Climate Finance | February 2, 2021

Microsoft emerges as a major customer for captured carbon

Amy Cortese
ImpactAlpha Editor

Amy Cortese

ImpactAlpha, Feb. 2 – The software giant paid an average of $20 per ton for up 1.3 million metric tons of carbon removal last year, making it one of the market’s largest purchases.

The carbon credits will help the company make progress on its ambitious goal to be carbon negative by 2035 and to eliminate by 2050 all the carbon it has emitted since it was founded in 1975. But there’s a broader goal: to spur development of a commercial-scale carbon removal market.

“It’s imperative that we move away from paying for carbon avoidance and focus on paying for carbon removal,” writes Microsoft’s Brad Smith. “The world must build a new market on an unprecedented scale and timeline, from nearly scratch.”

Cost curves

Microsoft selected 26 projects from among 189 prospects in more than 40 countries that responded to a request for proposals. All but 1% of the carbon to be removed will come from natural solutions, such as forestry and soil carbon.

The costs of technology solutions for capturing carbon today are more than 50 times nature-based solutions – a cost Microsoft hopes to help bring down over time. “We know engineered solutions will have to be a more prominent component of carbon removal procurement by 2030,” says Microsoft’s Lucas Joppa.

Natural capital

Among the carbon removal projects are the CommuniTree Carbon Program, which supports farming families growing native trees and and forest-based enterprises in Nicaragua; SilviaTerra’s Natural Capital Exchange, a forest carbon marketplace; and four soil carbon sequestration projects in Australia purchased through Regen Network’s blockchain-based carbon exchange.

Microsoft also purchased credits from three biochar initiatives. The full list of carbon removal solutions can be found in Microsoft’s carbon removal whitepaper. Responses to the RFP can be found here.

Engineering solutions

Just two technology plays made Microsoft’s cut. San Francisco-based Charm Industrial converts waste biomass into bio-oil that can be stored or converted into green hydrogen. Climeworks, a Swiss company, uses direct air capture to remove carbon dioxide and store or re-use it.

Microsoft’s Climate Innovation Fund invested in Climeworks to help it build a commercial scale plant in Iceland. The fund also recently took stakes in two early-stage climate investors: Congruent Ventures and South East Asia Clean Energy Facility, a group of foundations that aims to accelerate clean energy initiatives.​

Greening the supply chain

Microsoft reduced its own emissions last year by 6%, or roughly 730,000 metric tons. The software maker charges business units an internal carbon tax of $15 per ton for direct emissions like travel and electricity. That has been expanded to include the “Scope 3” emissions of its suppliers and customer use of its products, beginning with $5 a metric ton and increasing each year.

The company already requires suppliers to disclose their greenhouse gas emissions, but contracts will play a bigger role. “Supplier contracts today do not include a price on carbon – and they must,” writes Smith. “Passive purchasing is not sufficient.”

Carbon profits

If Microsoft has emerged as a major buyer of carbon credits, one company shaping up as a major seller (at least for avoided carbon) is Tesla.

The electric vehicle maker revealed last week that it hauled in $1.58 billion in 2020 from selling carbon credits to other companies looking to offset their emissions. That’s a nearly three-fold increase from its $594 million in such sales last year.

The carbon credit sales pushed Tesla into the black, and allowed buyers such as Fiat Chrysler to meet more stringent E.U. emissions regulations. By some estimates, Tesla’s carbon sales could reach $2 billion this year.