Accounting
Carbon accounting obscure AI’s footprint
Nathan Howard/Bloomberg
Tech companies’ relentless push into
Recently Microsoft reported that its emissions are
Is AI being powered exclusively by clean energy? “There is no physical reality for that claim,” said
Companies are buying credits — called unbundled
The current carbon
That’s because these carbon savings on paper are not actual emissions reductions in the atmosphere. If companies didn’t count unbundled RECs, Amazon could be forced to admit that its 2022 emissions are 8.5 million metric tons of CO2 higher than reported — that’s three times what the company disclosed and matches Mozambique’s annual impact. Microsoft’s sum could be 3.3 million tons higher than the reported tally of 288,000 tons. And Meta’s reported footprint could grow by 740,000 tons from near zero. (See below for methodological details.)
“Companies shouldn’t be allowed to use unbundled RECs to claim emissions reductions,” said Silke Mooldijk, who focuses on corporate climate responsibility at the nonprofit NewClimate Institute. “It’s misleading to consumers and investors.”
Not all tech companies have gobbled up unbundled RECs to obscure the rising emissions that have resulted from the hotly-contested AI race. Alphabet Inc.’s Google phased out its use of unbundled RECs several years ago after acknowledging that it doesn’t amount to real emissions reductions. “Studies have raised legitimate questions about whether [these credits] displace fossil-powered generation,” said Michael Terrell, senior director of energy and climate at Google.
Amazon relied on unbundled RECs for 52% of its renewable energy in 2022, making it the most dependent of the four on the instruments. A spokesperson for Amazon said the number of unbundled RECs the company uses is expected “to decrease over time” as more of its directly contracted renewable energy projects come online. Microsoft, which relied on unbundled RECs for 51% of its renewable energy, also plans “to phase out the use of unbundled RECs in future years,” a company spokesperson said.
A spokesperson for Meta, which relied on unbundled RECs and power from utilities labeled “green” for 18% of its renewable energy, said the company takes “a thoughtful approach” and that the “majority” of the company’s “renewable energy efforts” are focused on projects that “would not have otherwise been built.”
The thousands of companies using Amazon-powered AI for their customer chat bots, Microsoft’s AI Copilot for summarizing meetings, or Meta’s Llama for generating images may assume there are few or no energy emissions from relying on these models. It’s a powerful marketing tool for these big tech companies, helping to allay concerns of potential customers who are themselves likely under pressure from users and investors to lower their own carbon footprints. In reality, it’s creating a cascading impact of misreported emissions and growing demand for energy-intensive AI products.
“If consumers do not understand what the climate impact of AI is, because tech companies do not transparently report on it, then there’s no incentive for consumers to change their behavior and change to a different AI model,” said Mooldijk.
It’s a concern across finance, too. Banks and investors which tend to stuff big tech in sustainable funds too often take emissions claims at face value. “At the moment, there’s just not a sophisticated understanding of this issue,” said Gerard Pieters, a director at Tierra Underwriting that helps banks on clean-energy deals. “We’re still in a period where people make claims quite easily and they’re just copied and accepted as fact.”
Tech companies are the largest buyers of unbundled RECs in the world. Whether or not they continue buying these credits to make climate claims matters a great deal as more corporations look to cut their carbon footprint and green their credentials.
Back to the source
To understand how the companies’ use of RECs works, consider the origins of the power generated on a grid. Usually it comes from a mix of sources: from coal and gas to wind and solar. Climate-conscious companies are increasingly looking to secure power exclusively from sources that generate the least planet-warming emissions.
One way to do this is to sign a contract for clean power directly with the supplier through a power-purchase agreement, where a tech company is signing a long-term contract and thus taking on some of the risk for a period of 10 or 15 years. That, in turn, makes it easier for the developer to acquire the financing to build the solar or wind farm.
To help tech companies trace the source of that power, renewable-energy producers also issue energy attribute certificates, or RECs, which are a type of tracking instrument. However, RECs can also be bought on their own, separate from an electricity purchase. The
This idea — and the calculation that sprang from it — was developed when renewable energy was expensive to produce and not price-competitive with fossil fuels. The thinking was that the extra money renewable energy developers would receive in the form of a REC might work as an incentive to produce more wind and solar development than would have been otherwise and thus be “additional.”
Studies
Solar and wind power have now become cheaper than the fossil-fuel alternative, and a growing body of evidence shows that most unbundled RECs aren’t what those who count emissions call “additional.” That is, they don’t spur new wind or solar farms and thus there is no second value producers should be paid for, and certainly no emissions reductions for the buyer.
“The widespread use of RECs … allows companies to report on emissions reductions that are not real,” Anders Bjorn, assistant professor at the Technical University of Denmark, and a team of researchers, wrote in
Last month, Amazon claimed that it had
Like Amazon, Google claims to be 100% renewable powered on an annual global basis. In lieu of using unbundled RECs, Google purchases more clean energy than it consumes in some places, like Europe, and less in others, like Asia-Pacific, depending on the availability in those locations. Google, however, makes clear that it does not consume carbon-free energy on an hourly and location-specific basis. That’s now “our ultimate goal,” said Terrell.
Amazon, Microsoft, Meta and Google are following the accounting rules set out under the Greenhouse Gas Protocol that was first developed in 2001. Those disclosures underpin the analyses that investors rely on to make decisions about what counts as a green company. While the protocol has received small updates over the years, it’s due for a big update and experts
“Standards need to evolve, because measuring carbon emissions isn’t an exact science,” said Google’s Terrell. “It’s continuing to improve and we’re committed to helping improve it.”
