Microsoft has reached an agreement to buy more than 100,000 tons of carbon dioxide removal credits from Indian climate startup Varaha, a deal believed to signal how the global race to scale artificial intelligence is reshaping climate strategies, carbon markets, and even rural farming systems far from Silicon Valley.

At its core, the deal, which is best understood not as a standalone sustainability move, links two very different pressures. On one side is Microsoft’s rapidly expanding cloud and AI business, which has pushed energy demand and emissions sharply higher. On the other hand, India’s long-running struggle with agricultural waste burning is an environmental and public health issue rooted in how millions of smallholder farmers manage crop residues after harvest.

According to TechCrunch, Varaha’s project seeks to connect those worlds by turning cotton stalk waste into biochar, a charcoal-like material that stores carbon in soils for long periods. Instead of being burned in open fields, releasing carbon dioxide and particulate matter into the atmosphere, the waste is processed in industrial reactors. The resulting biochar is then returned to farms, where it can improve soil quality and reduce the need for chemical fertilizers.

Microsoft will purchase the carbon removal credits generated by this process over the next three years, through 2029. The initial phase will focus on Maharashtra, one of India’s major cotton-producing states, and involve roughly 40,000 to 45,000 smallholder farmers. Over time, the project will expand across India’s cotton belt, supported by 18 industrial biochar reactors expected to operate for 15 years.

For Microsoft, the deal fits into a broader effort to reconcile ambitious climate targets with the operational reality of AI growth. The company has pledged to become carbon-negative by 2030. Yet its own disclosures show the challenge is intensifying. In fiscal year 2024, Microsoft reported total greenhouse gas emissions of 15.5 million metric tons of carbon dioxide equivalent, up 23.4% from its 2020 baseline. The increase was driven largely by value-chain emissions tied to data centers, cloud infrastructure, and AI workloads. The company has not yet published its emissions figures for 2025.

That rise helps explain why Microsoft is aggressively contracting for carbon removal rather than relying solely on efficiency gains or renewable energy procurement. In fiscal year 2024 alone, it signed agreements covering about 22 million metric tons of carbon removals. Recent deals include backing AtmosClear’s project in Louisiana, which aims to remove 6.75 million metric tons of carbon dioxide over 15 years, and an agreement to buy 3.6 million removal credits from a biofuels facility owned by C2X.

The Varaha agreement adds a different dimension to that portfolio. While many carbon removal projects are based in the United States or Europe and rely on centralized industrial waste streams, India offers scale through agriculture. The country produces vast amounts of crop residue every year, and much of it is burned because farmers lack affordable alternatives. That makes India an attractive market for carbon removal developers, especially as companies search globally for projects that can physically pull carbon dioxide out of the atmosphere.

Yet operating at that scale introduces complexity that goes beyond building reactors. One of the biggest bottlenecks in carbon removal markets is not technology, but execution. Credits are only issued after projects meet strict measurement, reporting, and verification standards. Ensuring consistent feedstock supply, tracking material flows, and documenting outcomes becomes far harder when operations involve tens of thousands of farmers rather than a single industrial site.

Varaha’s co-founder and CEO, Madhur Jain, said Microsoft’s digital monitoring requirements forced the company to develop bespoke systems in-house. He noted that working with dispersed smallholders makes logistics and verification significantly more demanding than biochar projects in wealthier markets.

“More than 30% of our team has worked in agriculture,” Jain said, pointing to that experience as critical in designing systems that function on farms rather than only on paper.

The first reactor under the Microsoft deal will be located next to Varaha’s 52-acre cotton research farm in Maharashtra. There, the company already tests how biochar performs under real farming conditions, including its impact on soil health and yields. From that base, Varaha plans to scale to 18 reactors nationwide, with a total projected carbon removal volume exceeding 2 million tons over the project’s lifetime.

The company’s recent growth trajectory suggests it is racing to meet rising demand from corporate buyers. In 2025, Varaha processed about 240,000 tons of biomass, producing roughly 55,000 to 56,000 tons of biochar and generating around 115,000 carbon removal credits. A year earlier, annual credit generation stood closer to 15,000 to 18,000. Jain said the company aims to at least double its biomass throughput in 2026 to around 500,000 tons, with close to 250,000 tons of carbon sequestered.

Beyond biochar, Varaha operates 20 projects across India, Nepal, and Bangladesh, covering regenerative agriculture, agroforestry, and enhanced rock weathering. Fourteen of those projects are in advanced stages, with another six earlier in development. Together, they involve around 150,000 farmers and have the potential to sequester about 1 billion tons of carbon dioxide over lifetimes ranging from 15 to 40 years, according to the company.

