Carbon Capture Startups Face Cost and Funding Challenges

The High-Stakes Race for Affordable Carbon Removal

Direct air capture (DAC) technology, once hailed as a revolutionary solution to climate change, is facing significant headwinds in 2025 as startups grapple with stubbornly high costs and shifting investor sentiment. While the technology holds immense promise for removing carbon dioxide directly from the atmosphere, current costs ranging from $500 to $1,000 per ton remain far from the industry's ambitious $100 per ton target needed for widespread adoption.

The Cost Reality Check

According to recent analysis, the $100 per ton benchmark has become something of a mythical target in the DAC industry. 'The $100 figure originated from 2018 estimates and DOE funding targets, but inflation-adjusted calculations show it would be $130 today and potentially $215 by 2050,' explains Phil De Luna, a climate technology expert. The reality is that most operational DAC systems currently operate at costs between $500 and $1,000 per ton, making carbon removal an expensive proposition.

Startups like Climeworks, which recently secured $162 million in funding to accelerate scaling, and Holocene, which made headlines by selling carbon credits to Google at $100 per ton, represent different approaches to tackling the cost challenge. However, industry observers note that Holocene's achievement comes from a small 10-ton pilot plant, raising questions about scalability.

Investor Outlook Turns Cautious

The investment landscape for carbon capture startups has shifted dramatically in 2025. According to Pitchbook data, U.S. DAC startups received only $58 million in venture capital during Q1 2025 - a dramatic 60% decline from the previous year. This stands in stark contrast to the overall U.S. climate tech sector, which saw a 65% investment increase during the same period.

'Many climate tech companies that emerged during the Biden era are ready to deploy technologies but struggle to secure capital for first-of-their-kind projects,' notes an industry report from the Los Angeles Times.

New Funding Initiatives Emerge

In response to the funding crisis, a coalition of top venture capital firms including Khosla Ventures, Breakthrough Energy Ventures, and DCVC has launched the "All Aboard Coalition" to address the critical funding gap. The initiative aims to close an initial $300 million fund by October 2025 and make its first investments this year.

'This collective action responds to a dramatic 60% decline in venture funding for direct-air capture technologies in early 2025,' according to coalition representatives. The coalition members collectively manage over $40 billion in assets and will use the fund alongside their individual investments to support startups on the brink of commercialization.

Technology Innovation and Scaling

Despite the challenges, technological innovation continues to drive progress. Companies are exploring various approaches to reduce costs, including leveraging economies of scale through larger facilities like Climeworks' 40,000 tonne/year plant and 1PointFive's upcoming megatonne-scale Stratos facility. Emerging innovations include semi-continuous sorbent processes, lower-temperature solvent regeneration, and electrochemical methods from startups like Carbon Blade and Parallel Carbon.

Government support remains crucial, with programs like Canada's 60% Investment Tax Credit and the US 45Q credit worth $180 per ton helping to bridge the current cost gap. Recent corporate deals, including Microsoft's purchase of 500,000 tonnes from Stratos and Google's $100 per ton agreement with Holocene, demonstrate growing corporate confidence in DAC's cost-reduction trajectory.

The Path Forward

As the industry navigates these challenges, experts suggest that rather than fixating on the arbitrary $100 per ton target, the focus should be on whether DAC can reach the social cost of carbon, estimated at $185 per ton in the US and $266 in Canada. 'Even at $300-$500 per ton, DAC could deliver substantial net benefits by avoiding future climate costs,' argues De Luna.

The coming years will be critical for determining whether direct air capture can transition from promising technology to scalable climate solution, with cost reduction and sustained investment being the key determinants of success.