UK DAC Policy 2025, ETS Integration, £56.8 M ARIA Grant, and 15-Year Contracts for Removals
In 2025, the United Kingdom government initiated a decisive strategic pivot for its Direct Air Capture (DAC) sector, moving beyond foundational research funding to construct a durable, policy-driven compliance market. The year’s key initiatives focused on creating long-term, bankable revenue streams to de-risk private investment and drive down the persistently high costs of DAC technology. The plan to integrate engineered Greenhouse Gas Removals (GGR) into the UK Emissions Trading Scheme (UK ETS), supplemented by 15-year government contracts and sustained innovation funding, marks 2025 as the year the UK laid the commercial and regulatory groundwork for a national carbon removal economy. This strategy aims to establish a high-integrity, regulated demand signal, positioning the UK as a frontrunner in creating a scalable market for permanent carbon removals.
DAC Project Development, UK Government’s Shift to Market Creation
The UK’s approach to DAC and other engineered carbon removals matured in 2025 from funding standalone research to architecting a regulated market designed to pull commercial projects forward. This represents a fundamental shift in strategy, aiming to create durable demand signals that can underwrite the high capital expenditure of first-of-a-kind facilities. The government’s actions signal to developers and investors that DAC is being integrated as a necessary component of the UK’s long-term net-zero infrastructure, rather than remaining a peripheral R&D exercise.
The UK Emissions Trading Scheme (UK ETS) Integration
The most significant development was the government’s detailed plan to integrate engineered GGR into the UK ETS.
- Prior to 2025, UK DAC development was primarily supported by direct grants, such as the initial phases of the GGR Innovation Programme. This limited activity to small-scale pilots dependent on public funding cycles.
- In July 2025, the government announced its intention to make engineered removals like DAC fungible within the UK ETS by 2029, creating a pathway for DAC projects to sell verified removal credits into a high-value compliance market. This move allows emitters to meet obligations with removals, establishing a state-mandated demand floor.
- This policy is designed to address the primary adoption barrier: the lack of bankable, long-term revenue. By providing a clear route to a regulated market, the government aims to unlock private project finance, which has been hesitant to invest based solely on the volatile voluntary carbon market.
Long-Term Contracts for Revenue Certainty
To bridge the gap until full ETS integration, the government introduced another de-risking mechanism.
- In September 2025, the UK launched a program offering 15-year, index-linked contracts for GGR projects, including DAC. This functions similarly to the Contracts for Difference (Cf D) model that successfully scaled offshore wind in the UK.
- These contracts provide the long-term revenue certainty that project developers need to secure financing for capital-intensive DAC facilities. This directly mitigates investment risk associated with uncertain future carbon prices and high upfront costs.
£56.8 M in Funding, UK’s Sustained Push for DAC Innovation
Despite the strategic shift toward market creation, direct public funding for technology innovation remained a core pillar of the UK’s 2025 strategy. The government continued to inject capital into early-stage technology development and pilot projects, acknowledging that significant cost reductions are required before DAC can compete at scale, even within a regulated market. This dual approach uses market-pull mechanisms (ETS integration) and technology-push funding to accelerate the sector’s maturity.
The Role of ARIA and UKRI Funding
Government agencies maintained their commitment to advancing novel GGR technologies.
- The UK’s Advanced Research and Invention Agency (ARIA) announced a £56.8 million research initiative in June 2025 to investigate multiple climate technologies, with a significant component aimed at DAC and other GGR pathways. This funding targets breakthrough innovations rather than incremental improvements.
- The UK Research and Innovation’s (UKRI) Strategic Priorities Fund continued to support the Direct Air Capture and Greenhouse Gas Removal Innovation Programme. This £60 million program, which entered its final phases in 2025, funded a portfolio of diverse DAC technologies to build a robust domestic innovation pipeline.
- A December 2025 government announcement highlighted a broader £21.7 billion pledge for Carbon Capture, Usage, and Storage (CCUS) projects, which provides the critical transport and storage infrastructure that centralized DAC hubs will depend on for permanent sequestration.
Early-Stage Venture Investment
Private funding for UK-based DAC companies also saw activity, signaling investor confidence in the government’s policy direction.
- In January 2025, UK-based Origen secured a $13 million Series A funding round to advance its limestone-based DAC technology. This type of early-stage investment is critical for translating publicly funded research into commercially viable enterprises.
Table: UK DAC and GGR Public Funding Initiatives (2025)
| Funding Body / Program | Time Frame | Details and Strategic Purpose | Source |
|---|---|---|---|
| Department for Energy Security and Net Zero (DESNZ) | Dec 2025 | Announced £21.7 billion for CCUS projects. This provides the essential transport and storage infrastructure required for DAC projects to achieve permanent sequestration. | GE Vernova News |
| UK Research and Innovation (UKRI) | Dec 2025 | The Strategic Priorities Fund noted the government’s ongoing £60 million investment in the Direct Air Capture and Greenhouse Gas Removal (GGR-D) Innovation Programme, supporting a portfolio of early-stage DAC technologies. | CO 2 RE |
| Advanced Research and Invention Agency (ARIA) | Jun 2025 | Launched a £56.8 million research program into geoengineering and climate technologies, including DAC, to fund high-risk, high-reward innovation. | IP Quarterly |
UK vs. Global, Differentiating the UK’s Policy-Led DAC Market
The UK’s 2025 strategy carves out a distinct path in the global DAC landscape, prioritizing the creation of a regulated compliance market over reliance on the voluntary corporate offtake agreements or tax incentives that dominate in other regions. While the United States leads in deployment scale, driven by the 45 Q tax credit and large projects from companies like BKV Corporation in Texas, the UK is focused on building a durable, state-mandated market structure as its primary scaling mechanism. This positions the UK as a testbed for integrating engineered removals directly into national carbon pricing policies.
