Data Center Economizers: a Cost-Benefit Analysis

Energy & Energy Policy Autumn 2013

DATA CENTER ECONOMIZERS: A COST-BENEFIT ANALYSIS David Boddy, Euphenia Chen, Amy Coombs, Sonya Dekhtyar, John Faughnan

ABSTRACT

Background Mechanical cooling accounts for a disproportionately large percentage of data center energy use because server racks, which stack a dozen or more server machines that each generate intense heat, must run at or below the operating temperatures recommended by manufacturers. Air-side economizers offer one solution, as they bring in large amounts of cool outside air when weather conditions are favorable. As there is little literature available about the cost savings of air-side economizers, this paper examines the private and social costs and benefits associated with air-side economization and mechanical cooling in different temperature climates.

Methods The cost effectiveness of including air-side economization in data center design was evaluated in a case study of the National Renewable Energy Laboratory’s (NREL) data center at its Research Support Facility (RSF) in Golden, CO. Real hourly data was requested and obtained for 2011, representing energy usage with and without air-side economization and mechanical chilling. By performing a regression analysis on the relationship between exterior temperature and cooling energy usage, the marginal effect of the introduction of an air-side economizer was calculated. Resultant energy savings were discounted over the 20-year useful life of the data center and coupled with the social benefits of a reduction in greenhouse gas emissions over the period. To estimate costs associated with designing and installing air-side economizers, three engineers at NREL and one engineer at Hewlett Packard were interviewed. The present value costs of installing the air-side economizer were then subtracted from the present value of benefits to produce a net present value of installing an air-side economizer.

Results The air-side economizer was calculated to reduce total data center energy consumption by 1.88% per year or 17,894 kWh. This in turn represented an annual savings of 12.6 tons of carbon dioxide annually. The total public and private benefits net of cost over the useful life of the data center resultant from the inclusion of an air-side economizer were calculated to be $12,813 at a 5% discount rate. Given other efficient technologies in the data center, this figure represents a lower bound on potential benefits from air-side economization.

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PART I: INTRODUCTION

Increasing reliance on cloud-servers, e-mail, internet search engines, and web-based entertainment has led to a significant increase in the energy usage and carbon impact of data centers. Data centers use 40 times more energy than conventional office buildings (Greenberg

2006) and consume up to 61 billion kWh a year, which accounts for 1.5% of U.S. electricity demand (EPA 2006; Shehabi 2006). A fully populated rack of blade servers requires up to 25 kWh of power to operate, which is roughly equivalent to the combined peak electricity demand of 15 typical homes (EPA 2006). Large data centers contain dozens of rows of servers and hundreds of server racks, which displace heat into a hot aisle formed by the backs of the machines. This hot aisle as well as the entire data center floor must be cooled to recommended machine operating temperatures, which range from 68 to 95 degrees Fahrenheit. While some data centers run servers a little warmer to save money on cooling, they risk losing warranty protection from the manufacturer (Winterford 2010). As a result, for every kWh of power used to run a server, a kWh is required for the mechanical cooling system (EPA 2006).

Data center cooling systems involve more capital equipment than the commercial air conditioning systems used in office buildings. In a traditional data center, mechanical chillers continuously blow air past coils of cold water pumped to the chiller from a refrigerator.

Compressors then force cold air through a three-foot raised floor to perforated vents located below machines. Heat from the servers rises to the ceiling and eventually makes its way back to the chiller (EPA 2006). Alternatively, some data centers use air-side economizers, which replace or offset mechanical air conditioners by delivering large amounts of cool air from outdoors.

Air economizers are not devices or machines, but rather systems consisting of an intake vent that pulls in air from outside and channels the flow of air through a building. Economizers

2 Energy & Energy Policy Autumn 2013 harness passive or low-energy technologies to direct airflow, and designs are site-specific and vary by climate, providing adaptability for a wide range of environments. However, the specificity of each system requires customization. For example, some economizers simply deliver cool air from the outside to servers through duct systems (Alipour 2013), while others use evaporative cooling designs that harness an energy efficient pump to inject small amounts of water into air pulled indoors. Finally, passive systems rely upon whole-building designs like ceiling vents positioned above hot aisles formed by the back of the server racks or large intake vents positioned to harness prevailing winds (Fehrenbacher 2010).

