Oxy, Microsoft clinch “record” carbon removal deal to handle AI-associated emissions

Michelle Ma, Bloomberg July 10, 2024

(Bloomberg) – Oil giant Occidental Petroleum Corp. clinched a record carbon removal deal with Microsoft Corp. amid the software titan’s push to reduce its expanding emissions.

Occidental, which is building a carbon-capture portfolio through its subsidiary 1PointFive, plans to build a fleet of plants that suck carbon dioxide directly from the air. Microsoft on Tuesday agreed to buy 500,000 metric tons of credits from the company’s Stratos plant in Texas, which is expected to start up next year.

The deal marks the single largest purchase of credits generated by so-called direct air capture, or DAC — bolstering Occidental’s position in the race to scale and monetize carbon capture technology. For Microsoft, whose push into artificial intelligence has triggered a spike in emissions, such agreements are central to addressing a growing carbon footprint.

Yet DAC, which uses giant fans to suck carbon dioxide out of the atmosphere, is expensive, energy-intensive and not yet proven at industrial scale. The world’s largest DAC plant, operated by Climeworks AG, is designed to corral 36,000 tons of CO2 annually, far from the billions of tons required to stave off the worst effects of global warming.

But if DAC works as promised, it will not only help to limit global warming but could also help improve the quality of the voluntary carbon market.

Microsoft was an early supporter of the burgeoning carbon removal industry, signing major deals with Stockholm Exergi and Orsted A/S to buy CO2 credits generated at power plants.

It also inked a deal last year with Heirloom Carbon Technologies Inc. for 315,000 tons of carbon removal. Microsoft is by far the largest investor in carbon removal credits to date, having purchased more than 8 million tons across its portfolio, according to the industry tracker cdr.fyi.

While Microsoft aims to be carbon negative by 2030, its emissions last year were about 30% higher than in 2020 in part due to energy-intensive AI data centers. Microsoft President Brad Smith recently said that if Microsoft is shooting for the moon on decarbonization, the moon is “more than five times as far away as it was in 2020.

President Joe Biden’s administration has invested big in DAC, promising to spend $3.5 billion on regional hubs aimed at removing, capturing and storing 1.8 billion tons annually to achieve net-zero emissions by mid-century.

1PointFive and Climeworks were two of the companies selected to be part of the Energy Department’s $1.2 billion DAC hubs project on the Gulf Coast. Yet the companies have very different missions. Occidental is motivated in part by the promise of using captured carbon to produce more oil.

Occidental Chief Executive Officer Vicki Hollub has called DAC a way to produce “net-zero oil,” and said some of the CO2 captured from its facilities will be used for enhanced oil recovery, which involves injecting CO2 into oil wells to extract more oil.

The $1 billion Stratos plant, which is expected to start operations in mid-2025, also has sold credits to Amazon.com Inc., Shopify Inc. and Airbus SE. Occidental hopes to build 99 more like it over the next 10 years.

In a February investor presentation, the company projected that it will be able to capture carbon at scale for $125 to $200 per ton, an estimate that some DAC experts view as “a fantasy” given the energy-intensity of the process.

But if Occidental succeeds, the $54 billion company could be worth $150 billion by 2050, according to BloombergNEF.

Lead image: Shovels during a groundbreaking ceremony at the Occidental Petroleum and 1PointFive Direct Air Capture (DAC) plant in Ector County, Texas, in 2023. (Photographer: Jordan Vonderhaar/Bloomberg)

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