An Amazon Web Services data center in Ashburn, Virginia. Nathan Howard/Bloomberg

Tech companies’ relentless push into artificial intelligence comes at an undisclosed cost to the planet. Amazon, Microsoft and Meta are hiding their true carbon footprints by buying certificates tied to electricity consumption, falsely removing millions of tons of climate-damaging emissions from their carbon footprints, a Bloomberg Green analysis shows.

Recently, Microsoft reported that its emissions are 30% higher today than they were in 2020, when the company set a goal to become carbon negative. Emissions from other tech companies are also rising. But Microsoft and other leading AI companies insist the increase is due to the carbon-intensive materials used to build data centers – cement, steel and microchips – rather than the massive amount of energy AI requires. That’s because they have said that most or all of the electricity comes from carbon-free sources like solar and wind.

Will AI run exclusively on clean energy? “There is no physical reality for this claim,” says Michael Gillenwater, executive director of the Greenhouse Gas Management Institute.

Companies buy certificates called Unbundled Renewable Energy Certificates (RECs) that can make it appear as if electricity used by a coal-fired power plant came from a solar farm instead. Amazon, Microsoft and Meta rely on millions of such Unbundled Renewable Energy Certificates each year to claim emissions reductions when they make voluntary disclosures to CDP, a nonprofit that runs a global environmental reporting system.

Current carbon accounting rules allow the use of these credits to calculate a company’s carbon footprint. However, the work of many academics shows that accounting rules need to be updated to accurately reflect greenhouse gas emissions.

That’s because those carbon savings on paper don’t represent actual emissions reductions in the atmosphere. If companies didn’t count unbundled RECs, Amazon could be forced to admit that its 2022 emissions are 8.5 million tons of CO2 higher than reported—three times what the company has reported and equivalent to Mozambique’s annual impact. Microsoft’s total could be 3.3 million tons higher than the reported total of 288,000 tons. And Meta’s reported footprint could grow by 740,000 tons from near zero. (Methodological details are below.)(1)

“Companies should not be allowed to use unbundled RECs to claim emissions reductions,” says Silke Mooldijk, who focuses on corporate climate responsibility at the nonprofit NewClimate Institute. “This misleads consumers and investors.”

Not all tech companies have adopted unbundled RECs to mask rising emissions resulting from the hotly contested AI race. Google, an Alphabet Inc. company, stopped using unbundled RECs several years ago after admitting that they did not lead to real emissions reductions. “Studies have raised legitimate questions about whether (these credits) displace fossil fuel-based electricity generation,” said Michael Terrell, senior director of energy and climate at Google.

Amazon used 52% of its renewable energy from unbundled RECs in 2022, making it the most dependent of the four companies on these instruments. An Amazon spokesperson said the number of unbundled RECs used by Amazon is expected to “decrease over time” as more of its directly contracted renewable energy projects come online. Microsoft, which gets 51% of its renewable energy from unbundled RECs, also plans to “phase out its use of unbundled RECs in the coming years,” according to a company spokesperson.

A spokesman for Meta, which sources 18 percent of its renewable energy from unbundled RECs and power from utilities labeled “green,” said the company takes a “thoughtful approach” and the “majority” of its “renewable energy efforts” are focused on projects “that otherwise would not have been built.”

The thousands of companies using Amazon-powered AI for their customer chatbots, Microsoft’s AI Copilot to summarise meetings, or Meta’s Llama to generate images may assume that using these models will result in little or no energy emissions. For these large tech companies, this is an effective marketing tool that helps to allay the concerns of potential customers, who themselves are likely under pressure from users and investors to reduce their own carbon footprint. In reality, this creates a cascading effect of misreported emissions and growing demand for energy-intensive AI products.

“If consumers don’t understand the impact of AI on the climate because technology companies aren’t transparent about it, then there’s no incentive for consumers to change their behavior and switch to a different AI model,” Mouldijk said.

This is also a problem in the financial world. Banks and investors, who tend to put big technology companies into sustainable funds, all too often take emissions claims at face value. “There is simply no nuanced understanding of this problem at the moment,” says Gerard Pieters, director at Tierra Underwriting, which supports banks in clean energy deals. “We are still in a phase where people easily make claims that are then simply copied and accepted as fact.”