One such building is the Yahoo! Compute Coop in Lockport, New York, which uses a patented design to harness prevailing winds by channeling them through the building via thermal convection (Fehrenbacher 2010). Another example is Hewlett Packard’s Wynyard Data Center in

Newcastle upon Tyne; the entire lower story of the building serves as a twelve-foot high wind tunnel channeling sea air through seven-foot intake fans to the server room. Additional energy saving techniques include a reflective rooftop that deflects the sun, and the recycling of warm air from server racks that is used to heat the building. Facebook built a data center in Princeville,

OR that uses a similar strategy (Facebook 2011). The building pulls in cool breezes from outdoors and utilizes evaporative cooling to enhance energy savings. In 2008 Google opened a

Belgium-based data center that entirely eliminates mechanical chillers. The location was selected for its year-round cool temperatures, and during periods of warm weather, the data processing load is dynamically distributed to other facilities (Miller 2009).

Finally, NREL’s Research Support Facility in Golden, CO uses an energy efficient evaporative cooling pump to inject small amounts of water into the air pulled indoors. This allows the building to harness temperature differentials. During the summer when temperatures

3 Energy & Energy Policy Autumn 2013 are hot, computerized intake vents positioned at the top of a cooling tower pull air through moist pads sprayed with water, creating a downdraft as the density of the water droplets increases

(NREL 2000). Alternatively, when temperatures are cool, air is pulled through intake vents located in the side of the building. The air-side economizer is used when the dry-bulb temperature is less than 70°F, but evaporative cooling is added when the dry-bulb temperature is greater than 55°F and the wet-bulb temperature is less than 65°F (Sheppy interview). Like the designs implemented by Google, Yahoo!, HP and Facebook, NREL’s facility reduced usage of traditional mechanical chillers and dramatically diminished their energy usage and carbon footprint.

PART II: LITERATURE REVIEW – PRIVATE BENEFITS

Quantifying the private costs and private benefits of air-side economizers is difficult because many facilities do not meter chillers, fans and pumps separately from building energy use. This conflates the relative energy savings of cooling and non-cooling efficiency improvements. According to the best estimates, economizer designs are thought to save up to

70% of data center cooling energy costs (Niemann 2010), however while air economizer usage has been established as a best practice, there are few examples of costs savings in the literature. The Marvell Semiconductor U.S. Headquarters in Santa Clara, CA predicts economizer energy savings of 1,134,106 kWh a year and a total annual cost savings of $124,752

(Alipour 2013). The National Renewable Energy Lab estimates cost savings of $82,000 a year due to energy efficient designs in its Research Support Facility data center in Denver, CO, however the savings attributed to economization have not been estimated separately.

Despite the paucity of cost savings data, air economizer usage is widely touted as “free” energy and an industry best practice. Using data from 22 benchmarked data center buildings in the United States, Steve Greenberg and his colleagues identified the “best-practice” technologies for energy efficiency in data centers. Among these technologies, they recommend the use of air and water economizers. The authors suggest using economizers in climates that have “wet bulb temperatures lower than 55 degree Fahrenheit for 3,000 or more hours per year” (Greenberg

2006). Under these conditions, energy consumption “can be reduced by up to 75% and there are related improvements in reliability and maintenance through reductions in chiller operation”

(Greenberg 2006). Many hours of stored cooling “can be obtained at night and during mild conditions at a very low cost” (Greenberg 2006). However, the paper expressed some concerns over environmental control and contamination issues since unfiltered outside air could damage

IT equipment inside the data centers. The authors discuss that control strategies “to deal with temperature and humidity fluctuations must be considered with contamination concerns” and

“mitigation steps may involve filtration or other measures” (Greenberg 2006).

