Climate Tech
The Climate Tech Investor Who Won’t Touch DAC
Especially with carbon capture tax incentives on the verge of disappearing, perhaps At One Ventures founder Tom Chi is onto something.
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Especially with carbon capture tax incentives on the verge of disappearing, perhaps At One Ventures founder Tom Chi is onto something.
The House budget bill may have kept the 45Q tax credit, but nixing transferability makes it decidedly less useful.
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The culture wars are threatening one of the few bipartisan areas of climate policy.
On environmental justice grants, melting glaciers, and Amazon’s carbon credits
The Science Based Targets initiative released long-awaited guidance that doesn’t exactly clarify matters.
The carbon removal industry is in a rut.
Last year, companies with climate targets purchased about 8 million tons of future carbon removal — an impressive 78% increase from the year prior, according to the sales tracking site CDR.fyi. And yet 80% of those purchases were made by the same three entities — Microsoft, Google, and Frontier — that have been more or less singlehandedly supporting the industry since its inception. The number of new buyers entering the market declined by 18%.
“Demand is the greatest existential threat for the carbon removal industry,” Giana Amador, the executive director of the Carbon Removal Alliance, an industry group, told me. “These companies are developing technologies that don’t really have a natural customer. There are corporates who are purchasing carbon removal as part of their sustainability strategies, but buyers at scale are few and far between.”
That was all set to change when the Science Based Targets initiative, a nonprofit authority on best practices for corporate sustainability, released its revised Net Zero Standard — or at least that was the hope. The influential group had not previously given companies any direction as to whether they should be buying carbon removal in the near-term, and was widely expected to get more explicit about the need to do so. But while SBTi’s new draft standard, which was finally released on Tuesday, takes a step in that direction, it may not go far enough to make a difference.
As the name implied, SBTi’s previous Net Zero Standard assumed that companies would have to purchase carbon removal eventually — “net-zero emissions” means pulling carbon out of the atmosphere to offset emissions that can’t be eliminated at the source. The standard was designed to align companies with the Paris Agreement goal of limiting global warming to as close to 1.5 degrees Celsius as possible, and it expected companies to hit net-zero by 2050. But it didn’t say anything about what companies should do with regards to carbon removal between now and then.
As a result, many companies have interpreted that as “they shouldn’t or don’t have to buy carbon removal credits until 2049,” Lukas May, the chief commercial officer and head of policy at Isometric, a carbon removal registry, told me. “And potentially it’s even a bad thing if they did it before then because it might be considered a distraction from their decarbonization. And they certainly don’t get any credit for it from SBTi.”
The problem is that it may not be possible to remove the required amount of carbon from the atmosphere in 2049 if more companies don’t start paying for it now. Startups need demand to finance first-of-a-kind projects, learn from their mistakes, discover efficiencies, and scale. While the U.S. government has some funding available, it’s not enough.
Amador said she’s had conversations with potential carbon removal buyers who have been waiting on the sidelines, in part to see what SBTi would say. They are deterred by the cost, but they also want to make sure that if they do jump in, their investment will be viewed by this third-party authority as meaningful so that they avoid accusations of greenwashing. “I think there are a lot of companies who need to know that this is a core component of what counts as their net zero strategy, and they’re holding off on buying until they have greater clarity,” Amador told me.
But SBTi is in a precarious position. Some companies are starting to back away from their climate plans. Big tech, which once led the pack on climate, is now focused on developing AI and building data centers at the expense of increased emissions. Environmental, social, and governance strategies, or ESG, are now often viewed as more of a liability by investors than a selling point — not to mention a political risk in the U.S. under the Trump administration. Top corporate supporters of the American Is All In coalition, a group committed to upholding the Paris Agreement, recently refused to sign a letter reiterating that commitment. If SBTi’s new Net Zero Standard is viewed as too onerous or expensive to comply with, it’s easy to imagine companies deciding to walk away from it altogether.
In the proposal published Tuesday, SBTi proceeded with caution. In the section on carbon removal, it described several potential approaches of varying ambition. The first was to require that companies begin procuring carbon removal in 2030, starting with enough to offset just 5% of what they expect their residual emissions will be in 2050, and ramping up over time. The second was for companies to set their own voluntary near-term carbon removal targets and receive extra “recognition” from SBTi for doing so. The third approach would give companies more flexibility either to purchase carbon removal beginning in 2030, or to get ahead of schedule on their emission reductions, or to do some combination of the two.
It’s normal in draft proposals to see options with varying levels of ambition. But in this case, it’s not clear that even the first option is an ambitious goal. That’s because it would only apply to companies’ “Scope 1” emissions, the emissions a company has direct control over. Most of the companies that have sought out SBTi’s stamp of approval in the past have very small Scope 1 emissions. Take Apple, for example: Less than 1% of its emissions are Scope 1. The vast majority of its carbon footprint comes from the third parties that produce and ship its products and customers using the products — also known as “Scope 3” emissions.
