First signs of federal data center reporting mandates appear in US

The past year (2022) has seen regulators in many countries develop or mandate requirements to report data centers’ operating information and environmental performance metrics. The first of these, the European Commission (EC) Energy Efficiency Directive (EED) recast is currently under review by the European Parliament and is expected to become law in 2023. This directive will mandate three levels of information reporting, the application and publication of energy performance improvement and efficiency metrics, and conformity with certain energy efficiency requirements (see EU’s EED recast set to create reporting challenges).

Similar legislative and regulatory initiatives are now appearing in the US with the White House Office of Technology and Science Policy’s (OTSP’s) Climate and energy implications of crypto-assets in the US report, published in September 2022. Concurrently with this, Senator Sheldon Whitehouse is drafting complimentary legislation that addresses both crypto and conventional data centers and sets the stage for the introduction of similar regulation to the EED over the next three to five years.

The OTSP report focuses on the impacts of the recent precipitous increase in energy consumption resulting from cryptocurrency mining in the US — initially driven by high crypto prices, low electricity costs and China’s prohibition of cryptomining operations. The OTSP report estimates cryptomining energy consumption (for both Bitcoin and Ethereum mining) to be responsible for 0.9% to 1.7% of US electricity consumption, and for 0.4% to 0.8% of greenhouse gas (GHG) emissions, in 2021.

The OTSP’s projections may already be out of date due to the current high energy prices and the collapse in value of most crypto assets. The OTSP’s projections, moreover, do not take into account the likely impact of Ethereum mining operations (estimated to account for one-quarter to one-third of industry consumption) moving from “proof of work” (PoW) to “proof of stake” (PoS).

PoW is the original “consensus mechanism” used in cryptocurrency transactions, whereby miners compete to solve increasingly difficult algorithms to validate transactions — at the cost of ever-increasing energy consumption. PoS transactions are mediated by randomly selected miners who stake a quantity of cryptocurrency (and their experience level) for the right to confirm transactions — enabling the use of less computationally intense (and therefore less energy-intense) algorithms. Ethereum converted to PoS in September 2022 in an initiative known as “the Merge”: this change is expected to reduce its mining energy consumption by over 99%.

The OTSP report implies that the broader adoption of crypto assets and the application of the underlying blockchain software used across a range of business processes will continue to drive increasing blockchain-related energy consumption. The report does not offer a specific projection of increasing energy consumption from cryptomining and further blockchain deployments. Given that most, if not all, enterprise blockchain deployments use PoS validation, and given the ability of PoW infrastructure to move quickly to locations with minimal regulation and energy costs, much of this anticipated energy growth may not materialize.

To mitigate this projected growth in energy consumption, the OTSP report calls on the federal government to encourage and ensure the responsible development of cryptomining operations in three specific areas.

• Minimizing GHG emissions and other impacts from cryptomining operations. The report proposes that the US government implement a collaborative process to develop effective, evidence-based environmental performance standards governing the development, design and operation of cryptomining facilities. It proposes that the Department of Energy (DOE) or the Environmental Protection Agency (EPA) should be empowered to set energy performance standards for “crypto-asset mining equipment, blockchain and other operations.”
• Requiring cryptomining organizations to obtain and publicly report data in order to understand, monitor and mitigate impacts. The report stipulates that cryptomining operations should publicly report their location(s), energy consumption, energy mix, GHG emissions (using existing protocols), electronic waste recycling, environmental justice implications and demand-response participation.
• Promoting further research to improve understanding and innovation. The report recommends prioritizing research and development in next-generation digital asset technologies that promote the US’ goals in terms of security, privacy, equity, resiliency and climate.

While these recommendations are primarily directed at cryptomining operations, the report also assesses conventional (i.e., non-crypto-asset) data center operations, noting that cryptomining energy consumption in 2021 was roughly comparable to that of conventional data centers. This clearly raises the question: if cryptomining energy consumption warrants public data reporting and energy performance standards, then why should conventional data center operations not also be included in that mandate?

Under US law, Congress would need to pass legislation authorizing an administrative agency to require data centers to report their location(s), operational data and environmental performance information. Senator Whitehouse is developing draft legislation to address both crypto-asset and conventional data centers, using the EED as a blueprint. The Senator’s proposals would amend the Energy Independence and Security Act of 2007 (EISA) to require all public and private conventional and cryptomining data center locations with more than 100 kW of installed IT equipment (nameplate power) to report data to the Energy Information Administration (EIA). These data center locations would need to outline their operating attributes: a requirement remarkably similar to the EED’s information reporting mandates.

The proposals also require the DOE to promulgate a final rule covering energy conservation standards for “Servers and Equipment for Cryptomining” within two years of the EISA amendments going into force. While this requirement is specific to cryptomining equipment, it is likely that the DOE will lobby Congress to include energy conservation standards for conventional data center IT equipment as part of these proposed amendments. The DOE has already attempted to set energy conservation standards for computer servers (79 FR 11350 02/28/2014) through authority granted under the EISA regulating commercial office equipment.

Little will happen immediately. Legislative and regulatory processes and procedures in the US can be laborious, and final standards governing data center information and energy efficiency reporting are likely to remain several years away. But the release of the OTSP report and the development of draft US legislation indicate that the introduction and adoption of these standards is a matter of “when” (and how strictly?) rather than “if”.

Owners and operators of digital infrastructure need to be prepared. The eventual promulgation of these standards, taken in conjunction with proposed regulation on climate change disclosures from the Securities and Exchange Commission will, sooner or later, dictate that operators establish data collection and management processes to meet information reporting requirements. Operators will need to develop a strategy for meeting these requirements and will need to have policies in place to ensure they undertake projects that increase the work delivered per megawatt-hour of energy consumed across their data center operations.

Data center managers would also be wise to engage with industry efforts to develop simple and effective energy-efficiency metrics. These metrics are required under both US draft legislation and the EC EED recast and are likely to be included in legislation and regulation in other jurisdictions. An ITI Green Grid (TGG) Working Group has been put in place to work on this issue, and other efforts have been proposed by groups and institutions such as Infrastructure Masons (iMasons) and the Climate Neutral Data Centre Pact. Uptime Institute is also providing detailed feedback on behalf of its members on an EC study proposing options and making recommendations for data reporting and metrics as required under the EED recast.

Industry initiatives that encompass all types of IT operations are going to be important. Just as importantly, the industry will need to converge on a single and cohesive globally applicable metric (or set of metrics) to facilitate standardized reporting and minimize confusion.