In response to concerns that contamination impacts efficiency and thus cost savings, Arman

Shehabi and his team from the Lawrence Berkeley National Laboratory researched contamination levels and humidity control in eight data centers in north California to investigate the effects of economizers in data centers (Shehabi 2010). The findings show that particulate concentrations increased when air economizer vents were open, but decreased when the vents were closed (Shehabi 2010). Particle concentrations are mitigated by filtration systems, which are often included in buildings regardless of their reliance on economizers, and since most economizer systems only require open vents part of the time, the average particulate concentrations still met standards required by ASHRAE, an industry group that writes building

5 Energy & Energy Policy Autumn 2013 codes. Humidity levels were also found to be controllable through the implementation of other systems, but the energy and cost savings would be less than if there were no limits on the length of time economizer vents stay open (Shehabi 2010). Ultimately, the findings show that contamination levels and humidity controls in data centers with air economizers can comply with

ASHRAE standards and still save a significant amount of energy. This suggests that cost savings are likely possible even despite the concern of particulate pollution and humidity.

It is likely that cost savings are more closely related to the degree of data center efficiency and the amount of power saved by the economizer. This points to the role of climate and temperature in energy demand. To better understand the optimal ways of installing air economizers, David Moss found, in “Data Center Operating Temperature: The Sweet Spot,” that the ideal operating temperature for these systems is somewhere in the high-70s to low-80s range of degrees Fahrenheit (Moss 2011). These temperatures will result in free cooling with no energy use from mechanical chillers and can provide buildings with 90% of their cooling needs (Moss

2011).

This suggests that cost savings may vary by climate and geography. While little research is available to link savings to outdoor temperature, Shehabi and his colleagues recognized that differences in the type and location of the data center greatly affect its energy use. The authors analyzed five different types of server rooms: server closets, server rooms, localized data centers, mid-tier data centers, and enterprise data centers, each increasing in size with the server closets as the smallest and data centers and enterprise data centers as the largest at 5000 square feet

(Shehabi 2011). They evenly distributed space type-specific IT equipment energy estimates among five different American cities with various climates: San Francisco, Chicago, Dallas,

Seattle, and Washington DC (Shehabi 2011). The authors found that using economizers in the

6 Energy & Energy Policy Autumn 2013 smaller data centers – server closets or server rooms – are not cost effective (Shehabi 2011).

Additionally, cities that are milder such as San Francisco and Seattle experience much greater energy savings than Chicago, Dallas and Washington DC which have more hours of humidity and elevated temperature (Shehabi 2011). This suggests it may not as cost effective to implement economizers in certain geographies as the most meaningful efficiency gains were seen in larger data centers in milder climate areas. However as the findings do not estimate the cost savings associated with the geographic limitations, it is difficult to estimate the number of hours a year that an economizer must be used in order to justify its construction.

PART III: METHODS

Data Collection To directly relate climate, energy, and cost savings, analysis of the net public and private benefits of employing air-side economization as a means for reducing energy demand attributable to cooling in data centers was focused on a case study of the National Renewable

Energy Laboratory (NREL)’s data center at the agency’s research support facility (RSF) in

Golden, CO, a city just outside of Denver. At the RSF, NREL has installed a 1,900 square foot data center, utilizing state of the art energy efficient technologies to achieve a Leadership in

Energy and Environmental Design (LEED) Platinum certification and a 60% reduction in electricity demand compared to the legacy data center that it replaced (Sheppy, 1 2011).

When outside conditions permit, an air-side economizer and evaporative cooler provide the majority of cooling in the NREL data center, with a mechanical chiller providing additional cooling as necessary (Sheppy, 3 2011). The study’s analysis focused on finding the marginal energy savings attributable to the inclusion of the air-side economizer in addition to gains seen

7 Energy & Energy Policy Autumn 2013 through the inclusion of an evapotranspirator (that is, an evaporative cooler) and efficient chiller, servers, and lighting.

