Microsoft's retreat shrinks the carbon-removal market it built

Through mid-July, Microsoft had bought 8.55 million tonnes of carbon removal credits. That is 80% less than the same period a year earlier, according to BloombergNEF. It puts Microsoft on track for its first annual decline in removal buying since 2023. The market has built its financial model around Microsoft's appetite.

Microsoft entered this market in 2020. BloombergNEF data shows it has accounted for 41% of all carbon dioxide removals purchased globally since then. This year alone, Microsoft has been the counterparty in nearly half of all transactions. When the biggest buyer cuts purchases by four-fifths, the market loses its floor.

Global sales of carbon removal credits through mid-July came to 18 million tonnes. That is 66% below the level a year earlier. The arithmetic points straight at Microsoft's order book.

Microsoft insists the cut is not a change in climate strategy. "Any adjustments we make are part of our disciplined approach, not a change in ambition," a spokesperson said by email. Bloomberg News has reported that Microsoft paused some removal purchases earlier this year for financial reasons and that its removal programme is still running.

The financial pressure comes from artificial intelligence. Microsoft's carbon footprint rose 25% last year, its latest sustainability report shows; data-centre electricity demand did much of the work. AI infrastructure is consuming the budgets that once went to carbon removal.

The strain is visible in bank lending too. Citi changed its rules in December to count data-centre loans toward its $1 trillion sustainable-finance commitment, ESG Capital Daily reported. Green debt is being directed at the infrastructure that multiplies Microsoft's emissions, even as the removal-credit market contracts.

The consequences for carbon removal are severe because the technology remains expensive and commercially immature. Direct air capture, enhanced rock weathering and other methods have not followed the cost curve of solar and wind. Their development has relied on long-term offtake contracts, and Microsoft wrote the longest and largest of those.

Layla Khanfar of BloombergNEF said Microsoft's buying had guided the rest of the market. "Aside from the sheer size of its purchase, Microsoft's activity has also sent a key signal to its peers that carbon removals are a worthwhile investment. If it pulls back, that also sends a message and other companies could be disinclined to take its spot as a champion."

No other buyer has stepped forward. The 18 million tonnes sold through mid-July are a small fraction of what climate scientists say is needed. Those scientists put the requirement at billions of tonnes per year by mid-century. The distance between those numbers and the market's order book is not a forecast; it is a warning to project developers. The financial case for removal projects now rests on one company's willingness to keep paying.

Whether this is a pause or a permanent shift, a dominant buyer has withdrawn, and the market contracted by two-thirds. Microsoft's emissions are still rising, and its sustainability commitments may pull it back, but the precedent stands. Removal developers will have to price it in.