Oxy has signed a multi-year contract to sell Microsoft 500,000 carbon credits, per Financial Times.

Our Take, with Doug Sheridan

Per the FT, Oxy has signed a multi-year contract to sell Microsoft 500,000 carbon credits. The price of the credits are reportedly a discount to current market rate of $1,000 per tonne of CO2. Even so, its expected to generate hundreds of millions in revenue for Oxy's carbon management business.

The credits will come from Occidental’s first direct air capture (DAC) project, Stratos, in West Texas, which is set to be the world’s biggest such facility when it goes online next year. The project is being developed in partnership with BlackRock, which invested $550mn in November.

The tech sector was a “priority sector” for 1PointFive, Occidental’s carbon management subsidiary, said its chief executive Michael Avery. There would be a “near-term” shortage of the clean power needed to run AI systems that would necessitate “a basket of solutions” including carbon credits, he said, adding, “We don’t see DAC as trying to solve any company’s entire portfolio of emissions.”

Climate experts are clear that carbon credits should only be used to offset hard-to-eliminate emissions such as some of those that result from certain industrial processes including steelmaking.

Recent estimates from S&P Global put the cost of DAC credits at about $800-$1,200 per tonne of carbon emitted, a high cost that meant there were at present few bulk contracts being signed. 1PointFive said it expected to operate at a cost of $400-$630 per tonne.

Avery said the carbon linked to Microsoft’s credits would not be injected underground as a means to extract more oil—a process known as “enhanced oil recovery” (EOR)—though he conceded that carbon captured by Stratos could be used to do so in future.

Our Take 1: DAC at least tackles the challenge of reducing CO2 in the atmosphere directly. But absent some serious improvements in extraction rates, it's hard to see how even a thousand of these projects could do much to reduce global emissions... much less climate change.

Our Take 2: Microsoft's on track to emit up to 250 million MT of CO2 over the next decade. Even if credits are available at a price of $400 per tonne, paying $100 billion over ten years to achieve net-zero status (for just a decade) via DAC—or any other means—would seem a complete non-starter. We're all but certain shareholders will prefer those funds be in their pockets.

Our Take 3: Our guess is this is a deal Microsoft points to hundreds of times in coming years as evidence of the greeniness of its data center operations. But it's not likely a deal it will replicate many times going forward. You see, these kinds of transactions need be struck only conspicuously, not continuously.