After several conversations with staff a dataset was obtained that includes a full year of

8,760 hourly observations of total data center energy usage, chiller energy usage, outside temperature and an indication of when the chiller and economizer were in use. Results are based on this 2011 dataset that includes separate meter measurements for the chiller, IT load and whole building energy use in kWh. In addition to this dataset, an emission factor was used from the

Environmental Protection Agency (EPA), relating energy usage to carbon dioxide emissions

(Calculations and References). A U.S. government interagency model for forecasting the potential social costs of carbon dioxide emissions as a result of enhanced global warming effects was also employed (Interagency Working Group on Social Cost of Carbon, United States

Government).

Interviews Two interviews were conducted with NREL data center engineers Mike Sheppy (Tuesday

Nov 12th) and Shanti Pless (Friday Nov 8), and e-mail correspondence included building engineer Paul Torcellini. One interview was conducted with Bill Kosik (Tuesday Oct 22) at

Hewlett Packard Critical Facilities Service, which offers contract consulting and design services for private data center clients. Kosik has worked on 30 of the 80 LEED certified data centers and helped design air-side economizers for many of these buildings.

All interview subjects confirmed that maintenance costs are low and that humidity and particulate pollution has not yet been a problem at RSF or at HP-designed facilities. While humidity and particulate pollution can damage servers, most data centers include filters and dehumidifiers as part of status quo building designs. Humidity and particulate pollution from

8 Energy & Energy Policy Autumn 2013 outdoor air is not likely to surpass manufacturer recommendations unless extreme environments are chosen for data center location.

Interviewees reported that air-side economizers are inexpensive to install. Additional costs range from zero to $10,000 because economizers consist of little more than ductwork, a vent, a small pump used for evaporative cooling, or a chimney for a cooling tower. Kosik said that design teams with expertise must be hired whether an economizer is included or not, and that most data center designers have the knowledge to include an economizer. This suggests there is little additional cost associated with design. NREL engineers reported minimal additional building costs, but were unable to relay a specific figure. They were not able to separate the cost of the on-site cooling tower from building costs. Cooling towers are similar to chimneys and involve minimal expenses, except that vent closure is automated. As a result of the cost information gathered through interviews, the cost of installing the air-side economizer at the

NREL RSF data center was estimated to be $10,000.

Data Analysis Using the above data, a cost-benefit analysis was conducted on the inclusion of an air-side economizer in the case study data center design. The cost-benefit analysis compared two states of the world, the current state where the air-side economizer, chiller and evapotranspirator are all installed and in use, and one where the evapotranspirator and mechanical chiller are the sole means of cooling.

This analysis was further bifurcated into public and private costs and benefits. The private benefits were the cost savings attributable to a reduction in energy consumption from the inclusion of an economizer discounted to the present, as well as any present costs attributable to the inclusion of an economizer in the building design. The public benefits included the present

9 Energy & Energy Policy Autumn 2013 value of the reduction in greenhouse gas emissions achieved by a reduction in energy usage converted into 2013 dollars using the EPA and interagency models. Both the public and private analyses were then combined into a representation of the holistic costs and benefits of the inclusion of an air-side economizer.

PART IV: RESULTS

In calculating the private benefits stemming from the inclusion of an air-side economizer, actual energy usage information from the 2011 data set was compared with an approximation of the amount of energy that would have been used if the data center were to rely solely on evaporative and mechanical cooling. In order to isolate efficiency gains attributable to the air- side economizer, a linear regression was calculated relating chiller energy usage to outside temperature, as well as the month in which the measurement was taken. Though not explicitly included in the regression, the effect of the evaporative cooler on chiller energy demand is also present, reducing total energy consumption of the chiller, while drawing a negligible amount of energy itself.

Figure 1 – NREL RSF Data Center Average Monthly Chiller Energy Demand

The inclusion of “dummy” variables representing the months of the year served to isolate seasonal variation in the use of the chiller. As can be seen in Figure 1, chiller energy

10 Energy & Energy Policy Autumn 2013 consumption in the data center varies significantly with respect to the month of the year, peaking in the summer months when outside temperatures are the highest. As expected, controlling for this variation significantly increased the explanatory power of the regression. Two months, July and August, failed to provide statistically significant explanatory power between outside temperature and chiller use. This can in large part be attributed to the limited use of the economizer and evapotranspiration device during this period, which would limit the data center’s contact with the outside environment. Finally, using a binary variable to represent times when the economizer and chiller were in operation allowed for isolation of the marginal reduction in energy use attributable to economizer use.

