DAC Projects Face Policy Whiplash, 270 Projects Threatened, Microsoft 45 M Tonne Deal, and $43 B in Credits (2021 to 2026)

CDR Adoption Risks, 270 US Projects Threatened by IRA Repeal

Corporate adoption, driven by large-volume offtake agreements, created a powerful demand signal that catalyzed a wave of Carbon Dioxide Removal (CDR) project announcements, but the viability of this supply-side response is now exposed to extreme policy instability in the United States. The market’s momentum, built on the alignment of corporate climate goals and government incentives, now faces a critical stress test as developers and investors re-evaluate project economics in the absence of previously assumed tax credits.

• Between 2021 and 2024, the market was defined by early corporate buyers and coalitions establishing proof-of-concept for durable CDR procurement. These initial, smaller-scale agreements signaled long-term demand and helped validate different removal pathways, setting the stage for industrial-scale growth.
• The period from January 2025 to today saw this demand materialize at scale. Microsoft signed a record 45 million metric tonnes of removal agreements in its 2025 fiscal year. This demand, combined with the powerful incentive of the U.S. 45 Q tax credit, spurred a rush of development, with over 270 new carbon management projects announced to capitalize on the policy.
• The primary risk materialized in July 2025 with the passage of the “One Big Beautiful Bill Act” (OBBBA), which repeals most clean energy incentives from the Inflation Reduction Act. This legislative action directly threatens the financial viability of the 270-project pipeline, creating a sharp conflict between strong, committed corporate demand and the sudden withdrawal of foundational government support.

$51 M Impairment, CF Industries Cancellation Signals Financing Strain

While venture funding and advance purchase commitments provided strong early momentum for the CDR sector, emerging financial strains from rising interest rates and acute policy uncertainty are now leading to tangible project cancellations and asset impairments. The market is transitioning from a period of hype-driven investment to one where project-level economic realities and financing costs are becoming critical determinants of survival.

• Early 2025 data showed continued investor confidence, with reports of $1.8 billion flowing into carbon removal deals across 20 transactions, signaling a robust appetite for technologies targeting this new market.
• However, macroeconomic headwinds are proving challenging for capital-intensive infrastructure. In February 2026, CF Industries cancelled its $2 billion clean ammonia plant in Louisiana, citing rising capital costs and taking a $51 million asset impairment on the associated electrolyzer project. While not a direct CDR project, this event highlights the vulnerability of large-scale clean energy projects to shifting financial conditions.
• Direct policy impacts on financing became evident in late 2025 and early 2026. Several CDR projects were reportedly shelved after planned loans and grants from the U.S. Department of Energy were rescinded, demonstrating the immediate and severe financial consequences of policy reversals for projects dependent on public funding.

Table: Recent CDR and Related Project Cancellations or Impairments

CDR Partnerships, Microsoft 45 M Tonne Offtake, and 21 Developer Deals (2025)

The structure of the CDR market is rapidly maturing from small, speculative credit purchases to large-scale, multi-year offtake agreements driven by a concentrated group of corporate buyers. These bankable agreements are essential for de-risking first-of-a-kind projects and enabling developers to secure the project financing required for capital-intensive construction.

• The most significant market-shaping trend is the shift to portfolio-based procurement by major corporations. Microsoft‘s offtake agreements in fiscal year 2025 for 45 million tonnes of removal across 21 different partners, including a 1 million tonne deal with bio-energy with carbon capture (BECCS) developer Liferaft, exemplifies this strategy. It allows buyers to support a range of technologies and maturity levels, from DAC to biochar and enhanced weathering.
• Demand aggregators are playing a crucial role in market formation by pooling demand and standardizing contracts. Frontier, a coalition including Stripe, Alphabet, Shopify, and Meta, has committed over $300 million to purchase carbon removals, providing catalytic capital to help early-stage suppliers scale their operations.
• Other technology giants are following suit with significant, high-durability purchases. In early 2025, Google announced offtake agreements for a combined 200, 000 tonnes of removal from Charm Industrial (bio-oil sequestration) and Varaha (enhanced weathering), reinforcing the demand signal for a diverse set of permanent removal methods.

