Demand and Opportunities in the Carbon Credit Market

BELEM, Brazil - The increasing demand from technology companies for high-quality carbon offset credits to balance their AI-generated emissions is bringing with it a challenge that experts say could encourage investment in this new market.

Intense purchases from companies like Microsoft and Google over the past two years have driven the price of these credits to nearly four times that of cheaper credits tied to forest conservation projects in 2024.

Big tech has spent hundreds of millions of dollars on permanent carbon removal solutions since 2019, with most of that occurring in the last two years. Experts note that these permanent solutions capture and store carbon dioxide for the long term. According to data from CDR.fyi, a total of $10 billion has been spent through spot market and long-term sales agreements.

Scientists emphasize that carbon removal projects are vital for slowing global warming by balancing emissions from industries like fossil fuel-powered energy production.

Projects like biochar, which convert biomass into a coal-like substance that locks in carbon, or direct air capture technologies, allow for more secure and permanent removal of carbon, making these projects highly valued.

As technology companies work to expand AI-supported data centers, they are increasing their profits and greenhouse gas emissions by using fossil fuels, which in turn fuels demand for credits. Brennan Spellacy, CEO of climate tech firm Patch, stated, "Successful companies are investing heavily, and the reason is AI. Consequently, AI is boosting profits, and profits are driving investment."

The tech giants have promised to eventually eliminate their emissions altogether. However, the United States withdrew from the 2015 Paris Climate Agreement during President Donald Trump's administration.

A spokesperson for Microsoft commented, "We are sending strong demand signals through long-term purchase contracts; this opens a virtuous cycle for innovation, financing, and implementation." The spokesperson also added, "By securing large-scale projects, we are both increasing new supply and leaving room for other corporate buyers to enter the market."

The supply of credits has fallen short of meeting demand. Requests made via the Patch platform for credits resulted in one-third being for biochar; however, this demand translated to a sales rate of only 20%. Reforestation credits accounted for 25% of demand during the request period, but the sales rate was 12%.

This year, 8 million tons of permanent carbon removal were purchased. Year-to-date figures have reached 25 million tons. Lukas May, an executive at Isometric, stated, "The demand for high quality is definitely real, and you can see that in the numbers. This situation is shaped by the influence of big tech companies."

So far, fewer than 1 million tons of permanent carbon removal credits have been issued, mostly consisting of biochar projects. Due to limited supply, more companies are looking to develop sales contracts; this should help provide sales guarantees for developers and increase supply.

Pure Data Centres Group has seen big tech firms among its clients; thus, it plans to spend £24 million ($31.6 million) to build the largest biochar project in Britain in Wiltshire to secure sufficient credits. Its CEO Dawn Childs stated, "When we started assessing suppliers, we realized that it was very difficult to find a reliable and high-quality product. Therefore, we decided to develop our own expertise and production to ensure quality."

Additionally, Alastair Collier, head of research and development at A Healthier Earth, announced that the project will commence operations in December and will scale to produce 9,000 tons of carbon removal annually within 18 months. There are also plans for three additional sites in the UK.

"My investment thesis over the last three years... had predicted that demand would significantly outstrip supply, and that is already happening in the current situation," emphasized Collier.