Can the carbon removals market keep pace with the AI boom?

Good morning from New York.

Oil prices moved up modestly on Wednesday, as the US continues its naval blockade of the Strait of Hormuz. The Iranians have said reopening the waterway would not be possible as long as the blockade continues, and demanded an end to attacks by Israel in Lebanon.

For its part, Iran has been seizing commercial ships attempting to transit the strait, capturing two on Wednesday, according to Iranian forces, a move condemned by the International Maritime Organization.

Brent crude and West Texas Intermediate both rose 3.5 per cent.

In other news, the EU is rethinking its opposition to Arctic oil and gas drilling, my colleagues Ian Johnston, Mari Novik and Richard Milne report, as it seeks to boost its energy supplies.

And I reported that US coal miners are keen to meet rising demand from European and Asian markets, but are being hampered by high diesel costs.

In today’s newsletter, a major carbon removal player boosts its tree-planting operation, and we look at how the industry can keep up with AI emissions. — Martha

Can carbon markets catch up with the AI boom?

Carbon removal company Chestnut Carbon, which is backed by alternative asset manager Kimmeridge, completed its largest US tree-planting operation to date, planting nearly 24mn trees between November and April.

The move doubles Chestnut’s footprint to nearly 70,000 afforestation acres, bringing its total planting to almost 50mn trees since 2022. Its Chestnut Sustainable Restoration Project now spans an area 1.5 times the size of the Acadia National Park in Maine and five times the size of Manhattan.

The planting has taken place across nine states, including expansion into Georgia, South Carolina and Tennessee. Chestnut also planted its first shortleaf pines, which are fire tolerant, and longleaf pines, a species previously wiped out by logging.

Chestnut is a major supplier of carbon removal credits, having signed one of the largest afforestation, reforestation and revegetation offtake agreements with Microsoft in January 2025. The deal spans 25 years and will deliver more than 7mn tonnes of carbon removal credits.

However, chief executive Ben Dell, who is also a founder and managing partner at Kimmeridge, said that demand for carbon credits was spreading beyond heavyweights like Microsoft.

“We’re seeing the client base expand,” he said, “across banks, consultancies, retailers and industrial players”, which were “getting increasingly sophisticated about buying credits”.

The recent round of planting was supported by a first-of-its-kind bank financing, in which Chestnut received a $210mn non-recourse project finance credit facility from lenders including JPMorgan, CoBank and Bank of Montreal last July.

Chestnut’s expansion is coming at what should be a time of high demand for carbon removal credits due to the AI boom, with hyperscalers and utilities spending massive sums on power generation for data centres. While some of this is renewables, the bulk of new power plants for data centres are natural gas-fired.

According to Global Energy Monitor, the US nearly tripled its gas-fired capacity in development last year, totalling almost 252 gigawatts — over a third of which is for data centres.

Tech companies are also turning to highly emitting diesel-fired generators for on-site power, and the lives of coal plants around the country are being extended to meet demand.

However, Dell said there weren’t enough “high-quality” carbon removal credits in the market, and that the industry was struggling to keep pace with the emissions impact of the AI boom due to weak pricing.

“The carbon market as it stands is not big enough to offset the growth in power from AI,” he said.

It’s also not clear that tech giants are committed to keeping up. Earlier this month, Heatmap News reported that Microsoft had paused future carbon removal purchases. The company accounted for 93 per cent of all purchases in 2025, according to BloombergNEF.

Whether the industry can counter this blow depends on whether other companies and industries commit to carbon removal.

“The obvious reaction is negative,” Dell said. “But you can’t build a market with most of the market in one player . . . other buyers have to step up and get more aggressive.”

Power Points

• Russia is planning to halt the flow of Kazakh oil to Germany, hitting a refinery that supplies almost all of Berlin’s petrol and heating fuel.

• Trump’s top trade official told allies they must pay more for non-Chinese critical minerals.

• TikTok’s plan for a $9.5bn data centre on Brazil’s coast has become mired in an environmental fight.

Energy Source is written and edited by Jamie Smyth, Martha Muir, Alexandra White, Rachel Millard, Malcolm Moore and Ryohtaroh Satoh with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.