Yahoo Finance Tech companies bet on carbon removal startups as AI tests climate goals
Carbon removal technologies are becoming increasingly important for companies, particularly for tech giants locked in a fierce battle to become the leader in artificial intelligence.
Once considered a diversion for the critical work of cutting emissions, carbon removal projects that extract and sequester carbon dioxide emissions from the atmosphere — such as direct air capture facilities or reforestation efforts — are now seen as a necessary step to hit key climate change targets.
“There are some portions of company emissions that you will just never abate,” Karan Mistry, managing director and partner for Boston Consulting Group, told Yahoo Finance. “[Companies are] recognizing that they have a net-zero target and they want to actually get to zero and honor their very public commitments, they have to invest in some sort of removal technology.”
Frontier Fund, a consortium of investors that includes Alphabet (GOOG), JPMorgan (JPM), and Meta (META), has purchased contracts to remove more than 510,203 tons of carbon to date.
The fund made one of its biggest commitments last year when it committed to paying $57.1 million to enhanced rock weathering startup Lithos Carbon to remove 154,000 tons of carbon from the atmosphere.
"All of these frontrunners in the carbon market, they’re not just interested in what they can buy today," Henry Liu, head of engineering at Lithos Carbon, told Yahoo Finance. "They’re investing in the future of the carbon dioxide removal market. [With] the scale of the market, they recognize that investment is needed. So they’re looking to support pathways.”
Tech buys into carbon removal
Although the number of companies making net-zero commitments has continued to grow, so have overall global emissions. And emerging technologies are making achieving those commitments more difficult.
The scale and speed of data processing needed for AI technology require so much energy that the International Energy Agency recently warned that consumption from data centers, AI, and the cryptocurrency sector could double by 2026.
That realization has led to a surge in investments in carbon removal startups. Direct air capture firms and those utilizing nature-based carbon removal methods raised more than $1 billion combined in 2023, according to PitchBook data. The number of carbon removal credits sold jumped more than 650% from the previous year, according to CDR.fyi.
The energy, manufacturing, and transportation sectors are leading those investments, but some of the biggest tech companies in the world are also investing in carbon removal to tackle emissions.
Microsoft (MSFT), a key player in the AI race, is one of the largest buyers, with more than 7.6 million purchases of carbon credits since 2020.
The company has already seen its carbon emissions jump 30% from 2020, according to its sustainability report. Four years ago, the company set out to become carbon-negative by the end of the decade, calling it the company’s moonshot.
In a recent interview with Bloomberg, Microsoft president Brad Smith admitted the goal would be harder to reach with the company’s AI ambitions.
“In many ways, the moon is five times as far away as it was in 2020, if you think of our own forecast for the expansion of AI and its electrical needs,” he said.
Challenges in the fledgling market
While carbon credits have largely been limited to voluntary markets, companies are planning for the increasing possibility of regulation mandating purchases to reach net-zero goals. The problem is that demand is expected to outstrip supply, even with hundreds of startups working to remove carbon on behalf of emitting companies.
BCG analysis estimates an annual demand for durable carbon dioxide removal (CDR) to reach 40 million to 200 million tons of CO2 by the end of this decade. Supply is projected to be 15 million-32 million tons.
Companies are looking to get ahead of that crunch by investing in nascent technologies with clear processes for monitoring, reporting, and verifying the quality of carbon removed.
However, impact is still hard to quantify, depending on the removal process. Companies that offer what is considered some of the highest-integrity offsets remain among the most expensive, largely because the technology has not scaled.
“If you want someone to buy a CDR offset or a carbon offset, you want them to feel good that they actually bought what they said they did,” Mistry said.
Direct air capture (DAC) has the simplest measuring system, according to Mistry, whose firm has invested in a handful of DAC companies, including Climeworks. But it requires building large factories that can suck carbon dioxide out of the air, and it costs $600 to $1000 to capture a ton of carbon.
Methods that rely on agricultural waste are considered cheaper, but they require a lot of land. Planting trees may be among the most economical, but Mistry argues that carbon storage isn’t as permanent.
“You can estimate how much carbon is in the tree, but there are questions like, what happens if it gets cut down? What happens if there’s a forest fire?” Mistry said.
These questions over credibility have hampered the market recently, with studies showing that many carbon offsets haven't led to the kind of carbon removal they promised.
However, the carbon market did receive a vote of support from the Biden administration last Tuesday when it unveiled a framework for using voluntary carbon offsets, an admission that the country will not achieve its net-zero goal by 2050 through emissions reductions alone.
“We need to use all the tools at our disposal — creatively, thoughtfully, and at scale,” said Treasury Secretary Janet Yellen, praising the role of carbon removal technology in helping companies achieve their climate goals. Still, she stressed, “Corporate buyers should prioritize reducing their own emissions, particularly through transition planning.”
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