By its own account, Amazon is a green business leader. The world’s most visited online marketplace and leading cloud services provider says it hit its 100 per cent renewable energy goal seven years ahead of a self-imposed target.
But by another, Amazon is a heavy polluter, emitting much more climate-warming greenhouse gases through its electricity usage than cloud computing rivals. In the US, Amazon’s vast home market, fossil fuels accounted for about 60 per cent of electricity generation in 2023.
The company can be presented as either hero or villain because of the rules on how greenhouse gas emissions are calculated, whereby companies can use investments in clean power schemes to offset their real-world, energy-related emissions.
Social media group Meta, for instance, says it has already hit “net zero” emissions in its energy usage. But FT analysis of its in 2023 sustainability report shows that its real-world CO₂ emissions from power consumption the prior year were 3.9 million tonnes, compared to the 273 net tonnes cited in the report.
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These tech giants are poised to become some of the biggest energy users of the future as they race to develop power-hungry artificial intelligence, potentially threatening their commitments to net zero.
Ahead of that, they are working behind the scenes to shape a once-in-a-decade rewrite of the rules governing how pollution from power use is disclosed.
Companies including Amazon, Meta and Google have funded and lobbied the Greenhouse Gas Protocol, the carbon accounting oversight body, and financed research that helps back up their positions, according to documents seen by the FT.
But Big Tech is itself split on how to craft the rules. A coalition that includes Amazon and Meta is pushing a plan that critics fear will allow companies to report emissions numbers that bear little relation to their real-world pollution and not fully compensate for those emissions.
One person familiar with the reform discussions describes the proposal as “a way to rig the rules so the whole ecosystem can obfuscate what they are up to”. The coalition said its approach “emphasises accurate emissions data and transparency”.
A rival proposal by Google, which would require companies to offset their emissions using power generated by more closely comparable means, has been criticised by the Amazon coalition and others for being expensive and too difficult.
“Different approaches work for different companies,” said Amazon in a statement. “Amazon couldn’t be a more different company than Google, and our approach is therefore different.” Meta said that the system of “market-based emissions” had allowed it to match 100 per cent of its electricity use with renewable energy since 2020. “We have a long history of bringing new renewable energy projects to the grid.”
Tech companies invest in renewable energy but they cannot fully control how polluting the power their data centres draw from their local grid is.
So under current accounting rules, the power used by a data centre during the night in a coal and gas heavy region such as Virginia can be cancelled out by buying a certificate tied to solar energy produced during the day in a region with a cleaner grid, such as Nevada.
Old reporting system
The current regime for reporting greenhouse gas emissions dates back to the 1990s, when non-profit groups including global research organisation the World Resources Institute founded the Greenhouse Gas Protocol.
The protocol’s rules on carbon accounting are cited in EU and proposed Securities and Exchange Commission reporting requirements for larger companies, along with the Science Based Targets initiative, a voluntary oversight body for company climate targets.
Each time a wind, solar or hydroelectric facility generates a unit of clean power, its owner can issue an energy attribute certificate, typically known in the US as a renewable energy certificate, or REC. These can either come “bundled” into a contract for clean power, or can be bought individually from a generator or market intermediaries.
Companies can purchase RECs “to buy-down their environmental impact,” according to the US Department of Energy’s National Renewable Energy Laboratory. Doing so helps buyers demonstrate the action they are taking to finance clean power and directs investment towards green energy development.
Companies argue that since they cannot fully control the make-up of the grids they are connected to, and since “clean” power cannot be distinguished from “dirty” once it is in the system, such certificates are a reasonable compromise and provide an incentive to invest.
But Matthew Brander, a professor at the University of Edinburgh, says the system is akin to buying the right from a fitter colleague to say you have cycled to work, even though you arrived by a car that runs on petrol.
Other experts have raised concerns about how RECs are being used to offset real-world emissions.
At present, the certificates must come from the same defined geographic region as the pollution they are offsetting, such as Europe and North America, but not the same grid and not at the same time.
That means the clean energy that offsets the emissions could be generated in a different country, at a different time of day – or even in the past.
“The basic fact is you can be solar powered all night long with today’s accounting, and that’s absurd,” says Killian Daly, executive director of Energy Tag, a non-profit group.
