In recent months, voluntary carbon markets have been shaken by reports questioning the effectiveness of certain carbon credits, such as those from clean cookstove and rainforest protection projects. These critiques have led to falling credit prices and reduced incomes for communities that rely on them, particularly in Africa. This has, in turn, pushed some communities toward unsustainable activities like deforestation and land degradation.

While markets are beginning to stabilise, the episode highlighted two critical lessons: the importance of transparent impact measurement and the risks of overreliance on carbon income alone. Even under ideal conditions, carbon revenues are often insufficient to fully replace unsustainable practices.

Landowners and farmers need additional income streams, which is where biochar—a promising yet underutilised tool—can make a difference.

What Is Biochar?

Biochar is a carbon-rich material, similar to charcoal, made by heating organic waste like wood or crop residues in a low-oxygen environment. The process, known as pyrolysis, locks carbon into a stable form and produces a by-product of clean energy.

Though biochar is best known for its use in agriculture—where it improves soil health, water retention, and nutrient availability—it has a wide range of applications. It can clean up contaminated soil, filter pollutants from wastewater, and even strengthen building materials like concrete. Because of its versatility and climate benefits, biochar commands high prices in carbon markets, offering landowners additional ways to earn income sustainably.

“Generating enough income from sustainable land management activities is a real challenge in the fight against climate change and is the main barrier to entry for landowners or smallholder farmers who want to make a difference,” explains Eduardo Tugendhat, Partner for Inclusive Growth and Nature at Palladium. “Fortunately, a recent report is shining a spotlight on an underutilised tool with immense potential to solve this dilemma: biochar.”

Despite its potential, biochar has yet to reach its full impact, as outlined in a recent report by the International Biochar Initiative.

The study identifies three main barriers: lack of demand, overreliance on a single revenue stream, and limited access to financing for equipment manufacturers.

1. Lack of Demand

Although biochar has many applications, high-quality markets are underdeveloped. Producers often struggle to find reliable buyers for uses like mine reclamation, wastewater treatment, or sustainable construction. Without consistent demand, it’s difficult to scale production.

“Targeted engagement of potential buyers for each of the many uses of biochar will be essential, so that producers can understand their specific needs and then produce to those standards,” says Tugendhat.

For instance, trade shows and industry events can help connect biochar producers with customers in priority markets.

A similar strategy has worked in other sectors. In Peru, beverages company Grupo Aje partnered with local farmers to scale production of Amazonian fruits like camu camu and aguaje, which are now key ingredients in juices sold across Latin America and the U.S., adds Tugendhat. This success has expanded sourcing to Colombia and Ecuador, providing more communities with sustainable income.

2. Overreliance on Carbon Credits

Many biochar producers rely too heavily on carbon credits for their revenue. In South America and Africa, over half of producers earn more than 90% of their income from carbon credits. While this may work in the short term, fluctuating carbon prices and rising labour costs could undermine the sustainability of these business models.

In North America and Asia, however, many producers are not participating in carbon markets at all. “The significant time, effort, and cost required to become certified to sell carbon credits, monitor production, and verify climate impacts prevent producers from accessing this revenue stream,” says Tugendhat.

Governments can support producers in diversifying income streams. For example, biochar can be sold for agricultural use, in sustainable construction, or for mine reclamation—providing steady revenue alongside carbon credit sales. Wildfire prevention efforts in North America also offer opportunities, as managing excess wood could supply biochar producers with raw materials while reducing fire risks.

3. Financing for Equipment Manufacturers

Equipment manufacturers are essential to the biochar market, yet they face their own challenges. In 2023, biochar equipment sales reached $241 million—just shy of the $330 million earned by producers themselves. However, many manufacturers struggle with limited access to financing, which hinders their ability to scale production and meet growing demand.

“To help address these issues, governments could fund programs that incentivise banks and other financial institutions to lend to such manufacturers, either through pay-for-results incentives or blended finance instruments,” says Tugendhat.

“They could also help financial institutions to better understand the risks and opportunities of the biochar market and create financial products (such as consumer financing) that are tailored to the sector.”

Unlocking Biochar’s Potential

To overcome these challenges, governments, businesses, and non-profits must work together to support the biochar industry. This includes fostering demand, helping producers diversify income streams, and addressing financing gaps for manufacturers.

One promising avenue is biochar “insetting,” where companies integrate biochar into their own supply chains to reduce emissions. For instance, a food company could use biochar in agricultural supply chains to improve soil health, reduce fertiliser use, and enhance crop yields—all while locking carbon into the soil.

Biochar’s potential goes beyond its environmental benefits; it’s a tool for strengthening rural economies and livelihoods. For example, in parts of South America, where farmers often face the choice between sustainable land management and more lucrative but harmful activities like illegal logging or mining, biochar offers a viable alternative. It provides income, improves soil productivity, and reduces reliance on environmentally destructive practices.

Similarly, in wildfire-prone areas of North America, biochar production can create jobs while helping to manage forest health. And in Africa, where many producers depend on carbon credits, diversified biochar markets could provide more stable incomes over the long term.

A Regenerative Path Forward

As governments and businesses seek scalable solutions to the climate crisis, biochar offers a compelling option. It addresses key challenges like carbon removal, sustainable agriculture, and rural development, while providing a foundation for regenerative business models.

“Solutions like these will allow biochar to realise its full potential as a strong foundation for regenerative business models that can accelerate sustainable land management at scale while strengthening rural economies and livelihoods worldwide,” says Tugendhat.

With the right investments, biochar can accelerate sustainable land management, improve livelihoods, and help countries achieve their climate goals—one field, forest, and factory at a time.