What Microsoft learned from purchasing millions of carbon removal credits
Microsoft contracts 70 million carbon removal credits amid rising AI emissions
Microsoft has become the world's largest corporate buyer of carbon removal credits. The company has contracted more than 70 million credits through deals spanning direct air capture, industrial emissions projects, and reforestation programs. However, the technology giant now faces a widening gap between its carbon-negative ambitions and the reality of surging data centre emissions driven by artificial intelligence.
In fiscal year 2025, Microsoft reported approximately 20.3 million metric tons of CO2-equivalent emissions. That represents a 25% increase from the previous year and sits roughly 58% above the company's 2020 baseline. The rise stems largely from rapid expansion of cloud computing and AI infrastructure, which requires vast amounts of electricity and physical hardware.
Microsoft has since paused new carbon removal purchases while it reassesses its portfolio. The move signals a tighter procurement approach as the company weighs project quality, delivery risk, and the challenge of meeting its 2030 carbon-negative target. Existing contracts remain in place, but the pause marks a shift in strategy for a company that had positioned itself as a market leader in carbon removal.
The 2020 pledge and the shift toward removals
Microsoft announced its carbon-negative commitment in 2020. The company pledged to remove more carbon from the atmosphere than it emits by 2030, and to eliminate all its historical emissions by 2050. Alongside that target, Microsoft moved away from traditional avoidance offsets in favour of carbon removal credits.
The company concluded that removal projects offered greater durability and verifiability than schemes claiming to prevent emissions elsewhere. Avoidance credits often rely on counterfactual scenarios that are difficult to prove. In contrast, removals physically extract carbon from the atmosphere, making their impact easier to measure and verify.
Microsoft established an internal carbon fee to fund clean energy and removal purchases. The mechanism was designed to create steady demand for early-stage climate projects, helping to finance technologies that struggled to attract private capital. By 2024, removal credits had become the dominant share of the company's portfolio by volume. By 2025, Microsoft had become the largest corporate buyer in the market.
This scale brought both influence and responsibility. The company's purchasing decisions helped shape project pipelines and pricing across the removal sector. Consequently, its recent pause carries implications beyond Microsoft's own climate strategy.
Major contracts signal market maturation
Microsoft's deals illustrate how the carbon removal market has evolved. In 2024, the company disclosed a 10-year agreement for 3.3 million metric tons from a project in Stockholm. At the time, the Stockholm deal represented Microsoft's largest single removal contract.
Shortly afterwards, Microsoft agreed to purchase 3.7 million tons over 12 years from CO280. That project captures emissions from pulp and paper mills, converting industrial waste streams into verified removal credits. The CO280 agreement demonstrated Microsoft's willingness to back industrial carbon capture alongside newer direct air capture technologies.
The company has also supported nature-based removal. Microsoft signed an offtake agreement for approximately 1.6 million credits over 15 years from a reforestation project in Panama. Nature-based solutions typically cost less than technological approaches, but they face different verification challenges and permanence risks.
These contracts share common features. Most run for a decade or longer, providing revenue certainty to project developers. Furthermore, they include detailed monitoring and verification requirements. Microsoft has published guidance on what it expects from removal suppliers, covering additionality, permanence, and third-party validation.
Renewable energy certificates and credibility concerns
Microsoft has also changed its approach to renewable energy. The company previously purchased short-term renewable energy certificates to reduce its reported emissions. However, it concluded that many of these instruments did not reliably add new clean electricity to grids.
Unbundled renewable energy certificates allow companies to claim credit for renewable generation without purchasing the actual electricity. Critics argue that this creates a gap between reported and actual emissions reductions. Microsoft determined that the practice undermined the credibility of its climate claims.
As a result, the company stopped using unbundled certificates. The decision contributed to the reported increase in emissions between fiscal 2024 and 2025, because Microsoft was no longer claiming credit for renewable energy it did not directly consume. Meanwhile, the company has pursued longer-term power purchase agreements that it believes deliver genuine additionality.
This shift reflects broader scrutiny of corporate climate accounting. Regulators and investors increasingly question whether renewable energy certificates and traditional offsets represent real environmental impact. Microsoft's move suggests that leading companies may face pressure to adopt more conservative accounting methods.