As can be seen in the summary statistics of the results of the regression in Figure 2, there is a statistically significant relationship between chiller energy use and outside temperature, controlling for seasonality in the data. Outside temperature also accounts for a significant amount of the variation in the usage of energy, shown by the test’s high R value of 79%.

Figure 2 – Regression Summary Statistics

Using the above regression function, total expected data center energy usage in the absence of an air-side economizer can be approximated using the 2011 data set by subtracting observed chiller energy usage from total data center power usage and then adding the calculated chiller energy usage. The total energy savings for the year is estimated to be 1.88%. Summary information relating to these calculations can be found in Table 1.

Energy Demand Energy Demand w/o w/Economizer Economizer (est.) Annual Energy Use (kWh) 953,083.97 970,977.82 Annual Savings (kWh) 17,893.85 Table 1 – Electricity Savings Attributable to Economizer

Private Benefits Using this information, a calculation of the present value of private benefits of air-side economization can be performed. An estimate of expected energy price inflation was calculated by taking the average of BLS PPI energy price information from 2003-2012 (the last year for which full information is available). This inflation rate, 3.42%, was used in conjunction with

NREL’s price of electric power from 2011, 5.7ȼ/kWh, to create a stream of cost savings over the useful life of the data center (Sheppy, 5 2011). The useful life of the data center was determined to be 20 years based upon The Green Grid’s Data Centre Life Cycle Assessment Guidelines

(Garnier, 15). The stream of cost savings was discounted into 2013 present value terms using discount rates from 1-10%. Summary model components and private benefits calculation information can be found in Tables 2 and 3.

Annual Electricity Inflation Rate 3.42% NREL 2011 Electricity Cost ($/kWh) $0.057 NREL 2013 Electricity Cost (est.) ($/kWh) $0.061 Useful Life 20 Years Annual Energy Savings (kWh) 17,893.85 Table 2 – Discounted Benefits Model components

Discount Rate Private Benefit 1.00% $27,568.75 2.00% $24,952.31 3.00% $22,677.89 5.00% $18,958.49 7.00% $16,092.87 10.00% $12,922.85 Table 3 – Discounted Benefits Model Results

Public Benefits Public benefits attributable to the inclusion of the air-side economizer were calculated by converting per-year energy savings to tons of CO2 emissions and then applying this figure to the interagency model of the social cost of carbon. Using the emissions factor obtained from the

EPA, it was calculated that air-side economization would prevent 12.63 tons of CO2 from being emitted yearly over the 20-year useful life of the data center (Calculations and References). This carbon savings was then applied to the interagency working group’s social cost of carbon model.

This model uses mean estimates of the projected effects of carbon dioxide emissions on global warming, and the resultant social costs with discount rates of 2.5%, 3% and 5%, as well as a

“worst-case-scenario” 95th percentile cost of carbon with a discount rate of 3% (Interagency

Working Group on Social Cost of Carbon, United States Government). The model states costs in

2007 dollars that were inflated to 2013 terms using the BLS Consumer Price Index (CPI). Table

4 summarizes the public benefits using the mean and 95th percentile forecasts of global warming impact.

Discount Rate 5.0% Avg 3.0% Avg 2.5% Avg 3.0% 95th Public Benefit ($2013) $3,854.32 $12,809.96 $19,030.72 $38,344.85 Table 4 – Present Value of Public Benefits of Carbon Dioxide Reduction

Private Costs Through interviews with the designers of the NREL data center, it was determined that the

Private costs for designing, installing, operating and maintaining the economizer were insignificant when compared with the total costs associated with designing, installing and maintaining the data center.

