Why Investors Are Souring on This Once Red-Hot Climate Tech

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(Bloomberg) — As political winds shift in the US and big corporations pull back on their climate ambition, investors, too, are giving the cold shoulder to a nascent technology that will be vital to tackling climate change.

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US-based startups developing direct air capture (DAC) — machines that suck planet-warming carbon dioxide straight out of the air — received about $58 million from venture capitalists in the first three months of 2025, a more than 60% decline from a year ago, according to market research firm Pitchbook. The dip stands in contrast to the overall US climate tech sector, which saw a nearly 65% increase in investment during the same period. 

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The decline is a worrisome sign for the DAC industry, which needs every dollar it can get to scale. DAC and other technologies delivered less than 320,000 tons of carbon removal credits last year, according to industry tracker CDR.fyi. By mid-century, though, the world will almost certainly need to clean up billions of tons of CO2 in the atmosphere annually.  

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Nevertheless, investors are becoming increasingly cautious, says Rajesh Swaminathan, a partner at Khosla Ventures who has witnessed the shifting sentiment firsthand. Not long ago, “everybody had a check box on one direct air capture investment,” Swaminathan says. “Now, people are stepping back and saying, ‘Why didn’t I look at the economics there?’”

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‘A grim patina’

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There are many ways to permanently remove carbon from the atmosphere, ranging from scattering special rocks in fields to enabling oceans to absorb more CO2. DAC is one of the most expensive carbon cleanup solutions: Pulling CO2 from the air and storing it permanently underground can cost about $1,000 per ton or more, and companies are struggling to bring costs down. It is easily verifiable and more permanent than other methods.

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Until recently, concerns about unproven economics were partly addressed by billions of dollars in tax credits in the Inflation Reduction Act. Former President Joe Biden’s administration also launched a government-funded program to build DAC hubs in several US states to help demonstrate the technology at commercial scale. Driven by government support, venture investment in US-based DAC startups more than tripled last year from the 2023 levels to reach nearly $415 million, Pitchbook data show. But with the administration changing hands this year, the tide is once again turning.

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“The US direct air capture landscape right now is enveloped in this very grim patina,” says Brenna Casey, an analyst specializing in carbon removal at global consultancy BloombergNEF. “Political instability is a huge factor.”

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President Donald Trump and Congressional Republicans have threatened to revoke or roll back parts of the IRA incentives. The US Energy Department is also considering shutting down its Office of Clean Energy Demonstrations, which oversees the DAC hubs program. Among those projects on the chopping block is a pilot in Texas that was selected for an award of as much as $1.2 billion by the Biden administration.