Graphite is a crafted material used exclusively in the Arc Furnace and Arc Furnace II to produce Molten Iron, Molten Copper, Molten Glass, and Molten Silicon. It is made from Coal at a 1:2 ratio. When used in an Arc Furnace II to replace a Blast Furnace II, this reduces direct Coal consumption by at least 90%; note, however, that Molten Silicon always requires both Coal and Graphite.
Even when using Boiler (Coal) to power the notoriously power-hungry arc furnaces, overall Coal usage still drops by 22.8-32.8% (depending on how efficiently the Steam Lo energy is utilized). Similarly, total Exhaust drops by 0.84 to 3.84 per furnace; thus, it is often beneficial to switch to the Arc Furnace II even if only coal power is available.
In order to produce Graphite directly from Carbon Dioxide you will need the "CO2 Recycling" research, which requires Research Lab V. Unfortunately, once all blast furnaces have been converted, it is unlikely your factory will produce enough Carbon Dioxide to rely wholly on this recipe, though fortunately the Chemical Plant II has enough inputs to simultaneously run both the Coal and Carbon Dioxide recipes (presumably prioritizing the Carbon Dioxide recycling recipe).