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Carbon Emissions and the Cloud

Many of us may think the internet and emerging digital technologies are “green” and environmentally friendly because they don’t involve mining natural resources from the ground or emitting toxic emissions. However, as technology becomes an even bigger part of our lives, increased technology-related activities ramps up the volume of data computing tasks “on the cloud” thus carbon emissions from data centres.

In this article, we review the carbon footprint of the technology sector, ways in which data centres are reducing their carbon emissions, and how emerging technologies like Metaverse and autonomous driving may affect “cloud-based” carbon emissions.

Introduction

Technology has become and continue to be the backbone of society. With a current worldwide estimated population of 7.8 billion, approximately 4.93 billion people have access to and use the internet frequently1. Professional and personal communications are made via digital means, and documents and media contents are saved “on the cloud”.

Technology stocks are commonly favoured by ESG funds due to their low carbon emissions as they have a less direct impact on the environment relative to other resource-intensive sectors like mining or cement. According to MSCI, at the end of 2021, the top stocks held across the world’s 20 largest ESG funds ($340bn AUM altogether) were technology giants Microsoft, Google’s parent company Alphabet and Apple2.

However, as technology continues to develop at an accelerated pace, and as the market better understands direct and indirect carbon emissions, the narrative of the technology sector having low emissions may take a turn.

Carbon emissions in the technology sector

In 2015, research estimated the technology sector to account for up to 2% of global greenhouse gas emissions3. However, due to the rapid development and demand for technology products and services, it is estimated that the sector’s power consumption could increase to 14% of annual power consumption by 20304. Within the technology sector, data centres take up 45% of the sector’s total emissions as of 2020. With the rising growth in Internet of Things (IoT) applications, the volume of data computing needs will increase thus ramping up the demand on data centres, and consequently associated emissions growth.

There are two major ways to reduce carbon emissions in data centres: improve energy efficiency and adopt renewable energy.

Improving the energy efficiency of data centres

A data centre’s energy efficiency is measured by the Power Usage Effectiveness Ratio (PUE) which calculates the total energy used divided by the energy consumed specifically for data computation. A PUE 1 would mean all energy is used for data computation. Practically, PUE is above 1 as energy is “wasted” in a data centre for things like cooling, power transformers etc.

Governments around the world have been tightening energy efficiency standards for data centres, especially introducing stricter requirements for new data centres. For example, China issued a three-year action plan in 2021 which set out PUE targets of 1.3 for all new data centres and 1.25 or lower for those in colder areas5.

Google was particularly ambitious on this front and achieved an average PUE of 1.2 across its servers in 2020. We find not many technology companies in Asia report on their PUEs; a few Indian companies did and PUE values are just below the global average.

Adopting renewable energy at data centres

Ultimately, carbon emissions from electricity consumption depend on the energy mix of the electricity grid where data centres are situated. Outside of utilising grid energy, companies have options such as installing on-site renewables such as solar panels or purchasing corporate renewable energy power purchase agreements (PPAs). According to Bloomberg, new corporate PPAs in Asia jumped from 1.2 GW in 2019 to 2.9 GW in 2020 but still only accounted for 12% of the global total6.

In China, as it is difficult to obtain renewable energy quota in tier 1 cities, companies are moving to provinces such as Inner Mongolia or western parts of China, where renewable energy is relatively cheaper. Among Asian firms, we see Indian technology companies be leading in this space and a leader among the pack is Infosys. Infosys was the first Indian company to join RE-100 in 2015 and commits to reaching 100% renewable electricity consumption by 20207. Global leaders Google and Microsoft are now targeting “24/7” renewable energy consumption by 2025 and 2030 respectively.

Under the “24/7” plans (all 24 hours a day, 7 days a week), they will efficiently utilise renewable energy by allocating data computation tasks across their fleet of data centres to those with more access to renewables and only purchase electricity from renewable sources made possible through technologies like batteries and fuel cells.

