Microsoft and Occidental Petroleum have signed a record deal worth several hundred million dollars for CO2 certificates, as the technology industry struggles to meet its climate commitments while managing the rising energy demand from artificial intelligence.

Occidental, one of the largest oil producers in the USA, will sell Microsoft 500,000 CO2 certificates over a period of six years for an undisclosed amount, the companies announced on Tuesday.

This deal, considered the largest of its kind, enables Microsoft to offset its emissions by paying Occidental to remove CO2 from the atmosphere and store it underground.

The agreement comes at a time when Big Tech is trying to curb a drastic increase in energy emissions due to the expansion of AI. Microsoft stated in May that its emissions have risen by almost a third since 2020, primarily due to the construction of data centers. Google also admitted last week that its emissions have increased by almost half since 2019 due to the construction of energy-intensive infrastructures to support AI.

Microsoft has committed to being "carbon negative" by 2030, while Google has set the goal of achieving net-zero emissions by 2030.

The use of CO2 certificates to achieve these goals has been intensively examined in recent years due to concerns about the verification of claims regarding the amount of CO2 removed by new projects. Each certificate is supposed to represent one ton of greenhouse gas avoided or removed from the atmosphere.

In its deal with Microsoft, Occidental expects to sell its certificates generated through direct air capture (DAC) cheaper than the current market price of around $1,000 per ton.

Critics argue that DAC, an emerging technology, is too expensive and consumes too much energy for the volume of CO2 that can be captured in current projects.

Occidental is the fourth largest oil and gas producer in the USA by volume, but has quickly expanded its CO2 management business in recent years, assuming that capturing and storing greenhouse gases will become increasingly necessary to keep global temperatures in check.

This growing business enables Occidental to sell certificates linked to the captured CO2. In September, the company signed a similar deal with Amazon for 250,000 certificates over a period of ten years.

The technology sector is a "priority sector" for 1PointFive, the CO2 management subsidiary of Occidental, said its CEO, Michael Avery. There will be a "short-term" shortage of clean energy to operate AI systems, which will require "a basket of solutions" including CO2 credits, he added.

The announcement is a win for Occidental, as it seeks to gain support for its pivot towards DAC. The International Energy Agency has stated that the technology will play an "important and growing role," but it has not yet been demonstrated on a large scale. Currently, it only removes a fraction of the 37 billion tons of annual energy-related CO2 emissions.

Climate experts agree that CO2 certificates should only be used to offset emissions that are difficult to eliminate, such as those arising from certain industrial processes like steel production.

The certificates from Microsoft will come from Occidental's first DAC project, Stratos, in West Texas, which will be the largest facility of its kind worldwide when it becomes operational next year. The project is being developed in collaboration with BlackRock, which invested $550 million in November.

The latest estimates from S&P Global put the cost of DAC certificates at around $800 to $1,200 per ton of CO2, a high price that means few large contracts are currently being signed. 1PointFive expects to operate at a price of $400 to $630 per ton.

Avery explained that the CO2 associated with the Microsoft certificates would not be used to promote more oil production through Enhanced Oil Recovery (EOR), although he acknowledged that the CO2 captured by Stratos might be used for this purpose in the future. Occidental's expertise in EOR, a controversial procedure, has allowed the company to enter the CO2 management business.