How Data Centers in China Are Heading Towards Carbon Neutrality

After Chinese President Xi Jinping pledged that by 2030 China would cut emissions per unit of GDP by “at least” 65 percent compared with 2005 levels at the virtual Climate Ambition Summit, China has sped up its decarbonization and development of a low carbon economy.

The announcement was met with a mixed response with some environmental observers questioning whether China can go this far.

“The most challenging part of the shift is not the investment or magnitude of renewable capacity additions but the social transition that comes with it,” said Wood Mackenzie analyst Prakash Sharma.

In China, representing the information backbone of an increasingly digitalized society, data centers are still a net producer of Greenhouse Gas (GHG) emissions and major electrical power users. Research from Greenpeace and North China Electric Power University estimated that China’s data center consumed 161 billion kilowatt hours of electricity in 2018, equivalent to 2 percent of the country’s total usage. The power consumption is projected to grow 66 percent by 2023, to 267 billion kilowatt hours, which means 163 million tonnes of carbon emissions are produced assuming China’s energy mix remains the same.

Tier-I cities in China such as Beijing, Shanghai and Shenzhen have applied strict PUE rules as a method to push the industry towards greener operations. While Beijing has implemented a complete citywide ban on new data center construction, Shanghai only allows new data center with a PUE of 1.3 or below and refitted ones with a PUE of 1.4 or below. Meanwhile in Shenzhen, data centers with a PUE of over 1.4 receive no subsidies and those with less than 1.25 could obtain a subsidy of over 40 percent. Besides, central government policy on more use of renewable energy remains one of guidance and encouragement. China manufactures around 70 percent of solar energy equipment such as PV panels and modules.

Renewed Renewable Energy push

Different from traditional infrastructure like roads and railways, construction of “new infrastructure” in China is boosted to remain the primary driver of energy consumption in the foreseeable future. With data centers rapidly expanding and depleting environmental resources, the energy and climate impacts are being one of top considerations in China, as well as the world in general.

Intensive energy use can be costly both in terms of the data center’s operating budget (often representing more than 50 percent of the budget) and the impact on the environment.

Interest in renewable energy in China has been growing for several years, and leading Chinese companies have already undertaken the exploration of renewable energy use.

Research from Greenpeace and North China Electric Power University also states that China is outpacing the US in renewable energy, and has made huge progress in developing solar and wind projects.

However, nearly three quarters of (data centers’) power comes from coal, said Ye Ruiqi, a climate expert from Greenpeace. “To prevent this, China’s data centers need to decouple their electricity consumption from their carbon footprint by relying more on wind and solar energy. They can build their own renewable energy capacity, buy clean energy on the market or purchase green certificates to offset their emissions,” she added.

A Turning Point

In the backdrop of all this, China’s proposal to achieve net zero emissions by 2060 aims can be seen as a turning point. To fulfill the goal of carbon reduction and pollution prevention, China’s tech giants, state-owned energy companies and other important players are encouraged to make great efforts, from advancing technologies that produce less greenhouse gases or air pollution, accelerating energy transition and taking more social responsibilities.

In December 2020, China Three Gorges Corporation, a Chinese state-owned power company operating the China Yangtze Three Gorges Project (one of the biggest hydropower-complex projects in the world), announced plans to construct its Dongyue Temple Data Center. It is planned to build about 28,000 cabinets and invest 5.5 billion CNY (around $855.8 million). In Stage I, about 4,400 cabinets will be put into use by October, 2021, with an investment of 830 million CNY (around $ 129 million).

Responding to Chinese government’s pledge of “carbon neutrality” and the scheme of “New Infrastructure”, the group will further utilize the advantages of clean energy, stock land and real estate to promote the big data industry. Although it has been involved in the big data industry since 2017, it is the first time that the group announces its ambition to expand business with such massive spending on the ICT market.

Chinese private enterprises seem to have got off the block. On January 12, Chinese internet giant Tencent released its plan of achieving zero carbon emissions with the help of technology. With this announcement, Tencent became one of the first Internet companies to take action in achieving carbon neutrality.

