Microsoft and Occidental Petroleum have entered into a record-breaking carbon credit agreement worth hundreds of millions of dollars. The deal, announced on Tuesday, will see Occidental sell 500,000 carbon credits to Microsoft over six years, making it the largest agreement of its kind.
The agreement allows Microsoft to offset its emissions by paying Occidental to remove carbon from the atmosphere and store it underground. This comes as the tech industry struggles to meet its climate promises amid a drastic rise in energy emissions driven by AI expansion. Microsoft’s emissions have risen by almost a third since 2020, mainly due to the construction of data centers, while Google’s emissions have increased by almost half since 2019.
The use of carbon credits to meet climate goals has come under scrutiny in recent years, with concerns over verifying the claims about how much carbon is removed by new projects. Each credit is supposed to represent a tonne of greenhouse gas that has been avoided or removed from the atmosphere.
Occidental expects to sell its credits generated by direct air capture, a process of sucking carbon dioxide from the air, more cheaply than the roughly $1,000 market rate. Critics argue that direct air capture remains too expensive and uses too much energy for the volume of carbon dioxide that it can capture.
The deal is a significant boost for Occidental’s carbon management business, which has rapidly expanded in recent years. The company has signed a similar deal with Amazon for 250,000 credits over 10 years. The tech sector is a “priority sector” for Occidental’s carbon management subsidiary, 1PointFive, with a “near-term” shortage of clean power needed to run AI systems necessitating a “basket of solutions” including carbon credits.
The agreement is a landmark moment in the development of direct air capture technology, which the International Energy Agency has said will play “an important and growing role” in reducing carbon emissions. However, the technology currently removes a small fraction of the 37 billion tonnes of annual energy-related carbon emissions.
