing trivial about the objectives of the Green Deal; world-leading policy development that aims to secure our collective future by addressing the environmental challenges we face. An unprecedented range of policy levers is being deployed to correct market failure in multiple areas from biodiversity to climate change. In the song, the gifts become increasingly ambitious and presumably more cumbersome for the recipient to accommodate in terms of additional mouths to feed, not to mention bodies to accommodate!
Likewise, much of this new legislation will have far-reaching implications for data center operators who need to monitor developments, help to inform policy where necessary, and plan for implementation.