Robert Hoglund, a carbon removal advisor who co-founded CDR.fyi, published a newsletter on Tuesday, in which he argued that the companies with significant Scope 1 emissions, such as those in aviation, shipping, heavy industry, and mining, have mostly ignored SBTi so far, and regardless, are less able to pay for carbon removal than companies further downstream. By his analysis, among the top 200 companies in the world, the 25 biggest Scope 1 emitters made annual average profits of $85 for every ton of carbon they released across all Scopes. The remaining companies made an average of $32,000.
“The downstream companies, especially in high-profit, low-emission sectors like finance, insurance, and tech, are needed to fund CDR efforts,” he wrote. “If only Scope 1 emissions are required to set interim targets for, then the durable CDR sector will likely fail to scale fast enough in the coming decade. This would risk giving us a lost decade ahead, jeopardising our ability to reach net zero.”
SBTi proposed several other important updates to the Net Zero Standard. Companies buying carbon removal may have to use a “like for like” approach, for instance, purchasing removal services that are as durable as the specific greenhouse gas they release in the atmosphere. In other words, carbon emissions would have to be offset with removals that last a thousand years, while nitrous oxide emissions could be offset with shorter-term removals. The group also recommended a deadline of 2040 for companies to move to low-carbon electricity.
Feedback on the draft is due by June 1, after which the group’s technical department and expert working groups will refine it. There may be another round of public consultation before a final draft goes to SBTi’s board for approval, the group said. It expects companies to begin using the new standard to refine their targets in 2027.
Widespread federal layoffs bring even more uncertainty to the DAC hubs program.
Grant Faber suspected his short tenure as the program manager for the Department of Energy’s direct air capture hubs initiative was up when he saw an article circulating that the department was set to terminate up to 2,000 employees — generally those who were new to their jobs. When he hadn’t received any news by the end of the day on Thursday, February 13, he told me he felt a sense of “anticipatory survivor’s guilt.” But it wouldn’t last long.
“I woke up Friday morning and I was locked out of all my systems, and I had to get my termination letter emailed to my personal email address,” Faber told me. “It more or less just said it’s in the public interest to do away with your job.”
President Trump's campaign to fire federal workers has hollowed out the DOE's nascent Carbon Dioxide Removal team, which sits within the Office of Fossil Energy and Carbon Management. When Trump first took office there were five employees on the CDR team, which helps to oversee implementation of the $3.5 billion Regional Direct Air Capture Hubs program, Faber told me. Now, he said, there’s only one left.
Trump’s layoffs targeted probationary employees, i.e. those who had been hired, promoted, demoted, or reassigned within the past one to two years, who enjoy fewer job protections than those with longer tenures. Faber had been at his job for 11 months. His former boss, Rory Jacobson, was also terminated a few weeks ago, as he’d recently been promoted to a new role as director of carbon removal at the DOE. “To my knowledge, this was not about terminating people that were doing DAC work, or climate work, or even CDR work,” Jacobson told me. “This was just a gross termination of federal employees, career federal employees across the federal government that were on probation.”
But the cumulative effect of these layoffs certainly increases the air of uncertainty around the DAC hubs program, which thus far include two large-scale projects — the South Texas DAC Hub and Louisiana’s Project Cypress — as well as 19 smaller hubs in earlier stages of feasibility and design development.
The various hubs’ commercial partners, which include universities, oil giants, and DAC startups themselves, were already mired in the limbo created by Trump’s Day One executive order, which froze funding from the Inflation Reduction Act and the Bipartisan Infrastructure Law. That order also led to an effective communications embargo, which prohibits the DOE from discussing or taking action on things such as contract negotiations or personnel decisions with its external partners. These recent terminations just add to the confusion.
“We’ve had no communications with DOE for three to four weeks now,” the lead of one DAC hub in the feasibility study stage told me. “So we’re kind of just waiting to see what they tell us to do.”
In the meantime, awardees are frustrated and unsure where to turn, Jacobson told me. “Should they reach out to their congressperson and try to get them to advocate on their behalf? Do they send a letter to the White House? What is the next step to try and make things move for their projects?” These doubts pose a big problem for startups with novel technologies trying to build out large infrastructure projects, as they generally have smaller margins, less patient investors, and thus less room for error than industrial stalwarts with proven strategies. “Especially for these first-of-a-kinds, they are working on pretty dire timelines for project finance,” Jacobson said.
The DAC hubs were already off to a slow start, according to Jacobson, who told me that the $1.2 billion from the initial funding opportunity issued at the end of 2022 took much longer to get out the door than anyone hoped for. Project Cypress didn’t see any of its initial $50 million award until March of last year, and the South Texas hub had to wait until September for the same funding. Jacobson chalked up the delays to the fact that the awardees are generally relatively early-stage startups that have yet to build significant infrastructure projects, and that the DOE is unfamiliar with negotiating such large-scale proposals.
