Microsoft has entered a significant agreement with Indian startup Varaha to purchase over 100,000 tons of carbon dioxide removal credits through 2029. This deal expands Microsoft’s portfolio of projects aimed at removing carbon from the atmosphere as the tech giant navigates increasing energy demands from its expanding AI and cloud operations. The initiative focuses on converting cotton crop waste into biochar, a stable form of carbon, and addresses air pollution concerns in India.
The project will initially concentrate on the western Indian state of Maharashtra, involving approximately 40,000 to 45,000 smallholder farmers. It represents a growing trend of large corporations investing in carbon removal technologies to meet ambitious sustainability goals, while simultaneously grappling with the emissions associated with their own growth.
Expanding Carbon Removal Capacity in India
This agreement comes as companies like Microsoft accelerate spending on projects designed to physically remove carbon dioxide from the air. Microsoft is committed to becoming carbon-negative by 2030, a goal that requires not only reducing emissions but also actively removing carbon already present in the atmosphere. However, the company’s overall greenhouse gas emissions increased by 23.4% in fiscal year 2024 compared to a 2020 baseline, largely due to emissions linked to its cloud and AI businesses.
The rapid expansion of artificial intelligence is a key driver of this increased energy consumption and, consequently, emissions. This is pushing companies to seek carbon removal projects beyond the United States, with India emerging as a particularly attractive market. India’s large agricultural sector generates substantial volumes of waste biomass, providing a readily available resource for carbon removal initiatives.
Biochar Production and Scalability
Varaha will establish 18 industrial reactors, operating for 15 years, with a projected total removal volume exceeding 2 million tons of carbon dioxide. The process involves converting cotton crop waste – often burned after harvest – into biochar. This charcoal-like material can then be added to soil, sequestering carbon for extended periods and simultaneously mitigating air pollution from open-field burning.
Varaha’s success in delivering carbon credits at scale was a crucial factor in attracting Microsoft’s investment. According to Varaha co-founder and CEO Madhur Jain, the company’s ability to reliably run projects and navigate the rigorous verification processes required for issuing credits set it apart. This is particularly challenging in India, where working with a large number of smallholder farmers adds complexity to tracking and logistics.
“More than 30% of our team has worked in agriculture,” Jain said, highlighting the importance of on-the-ground expertise in designing effective systems for farmer engagement. Microsoft’s stringent requirements for digital monitoring, reporting, and verification necessitated the development of bespoke systems by Varaha.
The Growing Market for Carbon Credits
The project’s first reactor will be located adjacent to Varaha’s 52-acre cotton research farm in Maharashtra, allowing for real-world testing of biochar application and its impact on soil health. Varaha plans to scale up to 18 reactors across India’s cotton-growing regions under the terms of the Microsoft agreement.
Varaha has experienced rapid growth in its biochar operations. In 2025, the company processed approximately 240,000 tons of biomass, producing around 55,000-56,000 tons of biochar and generating roughly 115,000 carbon credits, a significant increase from the 15,000-18,000 credits generated the previous year. The company anticipates further increases in throughput as new contracts come into effect, aiming to double its 2025 output in 2026.
Currently, Varaha manages 20 projects across India, Nepal, and Bangladesh, encompassing regenerative agriculture, biochar, agroforestry, and enhanced rock weathering. These projects, involving around 150,000 farmers, have the potential to sequester approximately 1 billion tons of carbon dioxide over their lifetimes. Beyond carbon credits, the project aims to reduce air pollution and improve soil health by reducing reliance on chemical fertilizers.
Phil Goodman, Microsoft’s CDR program director, stated that the agreement with Varaha diversifies Microsoft’s carbon removal portfolio with a scalable and durable project design. While the Varaha deal represents a substantial investment, the volumes of carbon removed remain relatively small compared to Microsoft’s overall emissions footprint of 15.5 million metric tons of carbon dioxide equivalent in FY2024.
Microsoft contracted for approximately 22 million metric tons of carbon removals in FY2024. Recent agreements include backing AtmosClear’s Louisiana project and purchasing credits from C2X’s Louisiana biofuels plant. Google has also been actively pursuing carbon removal deals, including a 100,000-ton credit purchase from Varaha in January 2025.
Varaha has raised around $50 million since its founding in 2022, with investors including RTP Global, Omnivore, and Mirova. Mirova invested $30.5 million in November to support the expansion of Varaha’s regenerative farming program.
Looking ahead, the success of this project will depend on continued scalability and reliable credit generation. The industry will be watching to see how Varaha navigates the complexities of working with a large network of smallholder farmers and maintains the integrity of its carbon removal claims. Further developments in monitoring, reporting, and verification standards will also be crucial for fostering trust and transparency in the growing carbon credit market.
