Long-term offtake deals key to scaling CDR effectively: Microsoft

Quantum Commodity Intelligence – The carbon dioxide removals market needs to move away from a spot pricing mentality in favour of long-term offtake deals if it is to scale effectively, a Microsoft official said Wednesday.

"Too much of today's carbon market fluctuates on spot prices, and we are unlikely to scale high-quality products in the spot market," Brian Marrs, senior director of energy and carbon, global strategy & execution, at the US tech giant told the Carbon Unbound East Coast conference in New York City on Wednesday.

Marrs contrasted the evolution of the carbon dioxide removals (CDR) market with that of the clean energy market.

"It [CDR] really feels like the clean energy industry 15 to 20 years ago only with more paths to success and scale, even if those paths are windier and perhaps less travelled," he said.

But the two have evolved along different paths, Marrs said.

"In clean energy, policy came first and corporate purchasing came second," he said.

In contrast, "the carbon removal industry, or market, seems to be progressing differently, with corporate purchasing first and direct policy pushes someday, even if there's been some very recent bright spots", he added.

The clean energy industry started to gain critical mass when buyers have been looking to enter into long-term offtake deals known as power pricing agreements (PPAs), he said, arguing that the adoption of a similar model could underpin the scale-up of the CDR sector.

Marrs said: "The corporate space figured out how to de-risk and streamline energy purchases in a tried and true vehicle called a PPA.

"The lesson from the corporate PPA is that the commercial instrument is decisive, it's spurring change.

"Yes, it's not all we need; yes, we need better carbon product definition of removal to support standardisation of contracting, but more so we need patient demand willing to pay for additionality, that can pursue 'contract plus five' delivery cycles to maintain quality.

"We need to bring the commercial logic of PPAs to carbon removal if we want bankable, repeatable and scalable innovation."

Microsoft's purchasing strategy is focused on long-term deals, Marrs added.

"We need to change the spot market logic, and to do that we need buyers that can take three-, 10-, 15-year positions to get projects to FID [final investment decision]. That's the bankable part," he said.

"We're willing to be patient on delivery – if you care about quality you have to buy into the future, and that's again part of the logic of the corporate PPA – and we know that it could take five-plus, eight, maybe eight to 10 years to deliver high-quality products over time. So that's the patience part," Marrs added.

Microsoft is the world's largest buyer of CDR credits.

Since last May the company has purchased at least 12 million tonnes of what it calls high-quality carbon removals.

This figure doesn't including announcements made on Wednesday that it will buy a further 1 million CDR credits over 10 years from a bioenergy carbon capture and storage (BECCS) project in Denmark owned by Danish energy company Orsted.

Also on Wednesday, the tech giant said it would partner in a reforestation project in Panama and join a coalition with Google, Meta and Salesforce aiming to procure 20 million CDR credits by 2030.

A deal was also announced for 36,000 CDRs from Canadian biochar producer Carbonity, while Microsoft, together with Google, Meta, and Salesforce announced they had established the Symbiosis Coalition to serve as an independent, non-profit joint procurement vehicle for CDR credits from nature-based projects.

But the outright numbers only tell part of the story, Marrs said.

"I think it's important that we have perspective. Microsoft is 1% of 1% of 1% of the world's emissions. So our programme will be measured not by meeting our targets but by offering a model to scale beyond the company," he said.