Design firms retained by the agency were familiar with the design and implementation of air-side economization devices and so were able to include one in the design at little to no marginal cost for NREL. Once installed, operation and maintenance expenses related to the device were also minimal. Because this device was so inexpensive relative to the rest of the project, budgetary information related to the inclusion of the economizer was not available, but total installed cost was estimated to be $10,000 for the 1,900 square foot facility (Sheppy interview).

Table 5 summarizes total public and private benefits in present value, net of private costs, attributable to the inclusion of an air-side economizer for the various public and private discount rates and global warming severity projections. No public costs are associated with the inclusion of an air-side economizer.

Private Discount Rate 1.0% 2.0% 3.0% 5.0% 7.0% 10.0% 2.5% Avg $36,599 $33,983 $31,709 $27,989 $25,124 $21,954 3.0% Avg $30,379 $27,762 $25,488 $21,768 $18,903 $15,733 5.0% Avg $21,423 $18,807 $16,532 $12,813 $9,947 $6,777 3.0% 95th $55,914 $53,297 $51,023 $47,303 $44,438 $41,268 Table 5 – Total Public and Private Benefits Net of Cost

Discussion The results obtained from this analysis represent a lower bound on the energy savings attributable to the inclusion of an air-side economizer in a data center. The NREL RSF data center used in the case study already employs state of the art energy saving technologies, including an efficient mechanical chiller, not present in most data centers. Chiller efficiency is measured by a coefficient of performance on a scale of 1-10. A rating of five or six is considered high efficiency, and NREL’s chiller is in the seven class. In addition, the presence of an evapotranspiration device further increases cooling efficiency in excess of air-side economizer gains. Finally, the NREL RSF data center is far smaller in scale than many commercial data centers that can sometimes top half a million square feet, and cost savings are estimated to increase with the energy load per square foot as well as with total square footage. As a result of these factors, in both percentage terms and orders of magnitude, the results obtained in this analysis do not completely reflect the benefits that may be seen in larger and less efficient data centers.

Despite all of these factors, the inclusion of an air-side economizer in the NREL RSF data center was still able to reduce energy consumption by 1.88%, offering a total net present benefit of $6,777 even under the highest calculated discount rates.

PART IV: POLICY IMPLEMENTATION

Policy Background By confirming the net benefits of economizer use, our findings offer a direct response to current policy debates over energy efficiency standards. Building codes have historically omitted data centers from energy efficiency calculations, but revised standards specifically impose

15 Energy & Energy Policy Autumn 2013 requirements for economizers as well as baseline standards for efficiency that can only be met with economizers. Current debates question whether these high standards should be reversed.

Based on our results, air-side economizers offer the benefit of cost savings through reduced energy demands, but they also offer public benefits in the form of reduced carbon emissions.

Thus, we argue that including economizer language in building and energy efficiency codes is a practical solution for mitigating carbon emissions in large data centers. We recommend subsidies for compliance based on the size of the externality.

Policy History Because the amount of energy used for data center cooling dwarfs savings from solar and efficient lighting, insulation, or efficient servers, ASHRAE 1999 standard 90.1 previously exempted data centers from calculations of whole building energy use. This allowed office buildings to meet compliance standards by making efficiency improvements without accounting for the power associated with data processing (ASHRAE 1999).

Even so, large data centers found it difficult to achieve certification points through

Leadership in Energy and Environmental Design (LEED), which reference ASHRAE 90.1

Appendix G. LEED standards offered no points for reducing energy loads in excluded spaces, and including data processing made it difficult to show carbon benefits through energy reduction.

Even after installing efficient cooling in the data center, over-all building reductions appeared minimal due to the large amount of power consumed by IT equipment. As a result, energy retrofits might save more energy than a standard office building uses, but improvements were not rewarded because they represent only a fraction of total energy consumption. Data centers also struggled to earn daylighting, thermal comfort and public transportation points through LEED

16 Energy & Energy Policy Autumn 2013 because efficient server floors are kept dark and hot to save energy on cooling, and remote locations are often selected for security protection (Coombs 2014).

These problems resulted in failed environmental policies--despite the use of innovative designs that saved large amounts of energy, data centers struggled to earn LEED certification.

