Unveiling the Hidden Emissions in Microsoft’s AI Chip Manufacturing

As artificial intelligence (AI) rapidly reshapes industries, the environmental toll of this technological revolution is escalating. Tech giants like Microsoft are leading the charge, but their AI expansion comes at steep climate costs. From energy-intensive data centers to the resource-heavy production of AI chips, every stage of this boom accelerates the climate crisis.

Read all parts of the blog series on Microsoft AI’s climate impacts:

Part 1: Unveiling the Hidden Emissions in Microsoft’s AI Chip Manufacturing
Part 2: A Growing Climate Concern around Microsoft’s Expanding Data Center Operations
Part 3: Microsoft’s Application of AI to Accelerate Fossil Fuel Expansion

Fossil Free Microsoft Roadmap – Progress Tracker

Unveiling the Hidden Emissions in AI Chip Manufacturing

The production of AI chips brings significant environmental challenges, primarily due to its intensive consumption of energy and water. These chips are predominantly manufactured in regions heavily reliant on fossil fuels for electricity, compounding their environmental impact. Moreover, the construction of new semiconductor fabrication facilities (chip fabs) is driving the expansion of gas-powered energy infrastructure globally, locking in long-term dependence on fossil fuels. Without substantial investment in additional and localized renewable energy sources to meet both the demands of chip manufacturing and the needs of local communities, the rapidly growing AI industry risks undermining global climate goals.

In the first quarter of fiscal year 2025 alone (July 1, 2024, to September 30, 2024), Microsoft reported spending tens of billions of dollars to expand its data center capacity, a key part of its aggressive growth strategy in AI and cloud services. Approximately half of this expenditure went toward acquiring high-performance CPUs and GPUs. However, the production of these advanced AI chips is energy- and resource-intensive, involving complex processes such as raw material extraction, semiconductor production, and chip fabrication, all of which contribute significantly to GHG (greenhouse gas) emissions.

The climate costs do not end there. Transporting AI hardware from manufacturers to Microsoft’s data centers and research facilities adds another layer of emissions, particularly from long-distance shipping. In addition, the construction of new data centers to accommodate growing demand is also energy-intensive, with emissions arising from the materials used and the operational energy needed for building construction and maintenance.

Emissions on the rise

As illustrated in Figure 1, the indirect emissions (Scope 3 emissions) across Microsoft’s value chain have risen steadily over the past four years. These emissions stem from a range of activities, including the construction of in-house facilities, manufacturing AI hardware, and transportation. This upward trend in emissions highlights the growing environmental impact of Microsoft’s expansive AI and cloud infrastructure, revealing that the company’s decarbonization efforts have not kept pace with its rapid business expansion.

It is worth noting that the emissions associated with AI chip manufacturing are significantly underreported. There is a substantial gap between the company’s officially disclosed GHG emissions and the true climate footprint, as its reporting relies heavily on a market-based approach. This method obscures emissions across its supply chain. Research from Stand.earth reveals that seven out of Microsoft’s 10 major suppliers explicitly rely on renewable energy certificate (REC) purchases as part of their electricity procurement strategies. These certificates, however, often fail to represent actual emissions reductions, distorting the overall emissions picture and masking the true climate impact of AI chip production.

Roadmap to Fossil Free Microsoft

Microsoft must deploy a comprehensive approach that addresses both operational and supply chain emissions, and the usage of the products. These steps are critical for driving a complete transition to renewable energy, ensuring accountability, and aligning with global climate goals. By implementing these measures, Microsoft can lead the way in fostering a sustainable and resilient future.

Goal: Transition Supply Chain to 100% Renewable Electricity by 2030
Make a public commitment to transition all manufacturing operations to 100% renewable electricity by 2030
Commit publicly to ensuring that supply chain renewable electricity is local and additional to the grid
Publish an up-to-date list of suppliers, identifying high-emission manufacturing and semiconductor suppliers
Publicly report Scope 3 location-based emissions, including detailed category breakdowns
Report on supply chain energy data, such as electricity demand and renewable electricity procurement, focusing on high-emission suppliers