Carbon capture and removal receives record venture capital

We live in the midst of a carbon capture boom.


A new pitchbook data analysis published on Friday shows a record amount of venture capital investment flowing into post-combustion carbon capture companies and startups in the second quarter of this year. VCs invested an incredible $882.2 million across 11 deals, which easily set an industry record. For context, total investment in the sector for the previous four quarters combined totaled $432.1 million.

Post-combustion capture consists of removing carbon dioxide after it has been released. This includes point source capture – that is, the removal of carbon dioxide at the stack or wherever it is emitted – or direct air capture, which is the removal of carbon from the ‘ambiant air. The advantage of both forms over other forms of carbon capture is that they “can easily integrate (and capture carbon) with existing infrastructure,” according to PitchBook’s senior analyst analysis for emerging technologies, John MacDonagh.

Clearly, climate tech investors are taking notice. The biggest contributors to the significant uptick in investment were two big deals: Climeworks’ $634.4 million Series F round and Carbon Clean’s $190.7 Series C increase, with the former being the biggest investment ever in direct air capture technology. Carbon Clean also said its funding round was the largest ever for a point-source carbon capture company.

Carbon removal has a critical role to play in a net-zero world, although the amount needed depends on how quickly we reduce emissions now and in the decades to come. Industries like aviation, which are heavily dependent on fossil fuels and for which renewable energy alternatives are currently difficult or impossible to source, are part of the reason why direct air capture has taken off. scale.

Point-in-time carbon capture will also be crucial for industries like cement, which is responsible for 8% of global carbon emissions. Eliminating them from the manufacturing process will be extremely difficult, making carbon capture a near necessity for the industry.

While there are a growing number of companies looking to extract carbon from the skies or chimneys that attract VCs, regulations and policies are also aligning to make this a particularly attractive investment. Changes to the 45Q tax credit under the Cut Inflation Act, in particular, have made carbon capture more attractive. The IRA raised the value of carbon captured and used to extract more oil from the ground – a process with dubious climate benefits – from $35 a tonne to $60 a tonne. And it increased the tax credit for a tonne of carbon collected by direct air capture from $50 to $180.

Changes to the tax credit also lowered the eligibility threshold for projects, making it easier for small start-ups to qualify. That’s important “given the relative immaturity of the DAC space,” MacDonagh wrote, and it could help more startups get a foothold and grow.

Beyond venture capital funding, big tech companies have offered hundreds of millions up front to buy carbon removal services. This includes Frontier – Stripe, Alphabet and Meta are among its members – which has pledged to spend $925 million on zero carbon this decade. (The group made its first purchases this summer.)

As money pours into the space, technologies remain unproven at scale. And while regulations that could spur the growth of carbon capture and removal are in place, oversight is still relatively sparse. Parts of the carbon removal community are working on frameworks to ensure the technology does no harm, but a huge gap remains and any commitment would be voluntary at best.

There are also real concerns that the promise of carbon removal that works at some point could slow emissions cuts in the short term. This despite the fact that a ton of carbon not emitted today does not need to be eliminated tomorrow. Oil companies are investing heavily in carbon capture, which could give fossil fuels a lifeline or act as a front for greenwashing. (Carbon Clean’s Series C investment round was led by Chevron.)

Ultimately, venture capital investments are one piece of the puzzle in bringing the industry to maturity and ensuring it is used wisely and fairly.

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