Just months ago, the carbon capture industry was soaring with optimism. With billions in investment, soaring demand for carbon removal credits, and projections valuing the market at $1.2 trillion by 2050, it seemed like a golden age for startups tackling climate change head-on.

High-profile backers like Bill Gates, along with tech giants including Google, Airbus, and Amazon, had raised hopes that carbon dioxide removal (CDR) could become a major tool in the global push for net-zero emissions. But that momentum has slowed sharply, dragged down by shifting political winds and mounting questions about the industry’s long-term viability.

A Shift in the Political Climate

The start of President Trump’s second term has brought significant changes to U.S. climate policy, putting pressure on the still-nascent carbon capture sector. In a dramatic move, the Department of Energy (DOE) recently canceled 24 grants worth $3.7 billion, most of which had been allocated to carbon capture and storage (CCS) projects.

In addition, permit applications for new CCS projects dropped by 55% in the first quarter of the year. Startups have started to feel the strain: Climeworks, one of the industry’s top players, announced layoffs of 22% of its workforce. Other startups, such as Heirloom and Pachama, have also made cuts.

“There is a new administration in the U.S.,” said Jan Wurzbacher, co-CEO of Climeworks. “That’s a fact, and the new administration puts certain things in question.”

Technological and Operational Setbacks

Beyond political uncertainty, the technology itself is facing scrutiny. Climeworks’ flagship direct air capture plant in Iceland has removed far less carbon than initially expected in its first 10 months of operation. “It takes time to ramp up,” said Wurzbacher. “We are just at the beginning, and it has taken longer than we thought.”

The company has since shifted focus. Rather than expanding aggressively, Climeworks is now concentrating on making its carbon removal process more efficient and cost-effective.

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Not All Doom and Gloom

Despite setbacks, there are signs of resilience. Two major direct air capture projects greenlit during the Biden administration, including Project Cypress in Louisiana involving Climeworks, were not among those canceled by the DOE.

Even under the new political climate, tax credits for carbon capture have survived negotiations. Although the transferability of these credits might be limited, they still offer a lifeline to companies working in this space.

In April, Occidental Petroleum received federal approval to sequester carbon dioxide with its new Texas facility. CEO Vicki Hollub described the project as one that could “help the United States achieve energy security,” while also aiding companies in reducing their greenhouse gas emissions. However, the dual use of captured carbon for enhanced oil recovery has drawn criticism from climate advocates who worry that it blurs the line between climate action and fossil fuel expansion.

The Volatile Market for Carbon Credits

The carbon removal market is still largely voluntary, relying on corporations to buy carbon credits from startups. Firms like Microsoft, JPMorgan, and Bain & Company continue to support the sector, according to CDR.fyi, a site that tracks the industry.

Still, its CEO, Alexander Rink, remains cautious. While he expects sales of carbon credits tied to direct air capture to grow, he also foresees more companies going out of business.

The Carbon Capture Coalition, an industry group, criticized the DOE’s decision as “a major step backward in the nationwide deployment of carbon management technologies.”

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As the dust settles, companies like Climeworks are adapting. “Looking at the world around us, we’ve decided that we need a little bit of consolidation,” said Wurzbacher.

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Source: The New York Times