The Internal Revenue Service commemorated the 70th anniversary of the April 15 tax filing deadline on Tuesday, but this year the agency has also been suffering through
The IRS noted on Tuesday that the tax-filing deadline moved from March 15 to April 15 in 1955 to give taxpayers and the IRS more time to prepare and process complex tax returns. However, with the budget cuts and the efforts of the Elon Musk-led Department of Government Efficiency, the IRS has also paused its technology modernization efforts.
IRS chief information officer Rajiv Uppal is reportedly the latest high-level official to announce his resignation, according to
Acting chief counsel William Paul was reportedly
The high-profile departures come after the approximately 7,000 IRS probationary employees were put on paid administrative leave this year, with plans to cut up to 50% of the IRS workforce after tax season. The National Treasury Employees Union has been warning of the impact of the cutbacks.
“NTEU is incredibly proud of the IRS employees who persevered despite attacks on their jobs and their agency and helped deliver a smooth filing season for millions of taxpayers and business owners,” said the NTEU’s national president, Doreen Greenwald, in a statement. “But the success feels precarious as the administration plans a forthcoming firing spree that will cripple the agency’s ability to serve the American people, before, during and after the filing season.”
The NTEU noted that the Trump administration has already removed about 7,000 probationary IRS workers, and the Treasury has announced plans for a broader reduction in force that could impact thousands more IRS employees across the country.
“It is not speculation to say that a gutted IRS helps fewer taxpayers file their returns, slows their refunds, and allows tax cheats to thrive, because we saw all three of those things the last time Congress
The smaller the IRS workforce, the less tax revenue is collected, according to a
Inside the shaky state of the IRS
The Urban-Brookings Tax Policy Center held a webinar Tuesday to discuss how the large reductions in the IRS’s funding and staffing would affect taxpayers, as well as the successive buyout offers under the
“What we do know before we get into potential future layoffs is that 11,000 IRS employees out of about 100,000 had initially taken the buyout or been laid off in February, and now another 20,000 we’ve been told this morning are taking another buyout, so a total reduction so far of 30,000 employees out of 100,000,” said Tracy Gordon, vice president for tax policy, codirector and acting Robert C. Pozen Director at the Urban-Brookings Tax Policy Center, citing recent articles from
Barry Johnson, a former chief data and analytics officer at the IRS who is now a nonresident fellow at the tax policy center, discussed the advances that the IRS had been making in its technology efforts before the cutbacks. They included:
- Introducing interactive chatbots that used artificial intelligence to interpret taxpayer questions and link them to the appropriate content on its website;
- Expanding online account capabilities for individuals, businesses and tax professionals;
- Introducing the Direct File system for free online tax filing; and,
- Improving the IS’s enterprise case management system.
“One of the big goals we were working on was to make our data more interoperable and accessible to support modernization, while greatly improving the security of all of our data systems,” said Johnson. “We were making progress in releasing statistics in closer to real time and to automate some of our statistical processes. And we were laying the groundwork to support evidence-based policy-making and program evaluation at all levels of government — again, while ensuring the protection of individually identifiable tax data.”
Much of the extra funding for IRS enforcement, taxpayer service and IT modernization has already been cut by Congress or is in the process of being zeroed out, but the plans are unclear.
“There are many unknowns for personnel, for funding, which according to your charts, may actually be close to zero for modernization right now,” said Pete Sepp, president of the National Taxpayers Union. “The [Inflation Reduction Act] funds may have run out by about out for modernization, and we have zero in appropriations. How in the world is anything going to press forward in that environment? Maybe it can, but we want to see the plan.”
Technology can only go so far in helping taxpayers navigate the IRS.
“What we don’t see now is what’s going to be happening going forward,” said Nina Olson, executive director of the Center for Taxpayer Rights and a former National Taxpayer Advocate at the IRS. “How do they propose to improve taxpayer service? Are they going to use AI to eliminate calls? Everybody’s been trying to eliminate the calls since the phone system was set up, and all it does is increase. Maybe you can eliminate some of the repeat callers, the more that you do chatbots and things. But as I keep saying to people, the IRS isn’t like Amazon or your bank. It has enforcement powers that no bank has. And if you’ve ever tried to get a problem resolved with Amazon or any one of these online deliveries, good luck with that. The chat system doesn’t really work really well, and that’s what drives people to the phones. They want to hear from somebody that their issue has been resolved.”
The federal government’s financial condition worsened by $4.7 trillion in the past year, according to a new report released to coincide with Tax Day.
The annual
“Our country’s financial condition continues to spiral out of control, and taxpayers are left holding the bag,” said TIA CEO Sheila Weinberg in a statement Tuesday. “On a day when Americans are asked to be transparent and accurate with their finances, their government fails to do the same.”
Despite the enormous size of its commitments to Social Security and Medicare, the U.S. Treasury Department only reported $241 billion of them on the official balance sheet because, according to government documents, recipients aren’t legally entitled to benefits beyond the current month, allowing future payments to be reduced or eliminated by law.
The report’s release comes amid efforts by the Elon Musk-led Department of Government Efficiency to slash the size of the federal government, virtually eliminating entire agencies while threatening cutbacks in Social Security, Medicare and Medicaid offices and personnel to aid seniors.
The report warned that due to inaccurate and nontransparent budgeting practices, Congress and the American people lack the information needed to make informed decisions about taxes, spending, and long-term policy. Weinberg is advocating for full accrual budgeting and accounting, which would include the true cost and projected growth of government programs. “This kind of transparency would be the first step in regaining control of our nation’s finances,” she said.
The Financial State of the Union report gives the federal government an ‘F’ grade for its fiscal health and asks Congress to adopt honest accounting standards to provide long-term financial sustainability. Truth in Accounting is also encouraging citizens to
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