“As China announces its carbon peak and carbon neutrality targets, Tencent will also accelerate its carbon neutrality plan. At the same time, we will also increase the exploration of the potential of cutting-edge technologies represented by artificial intelligence in coping with the major challenges of the earth, and make great strides to promote the application of technology in industrial energy conservation and emission reduction,” said Tencent’s founder Ma Huateng (also known as Pony Ma).

Chindata Group, a leading carrier-neutral hyperscale data center solution provider in China, also releases its roadmap to be carbon neutral for all its next-generation hyperscale data centers in China with its 100% renewable energy solution by 2030.

As China becomes a more developed economy, accelerated efforts of decarbonization to accelerate technology innovation and industrial upgrading are made. China’s transition to a low carbon economy is not only possible but can be a driver of high-quality growth while bolstering the development of digital transformation.

How Far Behind

Since 2018, institutions globally are moving towards achieving carbon neutrality, even as concerns have been raised at the way in which this is computed.

Although more Governments and businesses are committing to achieve carbon neutrality by 2050, the world is still falling far short of that goal, UN Secretary-General António Guterres said in November in his latest push for a cleaner, greener future. Guterres reported that so far, the European Union, Japan and the Republic of Korea, along with more than 110 other countries, have made the pledge, while China is set to join them by 2060. “The window of opportunity is closing,” he warned.

In January, following the inauguration, President Biden signed an executive order at the White House, to reverse the previous administration’s withdrawal from the 2015 accord, which returned the United States to the worldwide fight to slow global warming and reduce greenhouse gas emissions. Alongside China, the United States is the world’s most carbon emitter.

Financial institutions have been accused of funding “dirty capital” into traditional power projects. All this is changing.

Goldman Sachs has ruled out direct finance for new or expanding thermal coal mines and coal-fired power plant projects worldwide, as well as direct finance for new Arctic oil exploration and production.

The policy makes a clear mention of protecting the Arctic National Wildlife Refuge,

Goldman Sachs said in a statement. Further, the bank has also committed to a phase out of financing for significant thermal coal mining companies that do not have a diversification strategy. Goldman Sachs’s new policy tightens the screw on thermal coal by including underwriting, and explicitly committing to phase-out, not just reduction.

This is a crucial step forward, as other US bank coal finance restrictions have geographic loopholes, industry watchers said.

While other major banks have committed to reducing credit exposure to coal mining, their approach restricts only lending, ignoring the large amounts of capital the banks facilitate for the coal industry from the underwriting of issuances of stocks and bonds. Activists have been vehement in their criticism of global financial institutions, which they say are turning a blind eye and undermining the Paris Agreement when it comes to phasing out coal-based energy production. Other financial institutions have followed suit too.

Jason Opeña Disterhoft, Climate and Energy Senior Campaigner at Rainforest Action Network (RAN), said that Goldman Sachs’s updated policy shows that U.S. banks can draw red lines on oil and gas, and now other major U.S. banks, especially JPMorgan Chase – the world’s worst banker of fossil fuels by a wide margin – must improve on what Goldman has done.

“The writing was already on the wall for coal financing. Goldman Sachs’s new policy puts that writing in flashing neon,” he added.

According to research by non-profit organisations like Urgewald, BankTrack and 30 others, banks and other financial institutions from January 2017 to September 2019, they have provided lending finance and underwriting services to 258 coal plant developers in the world. According to Heffa Schuecking, director of Urgewald, this has amounted to channeling $745 billion.

Countries like India have also committed to reduce energy emissions intensity by 30 – 35 percent from 2005 levels by 2030 and increase the share of non-fossil fuel energy to 40 percent of India’s energy mix by 2030.

Internationally, there is broad recognition of the need to reduce power use and emissions. This motivates greater efforts in developing future policies, and changes in regulation, taxation and electricity market. In the changing global landscape, data center, an increasingly critical part of the infrastructure for the digitalised society, have outsized importance in climate change mitigation efforts. This is the time when this industry needs to take responsibility and look at sustainability beyond lip service.

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