Table: Key Corporate Offtake Agreements in Carbon Removal

US vs EU, CDR Policy Divergence and Project Locations

North America, led by the United States and Canada, became the dominant global geography for new CDR project development by offering superior direct financial incentives, while Europe prioritized the establishment of regulatory frameworks to ensure long-term market integrity. This divergence created distinct regional advantages, though the recent policy shifts in the U.S. may alter the strategic calculus for project developers and investors.

• From 2021 to 2024, early CDR activity was geographically distributed, with European pioneers like Climeworks establishing flagship projects in Iceland and Switzerland, while North American companies focused on technology development.
• The passage of the Inflation Reduction Act in 2022 made the U.S. the clear epicenter for new project announcements from 2024 onward. The 45 Q tax credit, offering up to $180 per ton for DAC with sequestration, was the world’s most generous incentive, directly catalyzing plans for over 270 projects. Canada complemented this with its own CCUS Investment Tax Credit, covering up to 60% of capital expenditures for DAC projects.
• During the same period, the European Union focused on building market infrastructure rather than providing direct subsidies. It finalized its Carbon Removal Certification Framework (CRCF) in early 2026, creating the world’s first voluntary standard to certify high-quality removals. While crucial for building buyer trust, this approach lacked the immediate financial pull of North American policies, resulting in fewer final investment decisions on large-scale projects.

CDR Technology TRL, BECCS vs DAC Cost and Commercial Readiness

While the broader CDR portfolio includes commercially mature technologies like biomass-based removal, the high-durability Direct Air Capture (DAC) methods that attract the most investment and policy support remain at a pre-commercial cost of $400-$600 per ton. This creates a critical gap between the market’s long-term ambition for engineered removals and the current economic reality of first-of-a-kind plants.

• In the period before 2025, the industry focus was on advancing a wide range of technologies from laboratory concepts (TRL 1-4) to integrated pilot demonstrations (TRL 5-6) to prove technical feasibility.
• From 2025 onward, the first wave of larger-scale DAC facilities became operational, including Climeworks’ Mammoth plant in Iceland with a capacity of 36, 000 tonnes per year. However, their operational costs remain high at an estimated $400 to $600 per ton, far from the U.S. DOE’s “Carbon Negative Shot” target of less than $100 per ton.
• This creates a technology mismatch. More mature and lower-cost pathways like Bioenergy with Carbon Capture and Storage (BECCS), with costs estimated at $40-$50 per ton at some biorefineries, and biomass gasification (TRL 9) are available for near-term, large-scale deployment. However, corporate and policy interest has often prioritized novel, high-durability engineered solutions like DAC, which still face a long and uncertain cost-reduction journey.

CDR Market SWOT, $43 B in Credits vs. IRA Repeal Risk (2021 to 2026)

The CDR market’s primary strength is the powerful alignment of corporate climate goals with what was, until recently, robust policy support. This combination created a bankable demand structure and a clear investment case. However, its greatest weakness is an over-reliance on those same, now-unstable, policy mechanisms, making the entire sector acutely vulnerable to political shifts.

Table: SWOT Analysis for the Carbon Dioxide Removal Market

CDR Scenario Modelling, Watch for 45 Q Grandfathering Clauses

The single most critical variable for the CDR market in the next 12 to 18 months is the final legislative and regulatory treatment of the 45 Q tax credit in the United States. Investors and developers must watch for the potential inclusion of grandfathering clauses that could preserve the economics for projects already in advanced stages of development.

• If this happens: The repeal of the 45 Q tax credit is fully confirmed, and no provisions are made to grandfather in projects that have already made significant capital commitments based on the credit’s availability.
• Watch this: A widespread wave of project cancellations, far exceeding the initial pull-back related to rescinded DOE grants. A sharp decline in venture capital investment into U.S.-based DAC companies, and a strategic pivot by industrial players like Exxon Mobil and Occidental away from pre-commercial DAC and toward more mature point-source capture applications.
• These could be happening: A significant flight of capital and talent to jurisdictions with more stable policy environments, such as Canada or the EU. A rapid and painful re-valuation of pure-play CDR companies with U.S.-centric project pipelines. A surge in corporate lobbying at the state level to create local incentive mechanisms as a partial replacement for the withdrawn federal support.

The questions your competitors are already asking

This report covers one angle of the carbon removal market. The questions that matter most depend on your work.

• Status of tax credit grandfathering for carbon removal projects
• Carbon removal incentives in Canada and Europe
• List of Microsoft carbon removal deal partners
• Direct air capture companies cost reduction progress

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