Organizational Change
Global Team Engagement Key to Success of Microsoft's Carbon Fee Program

Political deadlock in Washington might be stifling any hope of a national carbon program, but it isn’t preventing companies from establishing their own initiatives. Take Microsoft, which has implemented a carbon fee program aimed at incorporating the cost of carbon pollution, both internal and external, into the financial structure of the company.

First implemented at the beginning of the 2013 fiscal year (July 1, 2012), Microsoft’s Carbon Fee Program is a financial model that puts an incremental fee on the carbon emissions associated with the company’s operations.

To ensure alignment across its widespread organization, the company established a steering and governance body called the Carbon Neutral Council. Working with this body, Microsoft designed its model to be simple and repeatable, following five basic steps for implementation:

To illustrate, Microsoft’s internal cost for energy use includes not only the price it pays the utility for that energy, but also the price it pays to offset the carbon emissions associated with its energy use.

“For business air travel, our cost includes not only the price we pay the airline for the airplane ticket, but also the price we pay to offset the carbon emissions associated with the flight,” said Josh Henretig, Director of Environmental Sustainability at Microsoft. “The associated fee is charged to those groups responsible for the resource consumption. The fees that we collect through the carbon fee model go into a central fund used to subsidize investments such as internal efficiency, clean energy and carbon offset projects that enable Microsoft to reduce emissions and be net carbon neutral.”

Communication has been one of the greatest challenges Microsoft has had to work through to execute the program. But this was not unexpected — in any complex, global organization, communicating the process, the expectations and the results is no simple feat.

“We’ve had to work hard to ensure everyone in the company — from international subsidiaries to individual product groups, corporate finance to sales and marketing, understand how the carbon fee works and the steps they can take to not only reduce their carbon fee, but save money and help the environment at the same time,” said Henretig.

Microsoft says the program has been well-received internally, and has opened the door to conversations that weren’t otherwise occurring by making everyone accountable for lowering the company’s environmental footprint. With the price in place, employees are teaming up to discuss how to drive efficiencies and further invest in more clean energy. Even people outside of Microsoft’s sustainability team are beginning to ask, “How do we work together to reduce carbon and mitigate the incremental fee?”

“Through the Carbon Neutral Council, we are in the process of reviewing new long-term commitments to purchase renewable energy and invest in a variety of efficiency projects," Henretig said. "We’ve found that people throughout Microsoft are very open to understanding the role of energy and carbon emissions in their business and taking steps to reduce the impact of their business on the environment.”

Microsoft already is seeing some early benefits from the initiative. For one thing, the company achieved carbon neutrality and increased its purchases of green energy in the US by 70 percent, from 1.1 billion kilowatt hours (kWh) in 2011 to 1.9 billion kWh in 2012. The carbon fee has also allowed Microsoft to invest in projects such as the Keechi Wind project, where it committed to purchase 100 percent of the electricity generated from the Keechi wind farm over the next 20 years.

Microsoft also is investing in carbon offset projects to offset “unavoidable” emissions. To date, the company has purchased credits from 20 projects on four continents, seven of which are forest conservation, avoided deforestation and reforestation projects. The range of project types Microsoft invests in will help reduce threats to forests worldwide from illegal logging, unsustainable agriculture, charcoal production, palm oil conversion, and encroachment of roads and settlements. The company also is supporting conservation and helping emerging nations to accelerate their transition to a low-carbon economy. Besides its investments in renewable energy and carbon offsets, Microsoft also is using IT to make its buildings more energy-efficient.

It is encouraging to see private sector organizations taking independent action to position themselves for a more sustainable future, but it will need the public sector’s help to instigate widespread change. In recognition of this fact, Microsoft last September joined hundreds of other US businesses in signing the Climate Declaration, which calls on federal policymakers to seize the economic opportunity of addressing climate change.