Microsoft's India Bet: Assessing Varaha's Role in the Exponential Carbon Removal S-Curve

The carbon removal market is at a clear inflection point. In 2025, it underwent a fundamental phase shift, with new contract volumes surging 296% year-on-year to 29.6 million tonnes. This wasn't just growth; it was a transition from small pilot deals to megatonne transactions, signaling the market's move from nascent to substantial. Within this boom, a specific pathway is emerging as the dominant delivery mechanism: terrestrial biomass. Led by biochar, this category swept to 17% of total removal volumes in 2025 from just 2% the prior year. The shift is stark, with direct air capture (DAC) spending collapsing from $572 million in 2023 to just $103 million in 2025. The market is maturing, and quality-focused buyers are entering, moving beyond the first-mover dominance of a few giants.

Against this backdrop, Microsoft's strategic position is both urgent and pragmatic. The company's total greenhouse gas emissions rose 23.4% in fiscal year 2024, a figure driven by the relentless expansion of its cloud and AI business. This makes durable carbon removal not a philanthropic add-on but a core operational necessity for its carbon-negative by 2030 pledge. Its massive 2025 commitments, which accounted for 90% of all purchase volumes, have been the market's primary engine. Now, as the market scales, Microsoft is betting on the breakout terrestrial biomass pathway through its deal with Indian startup Varaha. This is a calculated move into the infrastructure layer of the next paradigm: converting agricultural waste into long-term carbon storage.

The deal itself is a classic first-mover play on the S-curve. By committing to buy more than 100,000 tons of carbon dioxide removal credits over the next three years, Microsoft is providing the off-take security Varaha needs to build out its 18 industrial reactors. The project's focus on cotton crop waste in India leverages a vast, underutilized feedstock and addresses a local pollution problem. Yet the long-term value of this bet hinges entirely on Varaha's ability to scale beyond pilot projects and navigate a maturing, quality-focused market. The company must prove it can reliably deliver millions of tons of verifiable credits, a challenge compounded by the complexity of working with tens of thousands of smallholder farmers. Microsoft is funding the build-out of the rails; Varaha must now demonstrate it can run the trains.

Varaha's Model: Scalability vs. Execution Risk

Varaha's model is a textbook case of a promising technology hitting the scaling wall. The company's biochar project directly attacks a dual problem: converting invasive Prosopis juliflora into a carbon-rich material that sequesters carbon for centuries while restoring degraded ecosystems like the Banni Grasslands. This isn't just carbon removal; it's a form of ecological repair. The company's pioneering status is clear, having become the first in Asia and the third globally to issue credits from two distinct pathways-biochar and enhanced rock weathering. For Microsoft, this technological breadth and early-mover advantage in a nascent Asian market are critical assets.

Yet the path from pilot to paradigm is paved with operational complexity. The project's initial focus on 40,000–45,000 smallholder farmers in Maharashtra is a manageable starting point. But Varaha's broader ambition involves scaling to 150,000 farmers. This is where the model's scalability meets its greatest execution risk. The company's CEO notes that working with tens of thousands of smallholder farmers in India makes tracking and logistics far more complex than projects in the U.S. or Europe that rely on concentrated industrial biomass. Each farmer represents a unique data point, a variable in a supply chain that must be monitored for quality, quantity, and permanence.

The core tension is between a proven technology and an unproven system. The pyrolysis process to create biochar is well-understood, and the IPCC recognizes it as a viable method. The real challenge is the "last mile" of aggregation. Varaha must build and maintain a digital monitoring, reporting, and verification (MRV) system robust enough to handle this decentralized network. Microsoft's own requirements for digital MRV forced Varaha to build bespoke systems in-house, a significant capital and operational burden. Success hinges on the company's ability to turn a network of small, independent producers into a reliable, high-volume supplier of verifiable credits. The project's initial scale is a pilot; the market's next phase will judge whether Varaha can execute at the scale of its ambition.

Financial and Strategic Implications for Microsoft

The deal with Varaha is a direct financial and strategic move to shore up Microsoft's carbon accounting as its emissions rise. The company's total greenhouse gas emissions rose 23.4% in fiscal year 2024, a figure that makes its pledge to become carbon-negative by 2030 increasingly difficult to meet without massive, verifiable removals. By committing to purchase over 100,000 tons of carbon dioxide removal credits over the next three years, Microsoft is securing a specific volume of high-integrity credits to offset a portion of its growing footprint. This isn't a speculative investment; it's a targeted procurement to fill a critical gap in its carbon ledger.

This move aligns Microsoft with a powerful market trend where corporate buyers are shifting from buying promises to buying tonnes. In 2025, the demand side began asking a blunt question: Will this actually get delivered? The answer is driving a market reckoning. Buyers like Google and Mirova are following a similar path, signing large contracts with developers like Varaha that focus on removal pathways centered around engagement with smallholder farmers. This shift prioritizes reliability and early delivery, favoring pathways like biochar that can generate credits now over long-dated engineered solutions. Microsoft's deal is a clear bet on this new paradigm of demand.

The strategic implication is that Microsoft is positioning itself as a quality-focused buyer within a maturing market. The voluntary carbon market is converging on integrity frameworks, and high-quality credits command clear premiums. By backing a project that must navigate stringent MRV requirements, Microsoft is not just securing credits-it's signaling its commitment to only purchasing removals with high integrity. This builds credibility for its own carbon claims and helps set a standard for the industry. The deal's value, therefore, extends beyond the tonnage; it's about securing the right kind of credits in a market that is rapidly moving from hype to hard delivery.

Catalysts and Risks: The Path to Exponential Adoption

The project's journey from a pilot to a scalable infrastructure layer hinges on a few critical catalysts and risks. The primary catalyst is Varaha's ability to successfully scale its Maharashtra operations. The initial phase targets 40,000–45,000 smallholder farmers. The company's broader ambition is to expand to 150,000 farmers. This jump in scale is the definitive test of its execution model. If Varaha can reliably aggregate, monitor, and verify the feedstock from this much larger, decentralized network, it will prove its system can handle the volume needed for a true industrial-scale removal pathway. Expansion into Gujarat and Rajasthan, where it is already tackling invasive Prosopis juliflora, would demonstrate the model's replicability across diverse Indian landscapes.

The biggest risk is the market's rapid maturation. The voluntary carbon market is moving past hype and toward a reckoning based on deliverability and integrity. As noted, 2025 was the year buyers stopped buying promises and started buying tonnes. This shift creates a high bar. New entrants and projects must now prove they can deliver verifiable credits on time. Policy turbulence adds another layer of uncertainty. Regulatory frameworks in major markets like the U.S. are evolving, and changes could impact the value and demand for different removal pathways. The market's focus on quality means that even a technically sound project like Varaha's will face intense scrutiny on its monitoring, reporting, and verification (MRV) systems.

A key uncertainty for the long-term value of its credits is the durability of the carbon storage. While the Intergovernmental Panel on Climate Change (IPCC) has recognised biochar as a viable carbon removal method, the permanence of that carbon in soil over centuries requires robust, long-term monitoring. Any doubt about the longevity of the sequestration could undermine the credit's value and the project's credibility. For Microsoft, which is buying credits for its own carbon accounting, this durability is not just a technical detail-it's a fundamental part of the credit's integrity.

The bottom line is that Varaha is building the rails for a terrestrial biomass S-curve. The catalysts are clear: scale the farmer network, expand geographically. The risks are equally clear: a maturing market demanding proof, and the persistent question of permanence. The project's fate will be determined by its ability to navigate this landscape of exponential adoption, turning a promising technology into a reliable, high-volume infrastructure layer.