Thankfully the DOE’s small CDR division isn’t the only government entity interfacing with the DAC hubs. The Office of Clean Energy Demonstrations is overseeing the buildout of the larger South Texas and Project Cypress hubs. And the National Energy Technology Laboratory is overseeing the implementation of the smaller DAC hubs, which are in the feasibility study and design planning stages. They’ve received a combined total of $121 million so far, though some are still negotiating the size of their awards.
OCED and NETL have also been impacted by the government-wide staffing cuts, however, potentially affecting their ability to pick up the slack from the decimated CDR team, which helped to provide top-level oversight and expertise. As Jacobson told me, his job was to “make a theory of change” that united the DOE’s various carbon removal initiatives, aligning them with the administration’s overall energy strategy, whatever it was. Absent this broader vision and explicit strategic direction, coordination among the various government agencies and implementation partners could suffer.
Day-to-day organizational details also stand to falter, Faber told me. In his role, he primarily provided oversight for the 19 smaller, earlier stage DAC hubs. “A lot of times, progress can come down to literally just things like getting signatures, getting approvals, communicating things to leadership back and forth,” he said. “If you don’t have a team in place coordinating those things at headquarters, everything’s just going to be more difficult.”
All that’s to say that further hold-ups could hit the hubs hard, especially the two large projects, which could eventually receive federal funding of up to $500 million to $600 million, provided the hubs can match that with funding from other sources. “If the DOE tries to back out or withholds funding and there’s uncertainty, then yes, it could severely delay or even kill some of those projects, or just result in massive reductions in their scope,” Faber told me. Perhaps other investors, such as climate tech VCs, would be willing to step in if this were to happen, he added.
Faber noted that one proof point that could give investors and other industry leaders confidence in this tech is the forthcoming large-scale DAC facility called Stratos from developer 1PointFive, a subsidiary of Occidental Petroleum, which is designed to remove up to 500,000 metric tons of CO2 annually and set to come online later this year. While Stratos is not a part of the hubs program, Occidental is using the same technology for its South Texas hub — tech that the oil giant brought in-house when it acquired DAC startup Carbon Engineering in 2023. And Heirloom, a DAC company that’s helping to lead Project Cypress, also recently raised a huge $150 million Series B round, showing continued investor confidence in this technology.
The DAC hubs program also still has billions of dollars yet to be awarded. A few months ago, the DOE announced a new $1.8 billion funding opportunity for mid- and large-scale DAC projects. Interested parties have already submitted their required concept papers and pre-applications, with full applications due at the end of July. But the current chaos puts applicants in a tricky spot, as the new administration’s commitment to the program overall is now somewhat of a question mark.
That being said, Jacobson told me there’s no indication that either Trump or Secretary of Energy Chris Wright is necessarily opposed to DAC, or carbon dioxide removal overall. “I still don’t think that we’ve seen a clear signal that this administration is not excited about CDR,” Jacobson said. “I have not heard Secretary Wright say — or other leadership at DOE say — that we are not still very enthusiastic about DAC hubs.”
DAC buildout also has an array of bipartisan benefits, both Jacobson and Faber noted, and hasn’t been a target of right-wing ire in the way that electric vehicles and offshore wind have. On the contrary, Republicans (and oil and gas companies) often argue for it as a way to continue fossil fuel production in a world that’s moving towards lower-emissions sources of energy. Not to mention the fact that these DAC facilities are mainly being built in red states, thus adding jobs and GDP in these regions.
“I thought these kinds of projects would get to keep going,” the DAC hub leader, whose project has had elements halted, told me. “They’re creating jobs, they’re investing in technology. I think they could be well aligned with unleashing America’s energy dominance.”
But these days, few Biden-era initiatives are safe. As Faber told me, if the Trump administration chooses to take a hard line stance against “any and all government funding and regulation, and anything that even has a tinge of being associated with climate,” then DAC is going to have a target on its back, even if some congressional Republicans have previously expressed support for it.
The budget reconciliation process will give us more insight into the specific IRA and BIL funding provisions Trump and other Republicans are looking to axe. That same process will also determine the fate of tax credits such as 45Q, which encourages carbon capture and sequestration. In the near term, Democrats are pushing to get language into the government funding bill (which is separate from the reconciliation bill and must pass in some form by mid-March) that would require Trump to deliver congressionally appropriated money. If that happens, funds would start flowing to the DAC hubs — but don’t bet on it. Republicans are adamant that they won’t stand for such limitations on presidential authority.
DAC grantees, government employees, and implementation partners alike will have to do the wait-and-see thing for a while longer. “I do believe that when we get out of this fog of the first 100 days of the new administration, when they’re just trying to move fast and break things and get big headlines and try to make it seem like they’re keeping campaign promises, maybe things will slow down,” Faber told me. “Maybe they’ll get distracted or just move on to a new issue other than dismantling the federal government.”