Microsoft and Occidental have signed a deal on carbon credits to help offset AI’s energy surge

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Microsoft and Occidental Petroleum have signed a record carbon credit deal worth hundreds of millions of dollars as the tech industry struggles to deliver on its climate pledges amid an AI-driven surge in energy needs.

Occidental, one of the largest U.S. oil producers, will sell 500,000 carbon credits to Microsoft over six years for an undisclosed amount, according to a deal announced Tuesday.

The companies said the deal is the largest of its kind and will allow Microsoft to offset its emissions by paying Occidental to remove carbon from the atmosphere and store it underground.

The deal comes as Big Tech tries to curb the drastic increase in energy emissions caused by the expansion of AI.

Microsoft said in May that its emissions had risen by almost a third since 2020, largely due to data center construction. Google also admitted last week that its emissions have almost halved since 2019 as a result of building energy-intensive infrastructure to support AI.

Microsoft has pledged to be “carbon negative” by 2030, while Google has committed to net zero by 2030.

The use of carbon credits to achieve these goals has come under intense scrutiny in recent years due to concerns about verifying claims about how much carbon is removed by new projects. Each credit is supposed to represent a ton of greenhouse gases that have been excluded or removed from the atmosphere.

In its deal with Microsoft, Occidental expects to sell its credits created by a process of sucking carbon dioxide from the air, known as direct air capture, for less than the market price of about $1,000.

Critics say direct air capture, an emerging technology, remains too expensive and uses too much energy for the volume of carbon dioxide it can capture in existing projects.

Occidental is the fourth largest US oil and gas producer. But in recent years it has rapidly expanded its carbon dioxide management business in a bet that the capture and storage of greenhouse gases will be in check in the race to keep global temperatures in check.

This growing business allows Occidental to sell credits associated with captured carbon. In September, it signed a similar deal with Amazon for 250,000 credits over 10 years.

The technology sector was a “priority sector” for 1PointFive, Occidental’s carbon management subsidiary, said its chief executive Michael Avery.

There would be a “short-term” shortage of clean energy needed to run AI systems, which would require a “basket of solutions” including carbon credits, he said, adding: “We don’t see the DAC trying to solve any company’s problems.” entire portfolio of issues.”

The announcement is a boon for Occidental as it seeks to drum up support for its pivot to DAC. The International Energy Agency said the technology would play an “important and growing role” but had not been demonstrated at scale. It currently removes a small fraction of the 37 billion tonnes of annual energy-related carbon emissions.

Climate experts are clear that carbon credits should only be used to offset hard-to-remove emissions, such as some of those produced by certain industrial processes, including steelmaking.

Microsoft’s credit will come from Occidental’s first DAC project, Stratos, in West Texas, which is expected to become the world’s largest such facility when it comes online next year. The project is being developed in cooperation with BlackRock, which invested $550 million in November.

Recent estimates from S&P Global put the price of DAC credits at around $800 to $1,200 per tonne of carbon emitted, a high cost that has meant that only a few bulk contracts have been signed so far. 1PointFive said it expects to operate at a price of $400-$630 per tonne.

Avery said the carbon associated with the Microsoft credits would not be injected underground as a means of extracting more oil — a process known as “enhanced oil recovery” (EOR) — though he acknowledged that the carbon captured by Stratos could be used to do so in the future. .

Occidental’s expertise in EOR, a controversial process, enabled its move into the carbon management business. Any use of carbon captured by Stratos for this purpose would be “customer driven,” Avery said. “For some customers, it may make sense to take fuel that has been fully decarbonised using carbon capture.”