The IT industry's first track and tax carbon system forces Microsoft's business units to take initiative to reduce costs

Even for a company with the financial and technical clout of Microsoft, its recently announced commitment to be carbon neutral by this time next year is extremely ambitious.

In order to neutralise its greenhouse gas emissions, the world's largest software company is turning to its greatest asset: information technology.

From 1 July, Microsoft will introduce the IT industry's first internal carbon fee and an environmental monitoring platform to collect data on energy use and air travel for its 90,000 employees spread across 100 countries.

Revenues from this "track and tax" system for data centres, software development labs, offices and flights will be placed into an investment fund to pay for renewable energy and offset projects.

"Technology is a core ingredient for addressing these issues of resource inefficiency at scale and instrumental in leading us down this path and new goal," said Rob Bernard, Microsoft's chief environmental strategist.

Bernard said that the company started a pilot at its 115-building campus in Redmond, Washington. "We used IT to reinvent the way we're managing these buildings and wrote new software that would enable us to look at information in real-time as opposed to waiting until somebody went out there with a ladder.

"We're now gathering 500m data points today. That enables us to rethink the way we manage energy and water. We're going to deploy that model around the world."

Although Microsoft is now into its seventh year of reporting to the Carbon Disclosure Project, it has not set absolute targets on carbon reductions, instead preferring an energy intensity reduction from a 2007 baseline by 30% per unit of revenue.

Bernard said absolute targets on emissions reductions were too difficult to set in an industry transformed by the "computing cloud" which has transferred IT infrastructure from individual companies to data centres.

"Data centres are the fastest growing area for us," said Bernard. "Many of our customers traditionally ran their own IT infrastructure. But they've now given that IT infrastructure to Microsoft to run. We're processing over 1bn emails every day that our customers used to run."

Microsoft's carbon emissions have increased from 1.1m tonnes in 2007 to 1.5m in 2010. But an Accenture report commissioned by Microsoft in 2010 found that cloud services could reduce energy consumption between 30% and 90%.

"That's net savings for society," said Bernard. "For Microsoft, that's all additional, but we're going to do it far more efficiently."

Improving energy efficiency is going to become increasingly important as data centres already suck out 3% of electricity from the US grid and their rising thirst for power is being emulated globally.

But Microsoft's green aspirations struggle to keep pace with the reality of the US electric system, 40% of which is powered by coal.

"Some of Microsoft's recent cloud investments in Wyoming and Virginia will be very far from clean and its cloud has become dirtier over the past year," said Gary Cook, IT analyst at Greenpeace.

Microsoft's carbon fee system could gently put the brakes on this trend, but only if its carbon price is high enough, said Cook.

"The internal carbon pricing mechanism has promise to become a driver of better investments in its future cloud, but key to its success is the price at which fees are strong enough."

For now, the price Microsoft has arrived at for its carbon fee is a closely guarded secret, but the company has said it will share more data over time.

Individual carbon fees are likely to run into millions of dollars across the company, which earned $70bn (£45bn) in revenues last year.

Offsets could be as cheap as $1 a tonne of carbon for allowances currently trading on the regional greenhouse gas initiative, or for voluntary renewable energy credits, which Microsoft already purchases in large volumes.

But the initiative's impact could be profound if the offsets are genuinely additional, said Jonathan Koomey, a green IT expert and consulting professor at Stanford University.

"The actual price is not so important. Charging business units means the carbon fee becomes a line item. For those who do a lot of travelling or work with the data centres, it's not going to be a trivial amount of money.

"If a company is profitable, people don't rock the boat. There is institutional inertia. But as soon as you make those costs visible by tracking them and charging for them, people take the initiative and reduce costs."

Josh Henretig, Microsoft's senior manager for environmental sustainability, said the carbon neutral plan could be emulated throughout the IT industry.

"In anything we do, we think about the role and impact it might play at an industry level. At the end of the day, if this is just a feel-good environment story, we've failed. We want to help accelerate that transition and not just as a sustainability group project."

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