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.
BUYERS HAVE TO SETTLE
Credit supply has not kept pace with demand.
A third of requests to buy credits through the Patch platform were for biochar, yet it ultimately made up less than 20% of sales because of tight supply, Patch said.
Reforestation credits were requested 25% of the time, but sold 12% of the time.
"The desire for high quality is very real, and you can see it in the numbers. In 2024, there were 8 million tons of durable carbon removal purchased, and so far this year, it's 25 million," said Lukas May, chief commercial officer at carbon registry Isometric.
"That is certainly being driven a lot by the big tech companies."
To date, less than 1 million tons' worth of durable carbon removal credits have been issued, CDR.fyi data shows, mostly from biochar projects.
Given the supply crunch, more companies are looking to enter offtake agreements, which should help expand supply by giving certainty of sales to developers, May added.
"At the end of the day, extra demand will drive extra supply."
SCALING BIOCHAR IN BRITAIN
For some, the supply crunch solution is to generate your own credits.
Pure Data Centres Group, which counts large tech companies as clients, plans to spend 24 million pounds ($31.6 million) building the UK's biggest biochar project in Wiltshire to ensure it has enough.
"When we started to evaluate suppliers, we quickly realised it was very difficult to find a reliable, high-quality product. We decided the best way to guarantee quality was to develop our own expertise and production," said Chief Executive Dawn Childs.
Alastair Collier, chief R&D officer at subsidiary A Healthier Earth, which will run the project, said it will start operating by December, scaling up over 18 months to remove 9,000 tons of carbon a year, with three additional sites planned in the UK.
"My underlying investment thesis has been for the last three years ... that demand will, and already does, significantly outstrip supply."
($1 = 0.7595 pounds)
(Reporting by Simon Jessop, Susanna Twidale, Virginia FurnessAdditional reporting by Kenrick CaiEditing by Rod Nickel)
