Can "Cap-and-Trade" start a softswitch upgrade?

What does a cap and trade policy on carbon emissions have to do with how you might pay for a new softswitch?  It's not quite an intuitive leap, but if you are cap-ex constrained, new environmental policies in President Obama's budget might be an incentive to facilitate getting rid of legacy gear and moving to more reliable and energy efficient gear.

Before I begin this creative thought experiment, let me note that this methodology should also work for replacing other types of older (i.e. energy sucking) hardware with new "greener" replacements. While the example is being applied to current U.S. policy, this could conceivably work in other nations with stimulus plans as well.

In the proposed budget this week, the government will set a "cap" on the amount of greenhouse gas emissions U.S. industry can emit. Carbon permits will be auctioned off to put money in the budget, but the real fun begins when the "trade" part kicks in. Carbon emitters (i.e. utilities) will be encouraged to lower their carbon emissions and trade (i.e. sell) their unused quota to other companies who need the headroom.

Net-net: Some utilities will likely want to find ways to improve energy efficiency so they can sell the surplus off to less-efficient/lazier/willing-to-pay ones. And since the caps will be lowered every year, there should (in theory) be a continuous push to become more energy efficient.

Let's assume for the sake of argument that costs for a ton of carbon in Year One of cap-and-trade may range from $20 to $40 a ton.

Network Strategy Partner's whitepaper on softswitch replacement says using a MetaSwitch distributed softswitch system to replace a circuit switch driving remote switching centers with a total of 158,000 subscriber lines can save 1.2 million pounds of carbon during the course of a year. Assuming short tons, we get 600 tons of carbon saved a year, so at an average value of $30 a ton, this means that there's around $18,000 or so on the table in terms of the "value" of the carbon saved.

Now, let's be real here. The utility company isn't going to pay you $18,000 grand up front; it wants to make some green (cash) here in any transactions.  In theory, it might be convinced to pay half that, so you aren't going to end up clearing a profit on any upgrades.

However, if you can work with a local utility (and let's face it, some of the ILECs out there are energy and phone companies, so this should be a no-brainer), and add that one-time cost to ongoing savings forward for energy and maintenance, the case justification to the CFO gets to be more lucrative. The NSR paper only looks at the lifecycle costs on energy usage with power and cooling savings and doesn't get into potential savings by replacing the (ever-increasing) costs of service contracts on legacy gear, or the more esoteric costs of replacing all those lead-acid batteries every five years that are needed to power the legacy system.

The final line item to plug into your spreadsheet for thought and consideration: Legacy gear has resale value.  This isn't eco-politically correct, but if you can sell off your old gear to a third-party broker once you've got the new stuff running, what's not to like?

- Doug

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