Microsoft's carbon pricing scheme: A progress report

Last week I sat down with my colleague, TJ DiCaprio, a senior director of environmental sustainability at Microsoft Corp. and the chief architect of our internal carbon fee. Over the past six months, we’ve received lots of questions about how things are going, what we’ve learned and what’s next. What follows is an edited transcript of our conversation that touches on how the company is responding to an internal price on carbon and some of the investments we’re looking at making in 2013, such as power purchase agreements for renewable energy.

By the way, look for both TJ and me at the upcoming Greenbiz Forums  TJ will be speaking in New York on Feb. 20 and I will be in San Francisco on Feb. 27. Come say hi!

Josh: You played a big role in defining and rolling out the carbon fee at Microsoft in the last year. Can you explain why we instituted a carbon fee and how it works?

TJ: The carbon fee policy provides an incentive for our business groups to reach the company’s objective of carbon neutrality. Working with our finance team, our model is to charge a fee for the carbon associated with the use of electricity and business air travel. The funds collected are invested in additional efficiency, clean energy and carbon offset projects.

Josh: What makes carbon pricing different from other approaches Microsoft could have taken to reduce emissions?

TJ: A carbon price changes the accountability model and integrates carbon into the financial structure of the company. Carbon is equated to a dollar value, which is well understood within the organizational structure. Placing a price on carbon connects our sustainability goals with long-term financial planning in a way that hasn’t happened before.

Josh: How have you seen it be incorporated in long-term planning here at Microsoft? What kind of difference is it making?

TJ: A great example is where a business group plans their operating costs of future business over five to seven years, the total cost (to support a cloud service, for example) now also includes the carbon fee associated with its lifetime energy consumption, similar to how we might plan for energy, support and management costs of the server. What’s important here is that Microsoft is internalizing the external cost of carbon into its financial planning

Josh: Since we announced the carbon fee last spring, what’s happened to make it a reality?

TJ: We implemented the carbon fee July 1, 2012, the beginning of our new fiscal year. To ensure alignment across the organization, we established a steering and governance body called the Carbon Neutral Council. We meet on a monthly basis to brainstorm new ways to meet the environmental commitments we set for the company the prior year. Some topics of discussion have included the efficiency and clean energy projects the company is supporting and oversees the implementation and administration of the internal carbon fee.

Josh: I think some people are curious where the money goes. When did the first funds go into the carbon fund?

TJ: We collected the first-quarter funds in October 2012 and subsequently invested in carbon offset and renewable energy projects, including wind, hydro and biomass.

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