• Microsoft's carbon footprint has increased 30% compared to 2020 due to indirect emissions from the construction of data centers.
• The tech company will require certain suppliers to use 100% carbon-free electricity by 2030 in an effort to address the problem.
• The expansion of energy-intensive data centers is challenging tech companies' ambitious targets to eliminate their carbon footprints.

Microsoft's total carbon emissions have risen nearly 30% since 2020 primarily due to the construction of data centers, the company said in its annual sustainability report Wednesday.

Microsoft's Scope 1 and 2 emissions — those generated by the company's activities and the consumption of electricity or heat it uses — decreased 6.3% in 2023 compared to 2020, according to the report.

However, its indirect emissions — those that stem from all other activities Microsoft engages in — increased 30.9% during the same period.

The increase in Microsoft's indirect emissions is largely due to the building materials and hardware components, such as semiconductors, servers and racks, used in constructing more data centers.

"Our challenges are in part unique to our position as a leading cloud supplier that is expanding its datacenters," Microsoft said in its annual sustainability report. The tech company said the data center buildout demonstrates the need for greener concrete, steel, fuels and chips.

The expansion of data centers poses a challenge to tech companies that have set ambitious timelines to eliminate their carbon footprints. Microsoft aims to become carbon negative by 2030.

Microsoft is implementing a new requirement for the company's "select scale, high volume suppliers to use 100% carbon-free electricity" by 2030 in an effort to address its indirect emissions.

Artificial intelligence and data centers are expected to represent 8% of U.S. electricity consumption by 2030, more than double their share today, according to a Goldman Sachs report published in April.

Goldman Sachs expects natural gas to fuel 60% of the increased power demand from data centers, while renewables will power the remaining 40%. Utility companies such as Dominion Energy and Duke Energy have said natural gas will need to play a role in backing up renewables when solar and wind are not generating enough power due to weather conditions.

Microsoft aims to have 100% of the company's electricity consumption matched by zero-carbon energy purchases by the end of the decade. The company increased its contracted renewable energy assets to more than 19.8 gigawatts across 21 countries last year. It also contracted 5 million metric tons of carbon removal over the next 15 years.

Microsoft inked a deal with Brookfield Asset Management earlier this month to contract 10.5 gigawatts of renewable energy between 2026 and 2030. Brookfield and Microsoft described the agreement as the single-largest power purchase agreement signed between two corporate partners.

Microsoft also recently signed an agreement with a Swedish partner to remove 3.3 million metric tons of carbon dioxide, also described as the largest deal of its kind to date.