Tuesday, July 16, 2024

Are Carbon Credits All They’re Cracked Up to Be? Google and Microsoft Go All-in on Carbon Removal | The Fintech Times

Must read

Purchasing carbon credits is often dubbed as the best and, in many cases, easiest way for financial and tech firms to offset their environmental impact. But as the biggest tech firms go all in on them, should we be concerned?

Even for Google, ensuring carbon neutrality is hugely challenging. In its 2024 Environmental Report published last week, the tech giant revealed that it is no longer claiming to be carbon neutral – and is now committed to a ‘bold goal’ of reaching net-zero emissions across all of its operations and value chain by 2030.

The news comes after it decided to stop purchasing cheap carbon offset credits, the practice of reducing carbon emissions elsewhere to compensate for its own carbon emissions, to match its carbon output. A recent Bloomberg report argues that carbon offsetting does not actually significantly reduce emissions, and cannot reverse the damage that emissions released cause while in the atmosphere.

In 2007, Google set a goal to achieve operational carbon neutrality and says it successfully achieved this every year from then until 2022. However, in 2023, its total greenhouse gas (GHG) emissions increased 13 per cent year-over-year, driven by increased data centre energy consumption (caused by the power required by AI) and supply chain emissions.

It found it particularly challenging to decarbonise regions like Asia-Pacific as access to carbon-free energy isn’t readily available there. Google also reported that it is experiencing longer lead times between initial investments and construction of clean energy projects and the resulting GHG reductions.

Adjusting course

Perhaps after recognising the shortcomings of purchasing carbon offset credits, Google has pledged to purchase high-quality carbon removal credits in a way that maximises its positive impact on global decarbonisation.

Carbon removal credits are based on projects that remove carbon dioxide from the atmosphere, leveraging nature-based solutions including reforestation, as well as more technical solutions such as direct air capture.

Nandini Wilcke, COO at CarbonPoolNandini Wilcke, COO at CarbonPool
Nandini Wilcke, COO at CarbonPool

Nandini Wilcke, co-founder and COO at CarbonPool, a carbon credit insurance firm which pays claims in carbon credits, explains the importance of the move: “Avoidance credits are important to the market in that, when projects are deployed properly, they can help stop the deforestation that is wreaking havoc on our forests and climate.

“At the same time, we ultimately see the market moving towards carbon removal credits long-term given the persistent questions over avoidance credits’ additionally.

“Google’s recent announcement to exclusively purchase carbon removal credits is a great example. We expect carbon removals to become a dominant part of the market, including nature-based solutions and eventually a greater share of technology-based solutions.”

Wilcke also breaks down CarbonPool’s own solution: “Due diligence can’t protect projects from the many natural and man-made hazards that can lead to a shortfall in the project’s yield of carbon credits or a ‘reversal’ of an issued credit, in which the sequestered carbon underpinning that credit gets re-released back into the atmosphere for whatever reason (such as a wildfire). A shortfall or reversal can imperil firms’ net zero goals, along with their reputation.

“This is where insurance comes in as a solution, and specifically in-kind insurance solutions that can offer a credit-for-credit replacement in the event of a shortfall or reversal.”

Microsoft also backs carbon removal

Google’s announcement also coincides with a new carbon credit deal agreed between Microsoft and Occidental Petroleum. Occidental plans to sell 500,000 carbon credits to Microsoft, enabling the tech firm to offset its emissions with efforts to remove carbon dioxide from the atmosphere with direct air capture.

However, even this technique has received criticism, with experts suggesting it actually emits more carbon dioxide than it captures.

In Microsoft’s own 2024 Sustainability Report, it revealed its emissions are up 29.1 per cent since 2020, primarily caused by the construction of more data centres for increased AI usage.

Erik Terjesen, partner at Silicon FoundryErik Terjesen, partner at Silicon Foundry
Erik Terjesen, partner at Silicon Foundry

“It is a positive sign that companies are starting to consider the impact of the extra energy consumption driven by the growth in AI,” says Erik Terjesen, partner at innovation advisory firm Silicon Foundry, a subsidiary of Kearney. “While offsetting these carbon emissions will help in the medium term, it is by no means a long-term solution if the use of complex AI models increases at the expected rate.

“However, the solution may lie in the problem itself. Generative AI, if applied correctly, has huge potential to reduce energy consumption, optimise energy production and reduce reliance on fossil fuels. In
practical terms, this means using AI-enabled solutions to carry out tasks such as analysing weather data to better predict energy production from sustainable sources, managing supply and demand by dynamically adjusting the grid based on real-time data, or reducing downtime on sustainable sources by using predictive maintenance.

“It is always encouraging to see companies take action to mitigate their net energy consumption, but we also need to see progress on finding permanent solutions to AI’s reliance on fossil fuels.”

Who needs carbon credits anyway?

Despite scepticism around whether carbon credits are as environmentally helpful as many firms suggest, a recent PwC Middle East report reveals that carbon credits are primed to become the ‘new currency’ of climate action. Meanwhile, Morgan Stanley projects the carbon credits market to grow to $100billion by 2030.

However, they are not the only solution that could help resolve the looming climate crisis. PwC highlights how Fils, an enterprise-grade digital infrastructure provider enabling businesses to embed sustainable and climate action into their business model and customer journeys across industries, is enabling its banking clientele to do their part.

Fils’ software has enabled fintechs, including UAE-based Magnati and Saudi Arabia-based Geidea, as well as banks such as Mashreq, to process payments that offset carbon emissions, simplifying eco-friendly transactions and ensuring business transparency. Fils also uses advanced analytics for carbon emission calculations in corporate spending, to offer a clearer view of environmental impact.

Nameer Khan, co-founder and CEO of FilsNameer Khan, co-founder and CEO of Fils
Nameer Khan, co-founder and CEO of Fils

Nameer Khan, CEO of Fils, told The Fintech Times: “Organisations currently face a challenging task in tracking and offsetting emissions, due to the complexity of the fragmented voluntary carbon market.

“Our ambition is to foster a lasting, worldwide shift towards sustainability. Our strategy spans all 17 UN Sustainable Development Goals, with a particular focus on combating climate change and its effects on society, including humanitarian aid, wildlife conservation, and disaster response, without inhibiting the normal operations of businesses.

“At Fils, our strategy is clear: to build a scalable infrastructure as a foundation for climate-positive growth. With phase one focused on establishing robust connectivity, we’re now embarking on phase two, ready to expand our infrastructure and continue our journey towards enabling sustainable transformation globally.”

Latest article