The climate tech world, ever prone to cycles of dizzying hope and stark reality, is currently watching one of its most promising innovations navigate a treacherous downturn.
A mere year ago, Direct Air Capture (DAC), the ambitious technology designed to pull carbon dioxide directly from the atmosphere, was heralded as a burgeoning titan, seemingly poised for rapid, large-scale deployment across the United States.
Today, it finds itself caught in what innovators grimly refer to as the “valley of death,” a perilous stage where nascent technologies struggle to bridge the gap between proof-of-concept and commercial viability.
The enthusiasm was palpable.
Early 2024 saw colossal projects like Louisiana’s Project Cypress, aiming to capture over a million tons of CO2 annually, secure a crucial $50 million from the Department of Energy (DOE).
A similar hub in Texas also received significant backing.
These initiatives were part of a grand vision, eligible for up to $1.1 billion from the DOE, itself a slice of the $3.5 billion Congress earmarked for DAC hubs in the 2021 Bipartisan Infrastructure Law.
Private capital flowed freely, with industry pioneers like Climeworks expanding globally, hiring aggressively in the U.S., and sealing major carbon removal deals with corporate giants such as British Airways and Morgan Stanley.
Heirloom and CarbonCapture, two other promising startups, collectively raised over $230 million in funding rounds.
The U.S. was, by all accounts, staking its claim as the global leader in this critical climate solution.
Fast forward to the present, and the narrative has shifted dramatically.
Leaked documents reveal a potential revocation of approximately $50 million in DOE grants across ten different DAC projects, part of a broader $7.5 billion in cancellations for what a new administration has controversially dubbed “Green New Scam” funding.
More alarmingly, a second leaked spreadsheet hints that even the flagship hubs in Louisiana and Texas, once symbols of federal commitment, might be on the chopping block.
The ripple effects are already evident: Heirloom and Climeworks, once on aggressive growth trajectories, have both conducted rounds of layoffs, and Heirloom has reportedly shelved a planned project.
The momentum, once a roaring engine, now sputters.
“I think it could slow down substantially,” warns Eric O’Rear, associate director at the Rhodium Group, an economic and policy research firm.
“If you look at it from a policy perspective, the U.S. was really dominating this space.”
The sudden chill threatens not just domestic progress but could have reverberations across the nascent global DAC industry.
Direct Air Capture remains an infant industry.
Though the underlying science was proven decades ago, the first commercial plant, Climeworks’ facility in Iceland, only opened in 2021.
While a landmark achievement, its annual capture capacity of 4,000 tons of CO2 is a mere whisper against the gargantuan 10 billion tons the National Academy of Sciences estimates the world will need to remove annually by mid-century, in addition to aggressive emissions cuts.
Critics have long questioned the technology’s exorbitant costs, but proponents argue that scaling up will inevitably drive prices down through economies of scale and “deployment-led innovation.”
As Climeworks CEO Christoph Gebald articulated, “running DAC plants in the field for rapid, real-world learning” is key.
His company, for instance, has already improved sorbent longevity tenfold and aims to halve energy consumption and costs, targeting $250-$350 per ton by 2030, with an ultimate industry goal of $100 per ton—the elusive tipping point for widespread affordability.
Yet, as U.S. federal support wavers, the question arises: who will bear the burden of this learning curve?
Other nations are stepping into the void.
Canada, for example, is emerging as a significant player, offering robust incentives that have already lured CarbonCapture to relocate a planned Arizona project to its Deep Sky site in Alberta.
Denmark and Japan are also bolstering their own DAC initiatives.
“Globally, we are seeing carbon removal continuing to scale,” notes Ben Rubin, executive director of the Carbon Business Council.
“I think the big question is, who will be home to those economic benefits and who will be home to those jobs?”
Project Cypress alone was projected to create 2,300 jobs and inject billions into Louisiana’s economy—benefits now hanging in the balance.
Despite the headwinds, the industry is far from stagnant.
Resilience is emerging from unexpected quarters.
1PointFive, a subsidiary of oil giant Occidental, is pressing ahead with its Stratos facility in Texas, set to become the world’s largest DAC operation, capturing up to 500,000 tons of CO2 annually.
Crucially, Stratos is proceeding without DOE funding, backed by private investment from BlackRock and a significant carbon removal purchase agreement with Microsoft, which notably stipulated the CO2 would not be used for enhanced oil recovery (EOR).
While the use of captured CO2 for EOR remains a contentious issue from a climate perspective, the project also plans permanent geological storage.
Smaller, innovative players are also finding their footing.
Avnos, a California startup, is nearing completion of Project Brighton, a pilot funded by the U.S. Office of Naval Research.
Their unique hybrid technology captures both CO2 and water, drastically cutting energy needs and projecting costs below $250 per ton, with a “good line of sight” to $100.
CEO Will Kain emphasizes a diversified funding strategy, a prudent move in this uncertain climate.
Similarly, Denver-based Heimdal is pursuing an unconventional, low-cost approach, using calcium oxide to naturally react with and capture CO2.
Co-founder and CEO Marcus Lima describes it as “literally just spraying rocks on the ground,” achieving costs around $200 per ton.
While Heimdal makes pragmatic compromises, such as using natural gas as an energy source and selling CO2 for EOR, Lima views these as necessary stepping stones.
He argues for a shift away from over-reliance on grants: “My view is, at least for capital projects, federal funding should serve as an accelerant, as an enabler… Reality now starts to matter a lot more, because you don’t have hundreds of millions of dollars in the venture markets that you can just have like that.
Projects need to make money.”
Indeed, a critical tax credit for DAC, 45Q, not only survived recent congressional cuts but was expanded, offering a glimmer of continued federal support.
This, coupled with the inherent global demand for carbon removal, fuels optimism.
Yet, the current environment of reduced federal grants undeniably makes it harder for pioneering projects to launch in the U.S.
“With this pullback in federal support, there is going to be increased uncertainty as it relates to how healthy the environment is for investing in the U.S.,” O’Rear observes.
As the planet hurtles past critical warming thresholds, the need for diverse climate solutions intensifies.
Erin Burns, executive director of the carbon removal nonprofit Carbon180, articulates the fundamental challenge: “We don’t know which of these technologies is going to be best at scale—best economic performance, best technical performance, the right kind of projects that communities want to host.”
By withdrawing support, the U.S. risks not only ceding its leadership and the associated economic benefits but also stifling the very experimentation and innovation needed to discover those optimal solutions.
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