But both timing and location matter in terms of real-world emissions. For example, one potential buyer hooked up to a coal-dependent grid and another on a much cleaner grid could buy the same certificate to offset one megawatt hour of power use – even though the emissions stemming from that usage will differ in each grid.
The certificates are also very cheap. The average forward price of a single US renewable energy certificate to be bought in the next calendar year has been under $5 since at least 2022, commodity trader STX Group estimates. Experts have questioned whether this is really enough to help incentivise the development of a new clean power project.
Academics and experts at Princeton, Harvard and the Greenhouse Gas Management Institute have shown that buying certificates typically did not drive either a new supply of renewables or a fall in emissions.
Brander says clean energy claims that are reliant on buying certificates linked to power generated at different times and places to where consumption occurred are textbook “bad practice”.
The system is currently undergoing a review – the first in nearly a decade – which offers a chance to iron out such wrinkles. But it is also giving heavy energy users an opportunity to shape the system to their benefit.
Google’s proposed solution is to only match energy consumption with clean energy and certificates from the grids where power is consumed, and to take the time of day of its electricity use into account.
Using certificates from one area while operating in another could allow buyers to understate their reliance on fossil-based electricity without “addressing the emissions for which they’re physically responsible,” Google said in its March 2023 proposal.
The company also argues that its approach incentivises engagement with local policymakers about how best to green their electricity grid and investments in a range of solutions, such as batteries.
This means thinking about climate change as a “market and a technology challenge”, says Michael Terrell, Google’s senior director for energy and climate, not an “accounting challenge”.
Microsoft, along with the US federal government and some other major energy users, has signalled its support for this “24/7″ localised approach, saying it backs a “shift toward the use of more time and location-specific requirements,” though it has not publicly endorsed either proposal.
A rival perspective, spearheaded by Amazon, Meta and other members of the Emissions First Partnership lobby group, says that companies should be able to use certificates in a more flexible way with no restrictions at all on geographical origin.
The proposal would aim to ensure that the certificates “reflect real world emission reductions”, which would allow buyers “to place different value on [certificates] based on their emissions impact”, said Amazon.
Google wants to compensate for pollution from its energy use with certificates for power produced in the same grid and in the same hour.
A lobby group that includes Amazon and Meta thinks this same unit of power could be offset by certificates tied to renewable energy produced during the day in Norway, for example.
The lobby group also wants companies to get more credit for buying clean energy certificates from a dirty grid like India than a cleaner one like Norway’s, to reflect the carbon emissions that may have been displaced, or avoided, by the use of wind power.
Academics say a crucial metric that neither approach addresses is “additionality” – or checks that the clean power would not have been produced anyway without extra money from the sale of the certificates
Energy users should estimate the tonnes of CO₂ avoided by their use of clean power, it argues, and subtract this amount from their own emissions. That would incentivise companies to finance clean power where the grid is especially dirty.
Supporters believe this approach would be cheaper and that it would allow companies to finance clean power even if they are operating in countries that restrict foreign investment in energy projects.
Lee Taylor, chief executive of REsurety, which sells data that would be used in the approach promoted by Amazon and Meta, describes the Google approach as “utopian” and not always “viable from a cost perspective”.
It might require, for example, investment in a “very large battery” to store energy when a wind farm is not operating if the buyer of its output was confined to finding solutions on the same grid from which it draws its own power. Energy users should have more options, Taylor argues. “If I’m going to spend $10, where does my $10 reduce carbon the furthest?” he asks.
Jimmy Jia, a climate tech investor, describes the rival proposals as two “theories of change”, but fears that in practice the Amazon-backed proposal might “open the floodgates to emissions gaming”.
Amazon rejects this, saying the scheme would lead to a “more cost effective, faster grid decarbonisation trajectory and improved energy equity.” Meta said the proposal represented “the best way to fully cover the impact of [its] environmental footprint.”
“The current system has been criticised as leading to outcomes that are not driving real world emission reductions. The Emissions First Partnership was developed as a potential solution to those concerns,” Amazon said.
But critics say this approach would make the energy certificates more like carbon credits, controversial instruments meant to represent a tonne of CO₂ avoided or removed from the atmosphere.
One difficulty with the carbon credit market is that companies can use hypothetical “avoided” pollution to cancel out real-world pollution. Adopting that for the RECs market would be like reporting in financial accounts a cost that was not incurred, says Brander, or like “a Trojan horse in your greenhouse gas accounts.”