Carbon emissions from emerging technologies

Beyond the current landscape of the technology sector, new emerging technologies such as the Metaverse and autonomous driving will not only disrupt the market but also further increase the volume of data computing needs, demand on data centres and thus cloud-based carbon emissions.

The Metaverse is a virtual world where users enter as digital avatars and interact in an online simulated setting. It relies on artificial intelligence (AI) and virtual reality (VR) technologies which require significant volumes of data computing. Research showed the estimated carbon footprint and electricity cost associated with one AI language processing model to be over 626,000 pounds of carbon emissions, equivalent to more than five times the lifetime emissions of an average American car (including manufacturing of the car)8. With that in mind, all the AI and VR technologies required for the Metaverse, and thus the Metaverse itself, could escalate carbon emissions significantly.

On the other hand, the concept of a virtual world that the Metaverse enables could bring about significant changes to individual and institutional behaviours. For example, the white-collar workforce could attend to work virtually, reducing the need to commute both locally and globally. Big events like concerts and sports games could also be hosted virtually, again reducing (air) travel. As societies start to “live” in the Metaverse, there may also be less demand for new physical buildings, thus reducing demand for emissions-intensive construction materials like steel and cement.

Similarly, autonomous vehicles are reliant on AI-based driving systems that are enabled by cloud-based data computing. Due to the extra sensors and onboard data computing devices, autonomous vehicles may consume more energy than conventional vehicles driven by humans. Although the energy consumed for onboard data computing may not be too different to that of a normal computer, utilising energy within the vehicle itself may reduce its mileage reach, requiring more frequent charging and causing faster battery degradation. Research found that enabling autonomous driving in a present electric car reduced mileage by approximately 10-30%9.

Social implications of emerging technologies

In addition to carbon emissions, the social implications that may arise from such new emerging technologies are also up for debate.

Inside the Metaverse, as users enter as digital avatars, everyone is equal and there is less discrimination. Internet access is a basic human right yet not everyone has access to the internet globally; equality should then also be extended to consider whether and how access to the Metaverse could be guaranteed for everyone. In order to enhance and customise the user experience with the Metaverse, a user’s every move and behaviour will be monitored which makes data privacy a critical issue. In addition, targeted advertisements and the general concept of a virtual world arguably paints a ‘fake’ or ‘tilted’ reality which sparks philosophical debates about whether the Metaverse is good for mental health.

Autonomous vehicles could significantly improve mobility by enhancing access to transport mobility (enable mobility for those who cannot drive) and quality of life for commuters (allow commuters to rest during long haul journeys). Despite autonomous vehicles may reduce traffic accidents by eliminating human error, there may be liability issues in the case of an accident, sparking debates on whether the car company or the car owner should be responsible. Moreover, there are also cybersecurity risks in the case of cyber-attacks on Global Positioning System (GPS) and wireless signals that autonomous vehicles are heavily reliant on.

Conclusion

As technology continues to evolve and become even more integrated with our everyday lives, the sector’s energy demands for data computing will likewise grow and emit “cloud-based” carbon emissions from data centres. “Cloud-based” carbon emissions from data centres are primarily indirect emissions from purchased electricity, thus dependent on the energy mix (and low carbon transition plans) of the electricity grid where data centres are operated.

Nonetheless, we expect companies to proactively reduce their carbon emissions through other means such as increasing energy efficiency and procuring renewable energy. We believe companies that strive to grow their business responsibly, by considering their impact on society and the environment, can create long term sustainable value.

AUTHORED BY
Holly So, CFA
ESG Specialist

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1. PCS, November 2021

2. Financial Times, January 2022

3. Ericsson, August 2018

4. ETLA Economic Research, January 2021

5. The State Council of the People’s Republic of China, July 2021

6. BloombergNEF, January 2021

7. Infosys, May 2015

8. MIT Technology Review, June 2019

9. Medium, May 2019


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