microsoft and carbon pricing

The number of companies taking tangible steps to prepare for and prosper in a lower-carbon economy is growing -- even absent a national carbon tax or cap-and-trade regime.  Their actions speak much louder than the hyperbole that many advocates are using to argue for and against paying for carbon emissions.

One of the most instructive examples of what companies can do to hold themselves accountable comes from Microsoft, which uses a lot of energy at its data centers and sending professionals around the world on airplanes, emitting a lot of greenhouse gases in the process.

It’s nothing novel for a company to say it’s striving to become carbon neutral. Detailing and sharing a way to get there with an internal carbon fee is. Microsoft’s move to do just that offers a compelling example to corporations, governments, academic institutions and non-profit organizations around the world that for their own sustainability, they should – no, they need to -- to do the same. 

At least 28 other global companies – including a handful of oil and gas companies -- are headed in the same direction. Let’s hope this is a substantive and growing mind-shift that will propel thousands more organizations to account for their climate impact. By doing so strategically, such forward-looking companies can outperform their rivals over the long haul and help their communities, markets and civil society adapt to climate change.

 

Internal Carbon Prices

Estimated by or Shared with CDP, Inc.

 

Corporation

Price / ton in U.S. dollars

ExxonMobil Corp.

60

ConocoPhillips

8-46*

BP

40

Royal Dutch Shell

40

Total

34

Ameren Corp.

30

Xcel Energy Inc.

20

Walt Disney Co.

10-20*

Devon Energy Corp.

15

Google Inc.

14

Microsoft Corp.

6-7*

*external estimate

If a carbon fee or allowance of some sort becomes law somewhere in the world, these companies will have a big leg up on their competition.  Their systems, buildings and culture will already be programmed for profit.

How Microsoft stepped up to the plate can be found in its Carbon Fee Playbook. I’ll dive in with a quick summary.  I’ll leave a complete walk-through to you using the inks embedded throughout.  Note: all mentions of “carbon” refer to all greenhouse gases.

There are three primary, simple, components to the Playbook: 1) organization carbon reduction policy; 2) price on carbon; and 3) carbon fee fund investment strategy.  The price on carbon is set by calculating what it will cost to execute the company’s carbon reduction strategy.

With that, there is a five-step process to help organizations implement it:

  1. Calculate your carbon impact.
  2. Establish how you’ll reduce carbon emissions; then decide how you’ll invest the funds raised by your internal carbon fee.
  3. Determine internal carbon price.
  4. Gain executive approval, establish governance procedures and set feedback loops.
  5. Administer the fee, communicate results and adapt company actions to increase its impact.

The internal cost of energy at Microsoft includes the price it pays each of its utilities for electricity and/or natural gas, as well as the price it pays to offset the carbon emission associated with that usage. For business air travel, the cost includes the price per airline ticket – even by class – and the price it pays to offset the carbon emissions associated with each flight using algorithms from American Express and the U.S. Environmental Protection Agency. It established targets for reducing air travel and is striving to achieve them by increasing its use of collaboration technologies.

The carbon fee is divided up among the business units responsible for the resource consumption. Microsoft is quick to assert there is no “grandfathering” as is found in cap-and-trade schemes.  By doing so, the fee helps to educate the business units on their carbon impact and serves as a reminder of ways they should try to innovate and become more energy efficient.

Josh Henretig, Microsoft’s Director of Environmental Sustainability, said the company’s biggest challenge has been to shift responsibility for reducing carbon emissions from the company’s six-person sustainability team to managers in charge of every operation that uses energy or otherwise emits carbon.  “We’re changing the culture of accountability throughout the company,” he said in an interview.

The company’s evolution from mostly a software products company toward more of a devices and services enterprise has expanded the challenge, especially as it develops more cloud-based services requiring data centers throughout North America and the world.  Increasingly the impact of the company’s ever-growing supply chain is figuring into the mix.

Following the Playbook, Henretig said Microsoft first achieved carbon neutrality in its fiscal 2013 year, which ended last July, raising about $10 million in the process. Its expanding carbon footprint means they won’t be able take their eyes off that distinction, and may fall short in future years.

Microsoft set targets for reducing energy consumption in its data centers, labs and offices. A self-developed  enterprise-wide energy management program deploys seven different building management systems in helping office engineers get a grip on ways to reduce their energy consumption. The company operates in 118 buildings housing about 30,000 pieces of energy-using equipment (not including laptops) encompassing about 15 million square feet of space.  The result: 500 million data points every day. At last count, Microsoft has 100,500 employees worldwide.

To get greener, Microsoft says it is signing long-term renewable power purchase agreements wherever it makes sense. Where it cannot buy power from wind, solar and/or hydro systems to directly supply its data centers, financial managers are purchasing market-based renewable energy certificates (RECs) along with carbon offsets. These give the company credit for buying renewable energy and reducing carbon emissions in locations beyond their network of facilities because they still benefit the environment and supply the regional power grid, which Microsoft and its neighbors share.

To help ensure access to power for its large data center servers near San Antonio, Microsoft purchased RECs in signing a 20-year wholesale power agreement to for electricity from a 110 megawatt wind farm near Fort Worth – the Keechi Wind Project – set to open in 2015. Because Microsoft can only buy electricity from its regulated retail provider, CPS Energy of San Antonio, the wind turbines will supply electricity to the Texas grid, which CPS Energy can draw from.

Image“We're definitely looking at this as a first of (its) kind, but it fits into our overall desire to have more control over our energy supply,” said Brian Janous, Microsoft's director of energy strategy, told the San Antonio Express-News in November.

 On a parallel path, program leaders are striving to achieve targets for generating less waste and using less water.

Mindy Lubber, President and CEO of Ceres, says this strategy’s simplicity is what makes it transferable. “It can be adapted easily to fit other corporations, nonprofit groups and government agencies,” she said. “The basic formula is universal (carbon emissions multiplied by carbon price equals carbon fee); it’s simply a matter of tweaking the model to fit an organization’s structure, financial processes, and individual goals.”

The foundational building block for reducing all greenhouse gases is a carbon emissions inventory. This enables the company, the Playbook states, to “institutionalize a process for collecting, calculating and maintaining carbon data.”

Microsoft created seven major sections of information to track emissions data:

  1. Organizational information, including in-house project managers;
  2. Boundary descriptions;
  3. Quantification methodologies and emission factors;
  4. Data sources, collection processes and quality assurance;
  5. Establishing a base year for structural and methodology changes;
  6. Management tools, including individual roles and responsibilities, training and data maintenance;
  7. Auditing, verification and corrective actions needed.

Carbon emissions from operations are measured in metric tons of carbon dioxide-equivalent (mtCO2e). To quantify its emissions, Microsoft multiplies the organizational activities and use of resources by specific emissions factors. The resources include electricity consumption in kilowatt hours and commercial air travel in passenger miles by class of travel and the amount of space each employee uses.

To monitor and report on an organization’s emissions inventory and provide up-to-date access to data cross the organization, Microsoft deploys software developed by Australia-based Envizi (formerly CarbonSystems) on the company’s Windows Azure cloud platform. 

With its access to low-priced electricity at its Redmond, Washington headquarters supplied in part by hydro-electric generating stations operated by Puget Sound Energy, some data crunchers estimated Microsoft’s carbon price to be between $6-7 U.S.  Henretig would not disclose what its internal price is. Sharing lessons learned only goes so far.