Microsoft’s AI expansion pushes carbon emissions up 25% amid sustainability efforts

Microsoft’s latest sustainability filing has laid bare the carbon cost of its AI and cloud expansion, with the company reporting that total emissions rose 25% year on year in fiscal 2025 as it continued to build out data centre capacity.

According to the report, the increase was driven chiefly by the growth of physical infrastructure needed to support artificial intelligence, alongside Microsoft’s decision to stop relying on “non-additional” unbundled renewable energy certificates. That change pushed the company’s market-based Scope 2 emissions sharply higher, with electricity-related emissions rising from a small share of the total in the previous year to a much larger one in FY2025.

Microsoft said it emitted 20.29 million metric tonnes of carbon dioxide equivalent in the year, up from 16.21 million the year before. The company’s foreword acknowledged that AI is creating a direct tension for the business: demand for energy, water, land and materials is rising faster than sustainability solutions can scale. Yet Microsoft argued that this pressure is sharpening its efforts rather than undermining them.

The report was written against a backdrop of intensifying scrutiny over the environmental footprint of AI infrastructure. Microsoft said the rapid spread of AI is becoming central to how technology is built and used, but also noted that the physical systems supporting that shift are now a major source of emissions growth. For industrial decarbonisation professionals, the message is familiar: digitalisation is no longer an abstraction in climate accounting, but a concrete driver of power demand, embodied carbon and resource use.

Even so, Microsoft said the picture was not one of wholesale backsliding. The company estimated that, without measures such as improved energy efficiency in Xbox consoles, purchases of renewable energy and sustainable fuels, and supply-chain decarbonisation work on Surface devices, its emissions would have been far higher. It also said it matched its annual global electricity use with renewable energy through a mix of on-site generation, power purchase agreements, green power products and long-term contracts, while expanding its renewables portfolio to agreements covering up to 40 gigawatts in 26 countries.

The company’s approach to carbon removals remains a significant part of its wider climate strategy. Microsoft said it contributed to more than 45 million metric tonnes of carbon removal during FY2025 and backed 29 projects across 10 removal pathways. That follows earlier reporting that it was responsible for the bulk of publicly disclosed contracted carbon removal purchases, underlining how central the market has become to the company’s net-zero and carbon-negative ambitions.

Microsoft has set 2030 goals to become carbon negative, replenish more water than it consumes and eliminate waste from its direct operations, products and packaging. The latest report suggests those targets remain formally in place, even as the scale of AI-related build-out makes them harder to reach. The company has already said its latest work on data centres includes measures such as direct-to-chip cooling and hybrid timber-steel construction, both of which point to a broader effort to reduce operational impacts while expanding capacity.

The challenge is not unique to Microsoft. Google has also reported higher emissions tied to its own AI expansion, and industry forecasts suggest power demand from data centres will continue to rise steeply over the next few years. For heavy energy users, the implication is clear: the next phase of digital growth will be judged not only on performance and scale, but on whether infrastructure can be built fast enough, efficiently enough and cleanly enough to keep pace with climate commitments.