The trouble with Microsoft’s carbon figures

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According to the International Energy Agency, the carbon emissions attributable to energy used by data centres are surging as artificial intelligence takes off. Tech giants like Microsoft, however, claim that emissions from energy use are a tiny share of their overall carbon footprint, and heading downward.

What’s going on?

Are Big Tech’s emission figures too good to be true?

The phrase “marathon, not a sprint” is one of the most tired clichés in corporate English. But Microsoft gets points for using it in a curious new sense: running in the wrong direction.

“It has become clear that our journey towards being carbon negative is a marathon, not a sprint,” wrote the tech giant’s vice-chair Brad Smith and chief sustainability officer Melanie Nakagawa in its annual environmental report, published on Thursday.

If you thought that meant slow but steady progress, their next sentence would have put you straight. Since 2020 — when Microsoft pledged to become “carbon negative” within a decade — its total emissions have increased by 23.4 per cent.

And even that figure, according to critics of Big Tech carbon accounting practices, is actually much too flattering.

Choose your adventure

There are two main ways to calculate the carbon emissions from a company’s energy usage (known as “scope two” emissions).

The first is called “location-based” accounting, where you look at how much electricity the company uses from each power grid, and determine its share of the emissions from that grid’s power stations over the period in question.

When calculated using this method, Microsoft’s scope two emissions have been racing upward — from 4.3mn tonnes in 2020 to 9.96mn last year. That would mean its overall emissions (which also include other areas such as supply chains and business travel) have risen since 2020 not by 23.4 per cent, but by 55 per cent.

While it does disclose location-based emissions (as required by the widely used Greenhouse Gas Protocol) in a separate data sheet, Microsoft’s main report mentions only its favoured metric of “market-based” emissions. This accounting method puts more weight on companies’ power purchase agreements with renewable energy producers and also — more controversially — their separate purchases of renewable energy certificates, or RECs.

Under the GHG Protocol’s rules for market-based emission reporting, RECs allow companies to take credit for the “environmental attributes” of renewable power, even if they’re not among the users of the power generated. The logic is that, thanks to revenue from the sale of these credits, developers will be able to build clean power projects that wouldn’t otherwise be economically viable.

So, for example, a factory owner in Illinois could buy RECs from a solar plant developer in Texas. The solar developer gets an extra revenue stream on top of the money he makes by providing electricity to his local grid. The factory owner can use the RECs to reduce the emissions she reports from her factory’s power usage.

Large-scale purchasing of RECs is how Microsoft was able to report scope two emissions of only 259,000 tonnes of carbon dioxide last year — just 1.7 per cent of its total emissions, and down from 456,000 tonnes in 2020.

According to Microsoft, the growth of its carbon footprint has therefore come not from the energy consumption of new data centres, but largely from emissions linked to the materials used to build them.

A REC reckoning

Proponents of RECs call them an important source of funding to support new renewable energy development. Academic critics, however, have argued that they shouldn’t be used to “offset” carbon emissions, because it’s often unclear whether they have “additionality” — that is, whether they actually increase the amount of renewable energy being built. (See this FT deep dive on the subject from last year.)

Those doubts have strengthened as the cost of renewable energy has steadily come down, making projects increasingly competitive without any extra revenue from RECs. Renewables accounted for over 90 per cent of new generating capacity added last year, both in the US and worldwide.

Scepticism towards RECs is conspicuous even in the Big Tech sector that is their biggest user base. Google no longer buys them except as part of power purchase agreements. Even Microsoft, in its latest report, voiced an intention to “shift away from procuring non-additional environmental attribute certificates”.

If you take Microsoft’s new report at face value, you might think that the massive increase in energy consumption by data centres is coming without any rise in carbon emissions. Reports from other tech titans like Amazon and Meta, which also emphasise market-based emissions rather than far higher location-based figures, tell a similar story.

But a growing body of research suggests otherwise — notably this study led by researchers at Harvard, which found that emissions attributable to US data centres tripled between 2018 and 2023 to reach over 2 per cent of the national total.

In a report last month, the International Energy Agency estimated that global carbon emissions attributable to data centres’ energy usage were set to rise from 323mn tonnes in 2024 to 567mn tonnes in 2030 under its base case forecast — or 817mn tonnes under a “lift-off” scenario, which would make data centres the world’s biggest source of emissions growth, outstripping aviation.

As Microsoft proceeds towards its 2030 carbon-negative deadline, while surfing a lucrative wave of rising AI demand, this tension will be increasingly hard to manage.

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