The Emissions First Partnership said this argument was “an example of shock over substance”, and that it did not advocate for the use of carbon credits to offset emissions from power use.
High stakes
Large technology groups are already “by far” the biggest corporate buyers of RECs, says Max van Meer, managing director for the US at STX.
They are also some of the “biggest players” in renewable power deals globally, according to analysts at Rystad Energy. Microsoft and asset manager Brookfield have teamed up to develop 10.5 gigawatts of generating capacity, enough to power the equivalent of about 1.8 million homes. The cost of adding 1GW of new capacity is around $1 billion.
Amazon, the largest corporate buyer of renewable energy, is also pouring money into wind and solar projects in countries, including India. It said “the majority” of its 100 per cent renewable energy goal was met in 2023 by investing in clean energy projects. It uses unbundled certificates to “bridge the gap” until some renewable schemes come online, but its use of them would “decrease over time”, it added.
Meta said most of its power use was matched with renewable energy investments, including RECs, in the same grids as its data centres. It has invested in more than 8GW of operational renewable energy.
Even so, the billions of dollars of investment in data centres and other computing infrastructure required for generative AI, which tech groups are counting on for future sales and profit growth, will increase their power usage.
Globally, the International Energy Agency has estimated that the electricity consumed by data centres will more than double by 2026 to an amount roughly equivalent to Japan’s current annual consumption.
That expansion threatens the viability of Big Tech’s net zero targets. Microsoft’s emissions rose by 30 per cent between 2020 and 2023, while Google’s jumped by almost half between 2019 and 2023, increases that both companies blamed in part on the need for new data centres. Much of that growth is expected to occur in the US, where many grids are still dominated by fossil fuels.
During the latest renegotiation of the protocol, tech companies Amazon, Meta, Salesforce, Microsoft and Google have been among its disclosed financial backers, alongside Ikea, commodity trader Cargill and a range of philanthropic foundations. Some of the funding from these organisations was disbursed before the reform process started.
Amazon has also funded studies, including a paper that argued energy users should be able to buy certificates from other countries when operating in “more challenging markets.”
The company says it funds “independent research to get expert analysis, engage a diverse array of stakeholders, and encourage different points of view”, and that it last funded the protocol in 2022.
The Bezos Earth Fund, Amazon founder Jeff Bezos’ philanthropic group, donated $9.25 million to the protocol last year and is also a major funder of the non-profit WRI, which co-administers the accounting oversight body.
It told the FT in a statement that it had “no desire to influence the outcome,” and that it supports the protocol because its methodology is “the most widely recognised international standard” for carbon footprints.
Tech groups have also attended meetings with members of the protocol’s secretariat, including one in May at which representatives from companies including Amazon, Meta and oil and gas producer Chevron were confirmed attendees, according to an invitation and agenda seen by the FT. Amazon and Chevron confirmed they attended.
Amazon and Meta also sent staff to a closed-doors meeting with academics in June at NREL, where they made the case for flexibility in the rules on certificate buying, says one attendee. Energy consultancy E3 presented a report sponsored by Meta supporting the idea, which E3 said was consistent with its previous stance.
Craig Hanson, managing director at WRI, says the protocol has held “hundreds” of meetings with public, private and third sector representatives as part of a wide-ranging reform process.
A representative for the protocol told the FT it “always followed inclusive, global, multi-stakeholder decision-making process, with participation from business, NGOs, academia and government worldwide.”
The changes will be overseen by an independent standards board, with no “special access” for funders, the spokesperson added. Its legal counsel was considering whether to introduce a “cooling-off period” for past donors.
The rules are unlikely to be finalised until 2026, but the outcome could have broad ramifications as the protocol is also considering how far companies can use offsetting when they count other types of direct and indirect emissions.
In the meantime, activists are reminding society about the protocol’s vital role in limiting climate change.
“I was quite afraid when I realised how important the protocol was,” says Laura Kelly, who has pored over Big Tech’s carbon accounts for Action Speaks Louder, an Australian pressure group.
“It’s fundamental to any chance of reaching Paris [climate] targets, because industry emissions are such a whopping component of global emissions.” – Copyright The Financial Times
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