For Microsoft, the strategic value of such projects lies in durability. Biochar is considered a long-lived form of carbon storage, which is increasingly favored by corporate buyers seeking higher-quality credits.

“This offtake agreement broadens the diversity of Microsoft’s carbon removal portfolio with Varaha’s biochar project design that is both scalable and durable,” said Phil Goodman, Microsoft’s carbon dioxide removal program director.

Even so, the numbers underline a structural tension. The volumes involved in individual carbon removal projects remain small relative to Microsoft’s overall emissions footprint, particularly as AI-driven demand continues to rise. Carbon removal is becoming less of a supplementary measure and more of a core pillar of corporate climate strategies, yet it is still playing catch-up with the pace of emissions growth.

Google is following a similar path. In January 2025, the company agreed to buy 100,000 tons of carbon removal credits from Varaha, marking its largest biochar deal to date. The parallel moves by two of the world’s largest technology firms show how competition in AI is spilling into competition for scarce, high-quality carbon removal capacity.

For India, the implications extend beyond corporate balance sheets. If projects like Varaha’s scale successfully, they could help reduce open-field burning, improve soil health, and create new revenue streams for farmers. Biochar application has the potential to lower dependence on chemical fertilizers, a significant cost for smallholders, while also addressing air pollution linked to residue burning.

Still, the broader question remains unresolved. Carbon removal projects take years to build, operate, and verify, while AI infrastructure is expanding at a much faster pace.

U.S. Treasury yields pushed higher on Thursday as investors digested a combination of firmer-than-expected labor market data and a dense overlay of political and geopolitical risks that are reshaping expectations for U.S. monetary policy in 2026.

The move was led by the front end of the curve, a signal that markets are recalibrating the timing and pace of Federal Reserve easing. The 2-year Treasury yield climbed to about 3.55%, rising more than 3 basis points, while the benchmark 10-year yield edged above 4.15%. Long-dated debt was steadier, with the 30-year yield hovering near 4.79%, underscoring a modest steepening pressure driven by policy repricing rather than inflation fears.

At the center of the shift was fresh evidence that the U.S. labor market remains sturdier than many investors expected at this stage of the cycle. Initial jobless claims fell to 198,000 for the week ended January 10, well below consensus expectations of 215,000. The data added to a growing body of evidence that layoffs remain limited, even as hiring slows and corporate cost-cutting continues in selective sectors such as technology and finance.

For the Federal Reserve, a resilient labor market complicates the argument for early or aggressive rate cuts. Policymakers have repeatedly emphasized that sustained progress on inflation must be accompanied by a cooling in labor conditions. Claims below the 200,000 mark suggest that demand for workers remains strong enough to keep wage pressures from easing quickly.

That reassessment showed up immediately in derivatives markets. According to the CME FedWatch Tool, the probability of an April rate cut slipped to just over 30%, down from the mid-30% range a day earlier. Markets are now broadly aligned around a slower easing path, with expectations centered on two quarter-point cuts in 2026, rather than a front-loaded cycle.

The bond market reaction also reflects caution about the broader economic narrative. While growth has moderated, the U.S. economy has so far avoided the sharp deterioration many predicted amid higher borrowing costs. Consumer spending has softened but not collapsed, and corporate earnings have generally held up, reinforcing the view that the Fed can afford to remain patient.

Beyond the data, political and geopolitical uncertainty is adding another layer of complexity to bond pricing. Investors are closely watching tensions involving U.S. foreign policy, which have intensified in recent days. President Donald Trump’s insistence that U.S. ownership of Greenland is essential to national security has rattled relations with Denmark and raised concerns in European capitals about Washington’s long-term strategic intentions.

A meeting this week between U.S., Danish, and Greenlandic officials ended without agreement, with a Danish official describing “fundamental disagreement” over the island’s future. While the immediate market impact has been muted, investors are increasingly sensitive to geopolitical disputes that could influence defense spending, trade relations, and fiscal priorities.

Tensions with Iran are also weighing on sentiment. Speculation earlier in the week that the U.S. might respond militarily to Tehran’s crackdown on protests pushed investors toward safe assets. Trump’s comments on Wednesday, suggesting that executions had stopped and that there was no immediate plan for military action, eased some of those concerns, but uncertainty remains high, particularly given the risk of disruptions to global energy markets.

