The carbon moonshot

Microsoft dominates the market for carbon removal

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In 2020 Microsoft announced that it would be carbon negative by the end of the decade, taking account of both its operational (Scope 1 and 2) and supply chain emissions (Scope 3).

A bold pledge and one that Microsoft described as their ‘carbon moonshot’!

But that wasn’t the end of their ambitions. The tech company also announced plans to “remove from the environment all the carbon the company has emitted either directly or by electrical consumption since it was founded in 1975,” by 2050.¹

Recognising that none of this would be possible simply by cutting emissions alone, the company outlined that it would deploy $1 billion of its own capital “to accelerate the development of carbon reduction and removal technologies that will help us and the world become carbon negative,” while also supporting the development of new policy initiatives that supported these technologies.

Source: Microsoft

We’re beginning to see the impact of Microsoft’s commitment to carbon dioxide removal (CDR). The growth in durable CDR credit purchases has been explosive since 2022 with the market growing more than 7-fold to 4.5 Mt in 2023. Alexander Rink, co-founder of CDR.fyi highlights the sheer scale of the tech giant’s involvement in the CDR market in a recent article:²

Peel one layer beneath the surface, however, and concerns emerge. One company, Microsoft, now accounts for roughly ⅔ of cumulative durable CDR purchases. Said another way, they have purchased almost twice as much durable CDR as all other companies on the planet. Combined.

A second group of purchasers, which we term Leaders, take up spots 2 to 10 on the CDR.fyi leaderboard. They include proactive and forward-thinking companies such as Stripe, Shopify, Alphabet, Meta, and others in the Frontier consortium; the NextGen buying group; as well as Airbus, Amazon, BCG, and Boeing, to name a few. While they continue to be significant contributors, they helped bring this market into being 2020 - 2022 and paved the way for Microsoft to enter in a big way in 2023.

The drop-off, however, is dramatic: Microsoft’s cumulative CDR purchasing volume being 150x that of the last of the 10 in the Leaders group, Climate Cent Foundation at #11 on the CDR.fyi Purchaser leaderboard. Another 300 purchasers collectively account for 9% of the total market to date.

The latest data suggests that the global CDR market will continue to grow in 2024. Recent activity suggests that CDR purchases are likely to increase to 5.2 Mt in 2024, a 15% rise on 2023 volumes. Microsoft is again the largest source of absolute demand growth (up 0.4 Mt), but as other buyers are also growing at the same rate, Microsoft’s dominance remains broadly stable at close to 70%.

Source: CDR.fyi

The largest CDR deal to date was signed earlier in the summer when Microsoft announced a 10-year 3.3 Mt CO2 offtake agreement with Stockholm Exergi. The energy company runs a biomass plant in the Swedish capital which also supplies heat for district heating systems. Stockholm Exergi will begin construction of a BECCS unit at the plant in 2025, and when its finished it will be able to capture 0.8 Mt of CO2 emissions per year. It follows a previous deal one year earlier in which Microsoft agreed to purchase 2.67 Mt CO2 over 11 years from Danish energy company Ørsted, also employing BECCS technology.

It’s important to remember that CDR purchases ≠ the simultaneous removal of CO2 from the atmosphere. CDR purchases are typically used to help accelerate the development of CO2 removal capacity, and then backed up by actual CO2 removal at some point in the future. CDR purchases are often known as advanced market commitments (AMC).

In contrast to the exponential growth in CDR purchases, actual CDR removal is doubling roughly every year. In 2023 125kt of CO2 was removed from the atmosphere using technology based CDR, less than 3% of CDR purchase volumes. Microsoft purchased 3.5 Mt of CDR credits (on an annualised basis) in 2024, but it will need to back this up with actual CDR removal to come close to meeting its 2030 target. And remember the company will need more than 5 Mt of actual CO2 removal per year to meet its 2030 target.

AI growth signals more demand for CDR

Rather than moving towards being carbon negative by 2030, the company’s emissions have been going up. The latest data shows that Microsoft’s emissions in 2023 were 29.1% higher than when the pledge was made in 2020.

While it’s Scope 1 and 2 emissions declined 6.3% versus the 2020 baseline, its Scope 3 emissions, which account for the bulk (>90%) of Microsoft’s carbon foot print, have surged by 30.9%.