Microsoft's total greenhouse gas emissions rose 25% in its 2025 fiscal year, to 20.29 million metric tons of CO2 equivalent from 16.21 million metric tons the year before, according to the company's 2026 Environmental Sustainability Report, released on Friday, July 10. The company said the increase was primarily driven by the expansion of its data center infrastructure and by its decision to stop using non-additional, unbundled renewable energy certificates.
Scope 2 emissions, from purchased electricity, rose from about 2% of total emissions in fiscal 2024 to 13% in fiscal 2025, ESG Dive reported. Market-based Scope 2 emissions increased to nearly 2.7 million metric tons from 258,217 metric tons.
Why certificates matter
Unbundled renewable energy certificates, or RECs, are certificates purchased separately from the electricity they represent, often from existing wind or solar projects. Companies using market-based accounting under the Greenhouse Gas Protocol can apply them to reduce their reported Scope 2 emissions. Critics have long argued that unbundled RECs from existing projects do little to add new clean power to the grid, because they do not change which plants are built.
Microsoft's move away from unbundled RECs in favor of power purchase agreements and other contracts tied to specific new projects makes its reported Scope 2 emissions more closely reflect the grid power it actually uses where it lacks direct clean energy contracts. The change raises reported emissions in the short term. Despite no longer using unbundled RECs, Microsoft said it matched all of its annual global electricity consumption with renewable energy, through on-site generation, power purchase agreements, green power products and other long-term contracts.
Scale of procurement
Microsoft said its renewable portfolio now includes agreements for up to 40 GW of new renewable energy across 26 countries. The company also reported contributing to more than 45 million metric tons of carbon removal during fiscal 2025, through investments in 29 projects across 10 removal pathways. According to the carbon removal registry CDR.fyi, Microsoft accounted for more than three-quarters of disclosed contracted carbon removal purchases as of April 13.
Microsoft estimated that its emissions would have exceeded 34 million metric tons without interventions including efficiency improvements, renewable energy purchases, sustainable aviation and marine fuel certificates and supply chain decarbonization work.
Company comments
In the report's foreword, Vice Chair and President Brad Smith and Chief Sustainability Officer Melanie Nakagawa wrote: "As we scale the physical infrastructure required to power the AI economy, our emissions are shaped by the impact of that growth and the actions we are taking to manage it." The company said AI is "driving demand for energy, water, land and materials," and that "sustainability solutions are not scaling fast enough to meet demand."
Long-term goals
Microsoft has goals to become carbon negative, water positive and zero waste by 2030, and to remove all the carbon it has emitted since its founding by 2050. The company's 2020 baseline is the reference point for its carbon negative goal. In 2025, Microsoft reported that its emissions were 23.4% above the 2020 baseline. The fiscal 2025 figures mean emissions have moved further from that baseline as data center construction has accelerated.
Scope 3 emissions, from the supply chain, including the manufacturing of servers and the construction of data centers, remain the largest part of Microsoft's footprint. Building data centers uses large amounts of steel and concrete, and Microsoft has invested in lower-carbon materials, including cross-laminated timber and lower-carbon concrete, for some projects.
Water
Microsoft said a few weeks before the report that it had replenished more water than it used in fiscal 2025. Data center cooling water use has drawn local attention in regions including Arizona and parts of Europe and Latin America. Microsoft has introduced data center designs that use closed-loop liquid cooling systems with no evaporative water use for cooling.
Carbon removal market
Microsoft's role in the carbon removal market is outsized. Its purchases of removals from direct air capture, bioenergy with carbon capture, enhanced rock weathering, reforestation and other methods have provided a large share of the demand that allows developers to finance projects. Reports earlier in 2026 suggested Microsoft had paused its removal program; Nakagawa told ESG Dive the program had "not ended," and the company announced another purchase shortly afterwards. Because many contracted removals will be delivered over years, the gap between contracts signed and tons actually removed is a key metric for assessing progress toward the 2030 goal.
For energy companies, carbon removal demand creates opportunities in carbon capture and storage, particularly where bioenergy plants or industrial facilities can capture emissions and store them geologically. Several of Microsoft's large removal contracts involve bioenergy plants in Europe and the United States.
Comparison with peers
Microsoft's report follows Google's 2026 Environmental Report, released on June 30, which showed electricity demand up 37%, operational emissions down 2% and supply chain emissions up 25% in 2025. Amazon is expected to publish its report later in the summer. All three companies have reported rising emissions or electricity use as they expand AI infrastructure, while also being the largest corporate buyers of clean energy.
The differences in reported trends partly reflect accounting choices. Google's operational emissions fell partly because of its procurement approach under market-based accounting, while Microsoft's Scope 2 rose because it stopped using unbundled RECs. Comparing companies requires attention to which instruments each one counts.
Energy market implications
Microsoft's procurement of up to 40 GW of new renewable capacity, along with nuclear agreements including a deal to restart a unit at the Three Mile Island plant in Pennsylvania announced in 2024, makes it one of the largest drivers of new clean energy development in the United States and Europe. At the same time, data center growth increases demand on grids that still rely heavily on gas, which is why Scope 2 emissions rise when certificates are not applied.
The IEA estimated in April 2026 that technology companies accounted for around 40% of corporate renewable power purchase agreements signed globally in 2025.
What to watch
Key items include Amazon's report, revisions to Scope 2 accounting rules under the Greenhouse Gas Protocol, Microsoft's progress on carbon removal delivery as opposed to contracts, and how data center expansion plans for fiscal 2026 affect the company's trajectory toward its 2030 goals.