Remember Running Tide? The aquaculture company from Portland, Maine, that promised to sink kelp to the seafloor, sequestering a billion tons of carbon dioxide by this year? It sounded like a brilliant, nature-based solution to climate change, attracting over $50 million in funding. Then, last summer, it quietly shut down, becoming the biggest bust yet in the burgeoning carbon removal sector. It was a stark reminder that even the most ambitious climate solutions aren’t immune to the harsh realities of business and the complex challenges of scaling innovation.
Running Tide’s demise wasn’t an isolated incident. In recent months, other carbon removal startups have shuttered, downsized, or pivoted. Venture investments are flagging, and the collective industry is nowhere near its ambitious benchmarks. Robert Höglund, cofounder of CDR.fyi, puts it plainly: “We’re past the peak of expectations.” It seems the carbon removal space is entering a turbulent, yet perhaps inevitable, clearing-out cycle. So, if the hype phase is over, where does this critical sector go from here?
The Carbon Conundrum: A Business Model Mismatch
At its heart, carbon removal has always presented a peculiar business challenge. It’s an atmospheric cleanup job, a collective societal good necessary to curb climate change. But it doesn’t produce a product or service that any individual or organization strictly *needs* in the traditional sense, or is particularly eager to pay for. Unlike a new gadget or a must-have software, a ton of removed carbon dioxide doesn’t generate direct revenue for the buyer. It’s an expense, often a significant one, driven more by environmental conscience, investor pressure, or PR than by immediate commercial gain.
Currently, the market largely relies on voluntary purchases from corporations like Microsoft, Google, and Stripe. While these companies’ commitments are vital for nurturing the nascent industry, corporate do-goodism can only scale an industry so far. The price tag is astronomical: removing the projected 10 billion tons of CO2 needed annually by mid-century at $300 a ton would cost $3 trillion per year. Who, realistically, is going to foot that bill?
This fundamental mismatch between societal necessity and private profitability is the sector’s Achilles’ heel. As Erin Burns, executive director of Carbon180, aptly puts it, “Private-sector purchases will never get us there. We need policy; it has to be policy.” This isn’t just about financial investment; it’s about establishing a framework where carbon removal is not merely an optional philanthropic act, but an integrated, mandatory component of our economic and environmental systems.
Navigating the “Trough of Disillusionment”
The early 2020s saw a boom, with grave climate reports underscoring the urgency to remove billions of tons of CO2. Startups sprang up, fueled by venture capital that peaked at nearly $1 billion in 2023. These companies developed diverse approaches, from sinking seaweed to building direct air capture (DAC) factories. Buyers flocked, eager to pre-purchase tons of future carbon removal to offset their own emissions, often differentiating themselves from the often-dubious conventional carbon offset market by emphasizing “durable” removal.
However, the reality hasn’t quite matched the enthusiasm. While sales hit an all-time high in Q2 this year (largely thanks to Microsoft, which accounts for 80% of all purchases to date), overall demand isn’t growing fast enough to sustain the multitude of startups. The entire sector has only delivered about 940,000 tons of carbon removal, a paltry sum compared to the 38 million tons committed, or the billions needed. To put that in perspective, the US emits that much carbon dioxide in less than two hours.
The investor appetite is cooling too, with VC investments falling over 13% year-over-year. This tightening purse string is proving fatal for many. Carbon removal marketplace Nori, DAC company Noya, and Alkali Earth (which aimed to use industrial by-products for carbon capture) have all shut down. Even industry leader Climeworks, a pioneer in DAC, announced layoffs and faces delays with US government funding, highlighting the sector’s vulnerability to political shifts. The consensus from CDR.fyi is grim for DAC: “the honeymoon is over… Most DAC companies will fold or be acquired.” Buyers, meanwhile, are shifting towards faster, cheaper methods like biochar and BECCS (bioenergy with carbon capture and storage), further pressuring the DAC pioneers.
Charting a Course: The Policy Lifeline and What’s Next
The path forward, as many observers agree, unequivocally points to government intervention. This isn’t just about handouts; it’s about creating a stable, scalable market. Governments can drive demand through direct purchases, subsidize development, or, crucially, compel polluters to pay. Imagine carbon removal integrated into existing market-based emissions reduction mechanisms like cap-and-trade systems. This would transform it from an optional expense into a necessary compliance cost, fundamentally altering its business proposition.
Encouragingly, we’re seeing glimmers of this future. The European Commission has proposed allowing “domestic carbon removal” within its EU Emissions Trading System after 2030. This could create significant incentives for European companies to invest in DAC or bioenergy facilities to meet their climate obligations. Similarly, the International Civil Aviation Organization (ICAO) is considering incorporating carbon removal into its emissions reduction mechanism for the aviation industry, potentially requiring airlines to purchase removal or use CO2 from DAC in sustainable aviation fuels. Canada has committed $10 million and is developing a protocol for DAC in its national offsets program, while Japan will begin accepting several categories of carbon removal in its own emissions trading system.
Even in the US, despite political headwinds that have delayed or threatened federal funding for DAC hubs, the 45Q tax credit, offering up to $180 a ton for CO2 storage, remains. This signals a degree of bipartisan support for certain aspects of carbon management. Erin Burns remains optimistic, seeing opportunities for regionally specific and pathway-specific policies that leverage local economic benefits and job creation alongside climate goals. This decentralized approach could be key to navigating a complex political landscape.
The Road Ahead: Avoiding Past Mistakes and Building Trust
As the sector seeks government backing, a new danger looms: the risk of replicating the very problems that plagued dubious carbon offset markets. The pressure to deliver tons, coupled with corporate buyers’ desire for fast and affordable solutions, creates fertile ground for corner-cutting. When standard-setting organizations and auditors, like Verra and Gold Standard (which have traditionally overseen carbon offsets), also profit from higher transaction volumes, conflicts of interest become glaring.
As Cynthia Giles and Cary Coglianese pointed out in Science, auditors paid by the audited often produce biased results. Noah McQueen of Carbon180 stresses that “growth without integrity isn’t growth at all.” Building genuine trust requires rigorous, independently verified standards to ensure that every claimed ton of carbon removal truly delivers promised climate benefits. It also means securing buy-in from communities where these projects are built, avoiding the historical pattern of burdening disadvantaged areas with the environmental and health impacts of industrial development. This isn’t just about PR; it’s about social license to operate.
David Ho, a professor at the University of Hawaiʻi at Mānoa, takes this a step further, advocating for a “Manhattan Project” style multinational research drive. Free from the pressures of pleasing VCs or protecting IP, such an initiative could explore all avenues of carbon removal with minimal environmental or social harm. He also highlights a profound moral imperative: the world’s historically largest polluters should build and pay for this infrastructure. Why? Because the world’s poorest and hottest nations, who contributed least to climate change, will suffer the most. “It should be seen as waste management for the waste we’re going to dump on the Global South,” he powerfully states, underscoring the ethical dimensions of this global challenge.
A Necessary Evolution
The carbon removal sector is at a pivotal crossroads. The initial burst of entrepreneurial energy and venture capital has led to a sobering realization: this isn’t a typical business. It’s a monumental undertaking, an atmospheric waste management project of global scale, essential for our collective future. The journey through the “trough of disillusionment” is painful but necessary, shaking out unsustainable models and forcing a re-evaluation of how this industry truly scales. The path forward demands more than just innovation; it requires robust, integrity-driven policy, international cooperation, and a deep ethical commitment to those most vulnerable to climate change. Only then can carbon removal move beyond being a hopeful experiment and become a foundational pillar in our fight for a livable planet.
