Oil conglomerate Occidental Petroleum Corp. has secured a groundbreaking carbon removal deal with tech giant Microsoft Corp., amidst Microsoft’s efforts to mitigate its growing emissions.
Expanding Carbon Capture
Occidental, which is building a carbon-capture portfolio through its subsidiary 1PointFive, intends to develop a network of plants that directly remove carbon dioxide from the air. On Tuesday, Microsoft agreed to purchase 500,000 metric tons of credits from Occidental’s Stratos plant in Texas, set to commence operations next year.
Largest DAC Purchase to Date
This agreement represents the largest-ever purchase of credits generated by direct air capture (DAC), a technology that extracts CO2 directly from the atmosphere. This deal solidifies Occidental’s position in the race to scale and monetize carbon capture technology. For Microsoft, whose foray into artificial intelligence has led to a surge in emissions, such agreements are pivotal in addressing its escalating carbon footprint.
DAC Technology: Potential and Challenges
DAC, which utilizes large fans to capture carbon dioxide from the air, is costly, energy-intensive, and not yet proven at an industrial scale. The world’s largest DAC plant, operated by Climeworks AG, can capture 36,000 tons of CO2 annually, far short of the billions of tons needed to avert the most severe impacts of global warming.
However, if DAC fulfills its potential, it could not only help limit global warming but also enhance the quality of the voluntary carbon market.
Microsoft’s Commitment to Carbon Removal
Microsoft has been an early advocate of the emerging carbon removal industry, signing substantial deals with Stockholm Exergi and Orsted A/S to purchase CO2 credits generated at power plants.
The company also secured a deal last year with Heirloom Carbon Technologies Inc. for 315,000 tons of carbon removal. According to the industry tracker cdr.fyi, Microsoft is the most significant investor in carbon removal credits to date, having procured over 8 million tons.
Balancing AI Advancements with Environmental Responsibility
While Microsoft aims to achieve carbon negativity by 2030, its emissions last year were roughly 30% higher than in 2020, partly due to energy-intensive AI data centers. Microsoft President Brad Smith recently remarked that if Microsoft is aiming for the moon in decarbonization, the moon is “more than five times as far away as it was in 2020.”
Governmental and Corporate Collaboration
President Joe Biden’s administration has heavily invested in DAC, pledging $3.5 billion for regional hubs designed to remove, capture, and store 1.8 billion tons of CO2 annually to reach net-zero emissions by mid-century.
1PointFive and Climeworks were among the companies selected to participate in the Energy Department’s $1.2 billion DAC hubs project on the Gulf Coast. However, the companies have distinct missions. Occidental is partly motivated by the potential to utilize captured carbon for enhanced oil recovery.
Occidental CEO Vicki Hollub has referred to DAC as a method to produce “net-zero oil,” stating that some captured CO2 will be used for enhanced oil recovery, a process involving CO2 injection into oil wells to extract more oil.
Scalability and Future Outlook
The $1 billion Stratos plant, anticipated to begin operations in mid-2025, has also sold credits to Amazon.com Inc., Shopify Inc., and Airbus SE. Occidental aims to construct 99 more similar plants over the next decade.
In a February investor presentation, Occidental projected that it could capture carbon at scale for $125 to $200 per ton, an estimate some DAC experts consider “a fantasy” due to the energy-intensive nature of the process.
However, if Occidental achieves its goals, the $54 billion company could be valued at $150 billion by 2050, according to BloombergNEF.