What 70 million credits actually represents
Microsoft's portfolio of more than 70 million removal credits dwarfs other corporate buyers. To understand the scale, consider that most companies purchasing removals contract for tens or hundreds of thousands of credits. Microsoft's volume is measured in millions.
Nevertheless, 70 million credits represents roughly 70 million metric tons of CO2 removed over the life of all contracts. Many of these credits will be delivered over decades, not immediately. Therefore, the portfolio does not offset current emissions on a one-to-one basis each year.
In fiscal 2025 alone, Microsoft emitted approximately 20.3 million metric tons. If the company maintains current emissions levels, it will emit more than 100 million metric tons between now and its 2030 target. Consequently, even a portfolio of 70 million credits cannot fully compensate for ongoing emissions growth without parallel reductions in operational emissions.
This arithmetic explains why Microsoft has paused new purchases. The company reportedly wants to ensure that removal contracts complement emissions reductions rather than substitute for them. Additionally, scrutiny of project quality has intensified, making Microsoft more cautious about which deals to sign.
AI infrastructure drives emissions upward
The primary driver of Microsoft's emissions growth is data centre expansion. Training large language models requires massive computational power, which in turn demands substantial electricity and cooling. Building new data centres also generates significant embodied emissions from construction materials and manufacturing.
Microsoft reported that emissions rose 25% year-on-year in fiscal 2025. Executives attributed much of that increase to AI infrastructure buildout. The company has invested billions in expanding its cloud and AI capabilities, responding to surging demand from enterprise customers and its partnership with OpenAI.
This creates a direct conflict with Microsoft's climate goals. Each new data centre adds to the company's operational footprint, even as Microsoft invests in renewable energy and removal credits. The conflict is particularly acute because AI workloads are growing faster than renewable energy can be procured and connected to grids.
Microsoft has stated that it remains committed to carbon negativity by 2030. However, the gap between ambition and performance has widened significantly. Without substantial emissions reductions or a dramatic scaling of carbon removal, the 2030 target appears increasingly difficult to achieve.
Portfolio reassessment and tighter procurement
Microsoft's pause on new removal purchases reflects a strategic reassessment. Melanie Nakagawa, the company's sustainability chief, said Microsoft is "continuing to take a hard look at each of the deals that are coming through" and seeking "credible opportunities to scale."
The statement suggests that Microsoft is tightening quality standards rather than simply buying more volume. The carbon removal market has grown rapidly, but concerns about project credibility and permanence have grown alongside it. Some removal projects have failed to deliver promised credits. Others face questions about their long-term viability.
Microsoft appears to be responding to these risks by slowing its procurement pace. The company wants to ensure that existing contracts deliver as promised before committing to new ones. Additionally, it may be reassessing the mix of technologies in its portfolio, balancing nature-based solutions against engineered removals.
This cautious approach could influence the broader market. If the largest buyer becomes more selective, project developers may face pressure to improve verification standards and demonstrate greater permanence. Conversely, a prolonged pause could reduce demand signals that early-stage projects rely on to secure financing.
Testing whether removals can match AI's carbon cost
Microsoft's experience offers a test case for corporate climate strategy. The company has invested heavily in carbon removal, positioning itself as a leader in voluntary climate action. However, its rising emissions demonstrate that removals cannot indefinitely compensate for rapid growth in energy-intensive operations.
The question now is whether Microsoft can prove that large-scale removals are durable, verifiable, and complementary to deep emissions cuts. If the company succeeds, it could establish a model for other technology firms grappling with AI's environmental impact. The approach might also help validate carbon removal as a serious tool for corporate decarbonisation.
If Microsoft fails to meet its 2030 target, the outcome may instead reinforce scepticism about removal credits. Critics already argue that offsets and removals allow companies to avoid making difficult operational changes. A high-profile shortfall would lend weight to that criticism.
For UK businesses, the Microsoft story carries practical lessons. Companies pursuing net zero targets need to understand that carbon credits supplement emissions reductions rather than replace them. Furthermore, the quality of removal projects matters as much as their volume. Cheap, low-quality credits may not withstand regulatory or investor scrutiny.
Implications for UK firms with net zero commitments
Many UK businesses have adopted net zero targets that rely partially on carbon credits. Microsoft's experience suggests that these companies should prepare for tighter verification standards and rising prices for credible removals. The market is maturing, and buyers are becoming more discerning.