Compounding these risks is renewed anxiety about the independence of the Federal Reserve. Reports of an ongoing criminal investigation involving Fed Chair Jerome Powell have unsettled investors, especially amid heightened political pressure from the White House. Any perception that monetary policy could be influenced by political considerations risks undermining confidence in the Fed’s ability to anchor inflation expectations.

Global central bankers moved quickly to push back against such concerns, issuing statements defending Powell and stressing that central bank independence is essential for price stability, financial stability and long-term economic health. Their intervention highlights how sensitive markets are to even the suggestion of political interference in monetary policy.

Taken together, Thursday’s rise in Treasury yields reflects more than a single data point. It signals a market grappling with a stubbornly resilient labor market, fading hopes for quick rate cuts, and an increasingly charged political environment at home and abroad. The message for investors is that the path to lower rates is likely to be slower and more uneven, with bond markets continuing to react sharply to any data or developments that challenge assumptions about when the Fed can finally ease.

For years, battery factories symbolized the electric vehicle future U.S. automakers were racing toward. Today, many of those same factories are being quietly reimagined as part of the country’s energy infrastructure, as carmakers confront a slower-than-expected EV transition and search for ways to prevent billions of dollars in investments from becoming stranded assets.

The turn toward energy storage is not simply a diversification play. It is a recalibration forced by misaligned timelines between industrial ambition, consumer behavior, and the pace at which supporting infrastructure has developed. Automakers built battery capacity for an EV boom that has not materialized as quickly as forecast. Energy storage now offers a way to keep those plants running, while aligning more closely with where demand is already accelerating.

That demand is coming less from households buying electric cars and more from the backbone of the digital economy. Data centers, cloud computing facilities, and artificial intelligence workloads are driving electricity consumption higher after years of stagnation. Utilities, facing rising peak demand and an increasingly renewable-heavy grid, are under pressure to deploy storage to maintain reliability. In this environment, batteries are no longer framed as accessories to green transport, but as core components of national energy resilience.

This shift places automakers in an unfamiliar role. Instead of betting primarily on consumers replacing gasoline cars with electric ones, they are positioning themselves as suppliers to utilities, large corporations, and energy markets shaped by regulation and long-term planning. That is a fundamentally different business model. Sales cycles are longer, margins are shaped by contracts rather than branding, and success depends as much on grid integration as on manufacturing scale.

Ford’s decision to convert part of its Kentucky battery plant to energy storage production captures this pivot. The factory was built for an EV future that now looks more incremental than transformative. Rather than slow production or absorb losses, Ford is repurposing capacity toward a market that can absorb large volumes of batteries without depending on fickle consumer sentiment. The same logic underpins General Motors’ expansion of GM Energy, which is increasingly framed less as an extension of EV sales and more as a standalone power business.

Tesla, which entered energy storage long before its rivals, provides a glimpse of why the strategy is appealing. Its Energy division has delivered steadier growth and stronger margins than its automotive business at a time when EV competition is intensifying, and pricing pressure is rising. For legacy automakers struggling to defend profitability in cars, the contrast is striking.

Yet the move also carries risks that echo earlier miscalculations. Energy storage demand is real, but its scale and timing remain uncertain. Utilities are cautious buyers, constrained by regulation and rate-setting processes. Residential storage systems remain expensive, limiting mass adoption. Analysts warn that if too many manufacturers flood the market with capacity, pricing pressure could emerge quickly, replicating the oversupply problems now visible in EVs.

There is also a geopolitical dimension shaping this transition. U.S. industrial policy increasingly favors domestic production and seeks to reduce reliance on China, which dominates global battery and energy storage supply chains. Tax credits and incentives reward projects that avoid “foreign entities of concern,” creating a powerful incentive for automakers to pivot their U.S.-based factories toward grid storage.

In effect, energy storage has become a politically safer outlet for battery investment than EVs, which remain exposed to shifting consumer incentives and regulatory uncertainty.

Still, success is not guaranteed. Energy storage batteries differ technically from vehicle batteries, prioritizing durability and cost over weight and compactness. More importantly, automakers must develop capabilities far outside their traditional comfort zone, from working with utilities to navigating energy markets and grid codes. Competing against established players with years of operational experience will test whether scale alone is enough.

What is unfolding, then, is less a clean pivot than a pragmatic response to a mismatch between expectations and reality.

Automakers built for an electric vehicle surge that stalled. Energy storage offers a bridge, allowing them to keep factories humming while tapping into a sector where demand is growing for reasons that have little to do with car sales.

In the process, the meaning of the battery is changing. It is no longer just the heart of an electric car, but a strategic asset in a power system under strain from digitalization, climate pressures, and geopolitical realignment.