Microsoft, Google, and Amazon are increasingly turning to nuclear energy for power, driven by their growing Artificial Intelligence (AI) operations, data centers and commitments to clean energy. While these investments could aid corporate carbon-neutral goals, the increased use of nuclear energy raises questions for the voluntary carbon market (VCM), particularly regarding the demand for carbon credits.
The tech industry’s appetite for electricity is driving a shift towards nuclear energy as a power source for data centers and AI operations. Data centers are estimated to consume up to 2% of all generated power, and by 2030, energy demands are expected to double. Additionally, the Inflation Reduction Act in the US has introduced technology-neutral tax credits that allow nuclear power to compete more directly with renewables, contributing to the trend toward more nuclear energy.
Small modular reactors (SMRs), ranging from 5 to 300 megawatts, offer a versatile and safer alternative to traditional nuclear plants. Their smaller size allows for more rapid deployment and scalability, especially in remote locations, and they can provide stable, carbon-free energy. For companies like Microsoft, which has committed to being carbon-negative by 2030, nuclear power is an increasingly attractive option to meet energy demands and sustainability targets.
Source: IEA
Keeping emission targets in mind, companies could rely on a combination of adopting nuclear energy and purchasing carbon offsets, which are among a few ways to reduce emissions. For example, Microsoft has secured contracts to procure over 34 gigawatts of energy across 24 countries, including a significant five-year, USD 10B agreement with Brookfield Asset Management and Brookfield Renewable announced in April. As part of its goal to become "carbon negative" by 2030, the company has implemented more than 80 initiatives this fiscal year to reduce its emissions. However, its overall carbon footprint has increased by 29.1% since 2020.
Large tech firms are also making big investments in emerging approaches for carbon dioxide removal (CDR). In the fiscal year 2023, Microsoft signed contracts for more than 5M metric tons of credits related to future projects, including a 15-year deal with Chestnut Carbon for a US-based reforestation project. Google also announced a direct air capture (DAC) carbon offtake agreement with Holocene on 10 September 2024 for USD 100 per ton. More announcements from these firms, as well as other large technology companies, are expected to continue as they race to decarbonize while facing significant competition with each other.
The trends seen in nuclear energy adoption and CDR investment demonstrate the intense rivalries the firms have with each other. Firms are taking similar yet distinct approaches to managing the potential risks and opportunities associated with the emergence of AI. If the bet on nuclear energy works out, some firms are expected to double down on the strategy. Nuclear energy technologies could mature further due to increased investment, which could accelerate the phasing out of fossil fuels. Additionally, nuclear energy could be preferred over other energy sources, such as renewables, but political and technological factors create uncertainty when anticipating future energy mixes.
Regarding the impact on the VCM, the emergence of nuclear technology could contribute to downward pressures on demand as tech firms further shift their focus on internal decarbonization. Credits that command higher prices in the VCM may see more significant impacts of this trend, as tech firms typically buy these credits. In addition to requiring fewer credits to offset their emissions, the push towards scaling CDR could act as a catalyst for increasing the proportion of removal credits in the VCM relative to avoidance credits.
In summary, the tech industry's increasing reliance on nuclear energy to support the demands of AI and data centers could represent a pivotal shift in corporate energy strategies. This transition could accelerate the development of advanced nuclear technologies and reshape the dynamics of the VCM, potentially reducing demand for certain carbon credits as firms prioritize direct emissions reductions and, in turn, focus on removals.