Technology companies are the world’s largest buyers of unbundled RECs, and whether they continue to buy these certificates to make climate claims is of great importance as more companies seek to reduce their carbon footprint and make their balance sheets greener.

To understand how companies use RECs, you need to look at where the electricity generated on a grid comes from. It typically comes from a mix of sources, from coal and gas to wind and solar. Climate-conscious companies are increasingly trying to source electricity only from sources that produce the lowest global warming emissions.

One way to do this is to enter into a clean energy contract directly with the supplier. This is a power purchase agreement. The technology company enters into a long-term contract, thereby assuming some of the risk for a period of 10 or 15 years. This in turn makes it easier for the developer to obtain financing to build the solar or wind farm.

To help tech companies trace the source of this energy, renewable energy producers also issue Energy Attribute Certificates (RECs), a type of tracking tool. However, RECs can also be purchased individually, separate from the purchase of electricity. The idea behind these so-called “unbundled” RECs is that renewable energy production has value beyond just the electrons produced and sold – there is value in being emission-free too. So, since renewable energy producers produce two valuable things – energy, and particularly low-emission energy – they should be able to get paid not just for producing electricity, but also for being environmentally friendly.

This idea – and the resulting calculation – was developed when renewable energy production was expensive and could not compete on price with fossil fuels. The assumption was that the extra money that renewable energy developers would receive in the form of a REC could serve as an incentive to develop more wind and solar power than they would otherwise have, and would thus be “additional.”

Studies from 2010 showed that unbundled RECs did not achieve what the theory of boosting renewable energy production promised. Yet this inconvenient fact was largely ignored, and the enthusiasm for RECs led to a peculiarity in emissions reporting rules that allows companies to buy unbundled RECs and then deduct the emissions from their carbon accounts. This means that companies can report reduced emissions from their electricity use, even if actual consumption has not changed in any way (and may still come from a coal-fired power plant).

Solar and wind energy are now cheaper than fossil fuels, and there is growing evidence that most unbundled RECs are not what those counting emissions call “additional.” That is, they do not encourage the construction of new wind or solar farms, and therefore do not provide any secondary value for which producers should be paid, and certainly no emissions reduction for the buyer.

“The widespread use of RECs … allows companies to report emissions reductions that are not real,” wrote Anders Bjorn, an assistant professor at the Technical University of Denmark, and a team of researchers in a paper published in the journal Nature in June 2022. After taking into account the companies’ use of RECs, they found that 40% of their activities were no longer consistent with the Paris Agreement’s goal of limiting global warming to 1.5 degrees.

Last month, Amazon claimed that it had achieved 100% renewable energy usage in 2023 under its own accounting methodology, meaning it will have zero emissions from electricity use. The company has not yet disclosed the details of its renewable energy usage in 2023, but Bloomberg Green’s analysis suggests the claim is likely based on the use of unbundled RECs. In response, an Amazon spokesperson said: “The projects we invest in can take several years to come online, so we sometimes use unbundled RECs – a fundamental part of the global renewable energy market – to temporarily bridge the gap until a project begins operations.”

Like Amazon, Google claims it uses 100% renewable energy globally each year. Rather than using unbundled RECs, Google buys more clean energy than it uses in some places, like Europe, and less in others, like Asia Pacific, depending on availability in those locations. But Google makes it clear that it does not use zero-carbon energy on an hourly, location-specific basis. That is now “our ultimate goal,” Terrell said.

Amazon, Microsoft, Meta and Google follow the accounting rules of the Greenhouse Gas Protocol, which was first developed in 2001. These disclosures form the basis of the analytics that investors rely on to decide what counts as a green company. Although the protocol has undergone minor updates over the years, a major update is now imminent and experts are working to propose changes. All major technology companies are now involved in lobbying for these changes.

“The standards need to evolve because measuring carbon emissions is not an exact science,” said Google’s Terrell. “They are constantly being improved and we are committed to helping improve them.”

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