Carbon capture and removal receives record venture capital money

We’re living in the midst of a carbon capture boom.

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

Post-combustion capture involves removing carbon dioxide after it’s been released. That includes point source capture — that is, removing carbon dioxide at the smokestack or wherever its emitted — or direct air capture, which involves removing carbon from the ambient air. The advantage both forms have over other forms of carbon capture is that they “can readily integrate with (and capture carbon from) existing infrastructure,” according to analysis from PitchBook’s senior analyst for emerging technology John MacDonagh.

Clearly, climate tech investors are taking note. The biggest contributors to the major jump in investment were two big deals: Climeworks’ $634.4 million Series F round and Carbon Clean’s $190.7 Series C raise, the former being the largest-ever investment 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 an essential role to play in a net zero world, though how much it’s needed depends on how fast we cut emissions starting now and into the coming decades. Industries like aviation, which rely heavily on fossil fuels and for which renewable energy alternatives are currently hard or impossible to procure, are part of the reason direct air capture has picked up steam.

Point source carbon capture will also be crucial for industries like cement, which is responsible for 8% of global carbon emissions. Wiping them out from the manufacturing process will be extremely challenging, making carbon capture a near necessity for the industry.

While there are a growing number of companies looking to pull carbon from the sky or smokestacks that are attractive to VCs, regulations and policies are also lining up to make them a particularly enticing investment. Changes to the 45Q tax credit as part of the Inflation Reduction Act, in particular, have made capturing carbon more appealing. The IRA bumped the value of carbon captured and used to pull more oil from the ground — a process of dubious climate benefit — from $35 per ton to $60 per ton. And it increased the tax credit for a ton of carbon gathered by direct air capture from $50 to as high as $180.

The changes to the tax credit also lowered the project eligibility threshold, making it easier for smaller startups to qualify. That’s big “considering the relative immaturity of the DAC space,” MacDonagh wrote, and it could help more startups gain a toehold and grow.

Beyond venture capital funding, major tech companies have offered up hundreds of millions in advance commitments to buy carbon removal services. That includes Frontier — Stripe, Alphabet and Meta are among its members — which committed to spending $925 million on carbon removal over the course of this decade. (The group made its first purchases this summer.)

While money is pouring into the space, the 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 commitments would be voluntary at best.

There are also real concerns that the promise of carbon removal working at some point down the road could slow emissions cuts in the near term. This despite the fact that a ton of carbon not emitted today doesn’t need to be removed tomorrow. Oil companies are investing heavily in carbon capture, which could give fossil fuels a lifeline or serve as greenwashing window dressing. (Carbon Clean’s Series C investment round was led by Chevron.)

Ultimately, VC investments are one piece of the puzzle in bringing the industry to maturity and ensuring that it’s used in a judicious and fair manner.