For businesses in the public sector supply chain, understanding carbon removals is increasingly important. Procurement Policy Note 06/21 requires suppliers bidding for major government contracts to publish carbon reduction plans. Some tenders now ask suppliers to explain their approach to residual emissions and removals.
UK manufacturers face particular challenges. Production processes often generate emissions that are difficult or expensive to eliminate entirely. In these cases, carbon removals may play a role in achieving net zero. However, buyers should ensure that any removal credits they purchase are additional, permanent, and verified by credible third parties.
Small and medium businesses may find that carbon removal markets remain inaccessible due to high prices and complex procurement processes. Most removal projects sell credits in large volumes to corporate buyers. Nevertheless, pooled purchasing schemes and smaller nature-based projects may offer more accessible options as the market develops.
Microsoft's portfolio reassessment also highlights the importance of long-term contracts. Many of the company's deals run for 10 to 15 years, providing revenue certainty to project developers. UK businesses considering removal purchases should evaluate whether they can commit to similar timeframes, as shorter contracts may not attract high-quality projects.
Key facts about Microsoft's carbon removal program
- Microsoft has contracted more than 70 million carbon removal credits, making it the world's largest corporate buyer in the market.
- The company's fiscal 2025 emissions were approximately 20.3 million metric tons of CO2-equivalent, up 25% from the previous year.
- Emissions now sit roughly 58% above Microsoft's 2020 baseline, driven primarily by data centre expansion for AI and cloud services.
- Microsoft signed a 10-year deal for 3.3 million metric tons from a Stockholm project in 2024, followed by a 12-year agreement for 3.7 million tons from CO280.
- The company has paused new carbon removal purchases while it reassesses its portfolio for quality, delivery risk, and strategic fit.
- Microsoft stopped using unbundled renewable energy certificates after concluding they did not reliably add new clean electricity to grids.
- The company aims to become carbon negative by 2030 and to remove all its historical emissions by 2050.
What businesses should consider when evaluating removals
Companies looking at carbon removal should start by reducing operational emissions as far as practical. Removals work best as a complement to deep cuts, not as a substitute. Microsoft's rising emissions illustrate the limits of relying on credits to offset rapid operational growth.
Businesses should evaluate removal projects on three criteria: additionality, permanence, and verification. Additionality means the project would not have happened without carbon finance. Permanence refers to how long the carbon will stay out of the atmosphere. Verification involves independent third-party assessment of the project's claims.
Nature-based removals, such as reforestation, typically cost less than technological solutions like direct air capture. However, they face different risks. Forests can burn or be logged, releasing stored carbon. Technological removals often provide greater permanence but at higher prices.
UK businesses should also consider how carbon accounting rules may change. The Financial Conduct Authority and international standard-setters are developing stricter disclosure requirements. Companies that rely heavily on low-quality credits may face reputational or regulatory risks.
For businesses in regulated sectors, understanding the difference between compliance carbon markets and voluntary removal markets is essential. Compliance markets operate under government mandates and have specific eligibility rules. Voluntary markets offer more flexibility but less regulatory certainty.
Small businesses may benefit from waiting until the market matures further. Prices for high-quality removals remain high, and procurement processes can be complex. In the meantime, focusing on operational efficiency and renewable energy often delivers better returns.
Where to find authoritative guidance
The UK government provides guidance on carbon accounting and net zero planning through the Department for Energy Security and Net Zero. The department's net zero strategy sets out the policy framework for business decarbonisation.
The Environment Agency offers greenhouse gas reporting conversion factors that businesses must use when calculating emissions. These factors are updated annually and cover a wide range of activities and emission sources.
For businesses supplying the public sector, the Procurement Policy Note 06/21 explains carbon reduction plan requirements. The guidance includes templates and examples to help suppliers meet the standard.
The British Standards Institution publishes standards on carbon neutrality and net zero that provide frameworks for credible claims. These standards help businesses avoid greenwashing and build robust climate strategies.
Businesses can find support for carbon reduction planning and compliance through SBS compliance services, which cover emissions reporting, carbon reduction plans, and regulatory requirements for public sector suppliers.