I spent three days this week in Washington D.C. lobbying on behalf of the National Wildlife Federation on climate change legislation, specifically promoting the bipartisan Warner-Lieberman Climate Security Act of 2007 (S 2191) which is currently in Senate Committee.

This bill would impose a cap and trade system for carbon emissions on utilities. Under this bill (or another cap and trade system like it) your electricity provider would be given a fixed number of pollution allowances. Every allowance equals one ton of carbon dioxide pollution a company is allowed to emit.

The number of available allowances goes down every year. If you’re a polluter, you’re required to go to the market and buy allowances from an auction (operated by the Environmental Protection Agency) or buy allowances from other utilities. Companies will have to determine whether it is cheaper to put engineers to work on reducing CO2 emissions, or to buy more allowances, rewarding cleaner energy and driving utilities to innovate.

So how does carbon cap and trade relate to the data center?

First and foremost — it’s going to drive energy costs up an estimated 20% across the board. Data center operators already constricted by huge power bills are in for even more sticker shock at the meter in the future.

Second, this means the issue of data center site selection will become even more important, as regions with large hydropower and nuclear energy options become increasingly attractive as these non carbon-emitting energy sources benefit under a cap and trade system and keep prices lower by comparison.

Third, under the proposed Senate Bill, the EPA will begin regulating the carbon offset market. That means for those of you who work for companies pursuing a green, social responsibility, zero-carbon, initiative a regulated and viable carbon credit offset system will be available.

With carbon offsets today, a corporation pledges to pay a third-party company to invest in renewable energy or plant trees that will sequester carbon dioxide from the atmosphere. You see this in Silicon Valley today with companies like Google, Sun Microsystems, HP and others trying to offset their carbon footprint.

But carbon-offset companies are unregulated and often unaffiliated with official environmental agencies or standards. Under this bill, the EPA will launch a Climate Change Credit Corporation and will be responsible for due diligence on the legitimacy of carbon credits.

Carbon cap and trade FAQs:
Who pays for this and where does the money go? Um, essentially we all pay for this through higher energy prices. The carbon allowance auctions will raise billions of dollars that will be spent on:

Wasn’t cap and trade a big debacle in Europe? Yes, it was. Under the cap and trade system in Europe, agencies gave 97% of the pollution allowances away for free to industry. The companies cashed them in for money, charged consumers for them, and didn’t actually do anything to reduce emissions. The U.S. plan is different in that we would only be giving 35% of the allowances away for free and that percentage would drop off over time as the industry adjusted to the new economics.

How likely is the Warner-Lieberman bill pass? Not too likely. While some folks are optimistic to get this through the current legislative session, insiders say it may come to a vote in the Senate, but it will not be signed into law under the current administration.

That said, carbon cap and trade systems are in our near future as every remaining major presidential candidate in the 2008 election has recognized global warming as a threat to our environment, economy and survival on this planet as we know it.