Analysis-Big Tech-led demand for carbon removal credits fuels supply crunch

By Simon Jessop, Susanna Twidale and Virginia Furness

BELEM, Brazil (Reuters) -Surging demand for high-quality carbon removal credits from tech giants to offset their AI-driven emissions is helping fuel a shortage that experts say is exactly what is needed to spur investment in the nascent market.

Heavy buying over the last two ​years by companies including Microsoft and Google made the credits nearly four times more expensive in 2024 than lower-priced credits pegged to forest-preservation projects.

Big Tech has collectively spent ‌hundreds of millions of dollars since 2019, much of it in the last two years, on durable carbon removals, those that capture and store carbon dioxide for an extended period, the credit experts say. Overall, $10 billion has ‌been spent in the spot market and longer-term offtake agreements combined, according to market tracker CDR.fyi.

Scientists say carbon-removal projects are essential for the world to slow global warming by offsetting emissions from industries, such as power generation, that continue to use fossil fuels.

Credits linked to projects such as biochar, in which biomass is converted into a charcoal-like substance that locks in carbon, or direct air capture, are seen as providing more secure, long-term removal of carbon. Those linked to restoring degraded land are also valued highly.

As tech companies expand data centers to power artificial intelligence, often using fossil fuels,⁠ their profits and greenhouse gas emissions are rising, underpinning demand ‌for credits.

Many other companies were also leveraging AI to expand their businesses and using some of the returns to buy credits, said Brennan Spellacy, chief executive of climate tech firm Patch.

“The companies that are performing well are investing heavily, and the reason why these companies are performing well is ‍AI. So AI’s driving profit and profit’s driving investment,” Spellacy said on the sidelines of the COP30 climate talks in Brazil.

The tech giants have pledged to eventually eliminate their emissions on a net basis. The United States, however, has pulled out of the 2015 Paris climate treaty under President Donald Trump.

“We send strong demand signals through long-term offtakes to unlock a virtuous cycle of innovation, financing, ​and deployment,” a Microsoft spokesperson told Reuters. “By anchoring large-scale projects, we both drive new supply while leaving headroom for other corporate buyers to enter,” ‌the spokesperson added.

Google parent Alphabet declined to comment.

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