Why Billions Are Bailing on Climate Tech

Is Climate Tech the Next Theranos-Level Flameout?

As political dynamics shift in the U.S. and major corporations retreat from their climate commitments, investor enthusiasm for a crucial climate technology is also fading.

U.S. startups focused on direct air capture (DAC); machines that remove carbon dioxide directly from the atmosphere, secured only about $58 million in venture capital during the first quarter of 2025, according to market research firm Pitchbook.

That figure marks a more than 60% drop from the same period in 2024. Interestingly, this decline runs counter to the broader U.S. climate tech sector, which saw investments jump by nearly 65% over the same timeframe.

The downturn is troubling for the DAC sector, which needs significant capital to scale. Last year, DAC and similar technologies accounted for fewer than 320,000 tons of carbon removal credits, based on data from CDR.fyi. But by 2050, global efforts will likely require the removal of billions of tons of carbon annually.

Despite this growing need, investor confidence is waning, says Rajesh Swaminathan of Khosla Ventures. “Not long ago, everyone was eager to back a DAC company,” he notes. “Now, they’re pausing to question the economic feasibility.”

A Grim Outlook

Carbon can be permanently removed through several methods, including spreading mineral dust on farmland or enhancing oceanic CO2 absorption. DAC stands out as one of the costliest approaches; capturing and storing CO2 can exceed $1,000 per ton, though it is highly verifiable and long-lasting compared to other options.

Previously, generous tax credits from the Inflation Reduction Act (IRA) and federally funded DAC hubs helped ease concerns about the high costs. Thanks to this support, U.S. DAC startups raised almost $415 million in 2024, more than triple the amount from 2023, Pitchbook reports. But with the White House changing hands in 2025, those tailwinds are fading fast.

“The current U.S. DAC environment feels overshadowed by uncertainty,” says Brenna Casey, a carbon removal analyst at BloombergNEF. “Political instability plays a major role.”

President Donald Trump and GOP lawmakers have threatened to undo parts of the IRA, and the Department of Energy may shutter the Office of Clean Energy Demonstrations, which oversees the DAC hubs.

One of the affected initiatives could be a Texas pilot project set to receive up to $1.2 billion in federal funding.

“Looking ahead, the next few years don’t seem very promising for DAC from a federal policy standpoint,” Casey adds.

Carbon Credit Concerns

Another revenue stream for DAC startups, corporate purchases of carbon removal credits, is also under threat. Large companies have been paying premium prices to offset emissions, such as Microsoft’s deal to buy 500,000 metric tons of carbon credits from Occidental Petroleum’s DAC subsidiary, 1PointFive.

However, as more firms scale back their climate pledges, demand for these high-priced credits could weaken.

While any slowdown in the voluntary carbon market would affect the offset industry, DAC could be hit hardest due to its reliance on a small pool of high-paying buyers. Traditional forest-based carbon credits can be bought for under $10 per ton, while DAC credits average around $715 per ton, according to CDR.fyi.

“Without solid government support or a thriving voluntary market, DAC project financing appears more fragile than it did even a year ago,” says Sophie Bakalar of Collaborative Fund.

Despite the gloomy quarter, industry proponents caution against drawing broad conclusions.

“One data point doesn’t define a trend,” says Giana Amador, executive director of the Carbon Removal Alliance. She noted that in March, California’s Capture6 raised $27.5 million from private investors — a sign of ongoing interest.

“We remain optimistic about DAC’s long-term potential to grow, attract capital, and scale,” Amador says.

We built climate.online to be your go-to guide in the fast-moving world of ESG and climate tech. Hope you find it useful. Hope it sparks ideas.

Your impact starts here. Big or small, every step counts. And we’re here to back you up—every step of the way.

Got ideas? Wanna collaborate? Looking for sponsorships? Hit us up. Let’s make something happen.

Thank you for reading

-Climate.online and team