However office buildings had no incentive to install energy efficient servers and coolers because

ASHRAE, and thus LEED, exempted the power used by internal data centers.

Economizers in Data Centers In 2010 ASHRAE revoked exemptions that exclude data centers from calculations of whole building energy use and also introduced language requiring economizers for large data processing facilities. LEED continued to reference the more lenient 1999 standard until

November 2013, when LEED version 4 (LEED V4) was updated to reference ASHRAE 2010.

LEED V4 also offers points for energy efficient servers and computers in data centers (LEED

V4, ASHRAE 2010). The new standards clarify that thermal comfort and daylighting credits can be earned for the office space attached to a server room. As a result, there is now a protocol for achieving energy efficiency in data centers, although it is perhaps more difficult for many buildings to accomplish this goal as data centers must meet or surpass ASHRAE’s low energy models.

Neither ASHRAE nor LEED standards are mandatory unless required by city code, and neither standard is entirely proscriptive. Buildings can meet or surpass the energy savings afforded by an economizer by installing a more innovative system. Similarly, ASHRAE does not require that economizers harness air as opposed to water. Water economizers bypass refrigeration by sending water outside for chilling; in the chiller, the air that would normally be pushed through coils of refrigerated water is instead moved past coils of air-chilled water.

Despite these options, there is no certain alternative capable of achieving the same benefits as an economizer, and energy efficiency standards are very difficult to meet without economization.

In response to industry concerns that economization is too constraining, ASHRAE will publish a 90.4 standard in January 2015 designed for large data centers that meet or surpass 20 watts per square foot of energy use, including IT equipment, storage and cooling. The standard is currently being written, and may not require economization. While Yahoo!, Google and many other data centers have successfully cut energy loads with the help of air-side economizers, success is limited by geography, as systems work most effectively when temperatures are below

75-80 degrees (Moss 2011). Alternative downdraft designs can harness differentials in areas where temperatures hit 100 degrees, but this requires low humidity (NREL 2000). In hot, humid environments, air-side economizers may work for only a small portion of the year.

Social Benefits and a Policy Response Our data analysis shows economizers have a positive externality. An externality arises whenever an entity engages in an activity which benefits a bystander, but receives no compensation for this benefit. An economizer not only produces private benefits through reduced private expenditure on energy, but also public benefits in the form of reduced carbon emissions

(resulting from diminished energy consumption).

In the presence of an externality, the market equilibrium is inefficient. In the case of a positive externality, firms do not consider the full social benefit of their activity, and so choose a suboptimal level of production. To move the market to an efficient equilibrium, the government can “internalize” the externality by subsidizing or taxing the firm’s activity. In the case of economizers, the government could subsidize, for example through tax breaks, the building of economizers in data centers. The size of the subsidy would equal the amount by which social

18 Energy & Energy Policy Autumn 2013 benefits exceed private benefits – this is called a Pigouvian subsidy. The result is that firms internalize the external effect of their behavior and reach socially efficiency.

However, the efficacy of an economizer will vary widely according to the data center’s design, size, technology, and surrounding environment. Given this variability, there is likely no single “correct” size for a Pigouvian subsidy. Instead of a one-size-fits-all response, we recommend making marginal adjustments to existing regulation to better align government policy with economic theory. In particular, state governments could encourage the use of economizers by giving tax breaks to firms complying with ASHRAE standards. Of course, even state-wide policies have limits to their functionality: it is often hard to attain perfect cooperation among all levels of authority passing the regulations, or specific goals may be prioritized differently between concerned groups (DeWitt, 4). However, since any policy aimed at encouraging economizer use should be proportional to the economizer’s social benefits, which will vary with local conditions, state-wide policy may be more effective than national legislation in responding to these location-specific factors.

In sum, a Pigouvian response – in the form of a tax break or other subsidy for compliance with ASHRAE or LEED – should be tailored to the size of the externality. This paper has offered a way to calculate this externality. It is clear that economizers confer social benefits in excess of private benefits; the challenge for policymakers is to devise a Pigouvian solution that accounts for the considerable variation in these benefits across regions.

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