Going Carbon Neutral and Putting an Internal Price on Carbon

5367.Carbon NeutralOver the past three years, my team and I have worked to drive the types of changes that would consistently improve Microsoft’s carbon footprint and reduce our impact on the environment. As I noted in my previous blog, we have made some great progress.

However, when we looked at our progress in the face of the alarming scientific data on climate change and the urgent need for society to move to cleaner, reliable and more secure energy sources, we realized that there was more that we could do.

I am fortunate that I work for a company which understands climate change is a serious challenge requiring a comprehensive and global response from all sectors of society. Today, we are announcing that we are making the commitment to become carbon neutral beginning with our Fiscal Year 2013 (which begins July 1st). This commitment will apply to our internal operations across more than 100 countries associated with our data centers, software development labs, offices and air travel. Our strategy is based on driving company-wide accountability resulting in greater efficiencies, increasing our purchase of renewable energy, improving data collection with IT, and a continued acceleration of our R&D and datacenter operations efficiency investments.

The model of accountability is based on an internal carbon fee administered through our corporate finance department and cascaded globally to our business groups. This charge-back model will place a price on carbon and make the company’s business divisions responsible for the cost of offsetting the carbon emissions associated with their electricity use and air travel.

The goal is simple; to make the company’s business divisions financially responsible for the cost of their carbon emissions and drive even more focus on efficiency and environmental sustainability across Microsoft. Even as we developed our strategy, the initial discussions within our company have already served as a catalyst for driving deeper dialogue and analyses that should result in improved efficiencies and more sustainable practices.

For emissions not eliminated through efficiency measures, Microsoft will purchase renewable energy and carbon offsets in order to achieve the carbon neutrality goal.

The measures that we will put in place to achieve carbon neutrality will lessen our environmental footprint while also helping us to manage risk, increase efficiency, and support the growth of our business. Our basic approach moving forward has three strategic pillars:

  • Be lean. We will set efficiency targets to help reduce the amount of energy we consume for data center operations, labs, and offices as well as our use of air travel. Technology will play an important role in both how we achieve those targets and how we measure our progress along the way.
  • Be green. We will make more environmentally responsible choices by purchasing renewable energy and investigating investment options in renewable energy projects. We will also establish goals to reduce our waste and water use.
  • Be accountable. We will quantify the carbon impact of our operations and drive responsible business decisions around energy use and air travel by setting an internal price on carbon, measuring our actual emissions, and then charging the teams responsible for those emissions. We will also work to reduce the carbon impact of our supply chain.

Here is our current plan:

  • Beginning in fiscal 2013 (July 1, 2012), all business groups will build in the price of carbon into their budgets.
  • These groups will be able to limit their “carbon liability” by using less energy—either through efficiency or by directly sourcing renewable energy and reducing air travel.
  • The groups will pay a carbon fee for each metric ton of carbon emissions associated with the operation of data centers, software development labs, office buildings and employee air travel.
  • The carbon fee will be paid into a central fund at Microsoft that will be used to purchase renewable energy and carbon offsets in order to achieve net carbon neutrality.

7827.Whitepaper cover graphicWe will all be evolving our approach together as we learn which strategies and practices are most effective and we look forward to sharing regular updates along the way. We’ve seen broad buy-in for the carbon price among business leaders at Microsoft, especially among groups whose cloud-based businesses are powered by energy-intensive data centers.

We believe that our carbon neutral commitment with a cascaded carbon fee is consistent with the culture of innovation at Microsoft which will help increase our focus on efficiency and clean energy. We also recognize that there is much more work to be done and that we will need to evaluate and adjust our approach on an ongoing basis. As we learn from this effort, we will share our lessons and our results with the industry.

A summary of our carbon neutral strategy can be found in our whitepaper “Becoming Carbon Neutral: How Microsoft is Becoming Lean, Green, and Accountable”.

I welcome people’s feedback on this and look forward to sharing our learning from this project.

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