A Focus on High-Integrity Compliance
The UK’s approach is defined by its regulatory architecture.
- Unlike the US model, which relies on tax equity financing via 45 Q, the UK’s planned ETS integration creates a direct market price for carbon removal, making it a fungible commodity alongside emission allowances. This could provide a more stable and predictable revenue source if the UK ETS price remains robust.
- While global DAC leaders have historically relied on voluntary offtake deals from corporations, the UK strategy aims to create a much larger pool of buyers from the ~1, 000 facilities covered by the UK ETS.
- This policy-first approach contrasts with activity in regions like Australia, where companies such as Inpex Corp are focused on large-scale CCUS projects tied to LNG production, or Canada, where development is concentrated in CCUS hubs like the one involving Bow Valley Carbon. The UK is unique in its explicit goal of making DAC a compliance tool.
Alignment with National Carbon Budgets
The strategy is directly tied to legally binding national targets.
- The UK’s Climate Change Committee (CCC) has stipulated a need for at least 5 Mt CO₂ per year of engineered removals by 2030 in its recommendations for the Seventh Carbon Budget. The 2025 policy announcements are designed to create the market conditions necessary to meet this target.
Technology Readiness, UK’s Focus on Pilot-Scale Validation for DAC
In 2025, the UK’s DAC technology remained firmly in the pilot and demonstration phase, with a strategic focus on validating multiple technology pathways and gathering operational data. The government’s innovation funding deliberately supported a diverse portfolio, including solid sorbents, liquid solvents, and passive capture systems, to avoid locking into a single technology too early. The goal was not to achieve immediate commercial scale but to build the technical and operational expertise required for a rapid scale-up later in the decade, once market mechanisms are fully in place.
From Lab to Field
The period marked a clear transition from academic research to physical pilot projects.
- The years 2021-2024 were characterized by Phase 1 of the GGR Innovation Programme, which funded feasibility studies and component-level R&D for over 20 projects. This was largely a paper-based or lab-scale exercise.
- In 2025, the focus shifted to Phase 2 of the program, which involved building and operating physical pilot plants. For instance, Mission Zero Technologies commissioned its second pilot plant in May 2025, moving its technology from the lab into an operational environment to prove its viability.
- The data gathered from these 2025 pilots is critical for de-risking the technology for private investors and providing accurate cost and performance data for future commercial deployments. Projects from companies like Exterra Carbon Solutions, exploring mineralization, or Cemvita, focused on bio-pathways, represent alternative approaches being explored globally.
The Persistent Cost Challenge
Despite progress, technology costs remain the primary obstacle.
- Throughout 2025, analyses from organizations like the IEA and WRI reiterated that DAC costs remain high, often cited in the range of $600-$1, 000 per tonne of CO 2 for first-of-a-kind plants, far above the prices seen in the UK ETS.
- The UK government’s innovation programs and market-making policies are explicitly designed to drive these costs down the learning curve, similar to the trajectory seen in solar and wind energy. The success of the UK’s entire DAC strategy hinges on achieving significant cost reductions through this combination of innovation and market-driven deployment.
SWOT Analysis of UK DAC Policy and Market Initiatives
The UK’s strategic position in the global DAC sector is defined by its pioneering policy framework, which creates both significant opportunities and exposes clear execution risks. The 2025 initiatives solidified the country’s strengths in policy innovation and its commitment to national climate targets. However, they also highlighted the sector’s continued weakness regarding high technology costs and its deep reliance on government support to bridge the gap to commercial viability.
Table: SWOT Analysis for UK DAC Initiatives 2025
| SWOT Category | 2021 – 2024 | 2025 – Today | What Changed / Validated |
|---|---|---|---|
| Strengths | Strong climate targets and initial R&D funding (GGR Programme Phase 1). A world-class academic research base. | Clear, detailed policy pathway for integrating DAC into the UK ETS. Launch of 15-year contracts to de-risk private investment. | The government validated its commitment by moving from high-level ambition to concrete market-making policy mechanisms, creating a clear route to market. |
| Weaknesses | High, uncertain DAC costs. Lack of a clear revenue model beyond government grants. Nascent domestic supply chain. | Costs remain high, far exceeding the UK ETS carbon price. Continued reliance on public funding (ARIA, UKRI) to drive innovation. | The fundamental cost challenge was unchanged, but the 2025 policies were designed specifically to address the revenue model weakness by creating a compliance market. |
| Opportunities | Potential to leverage existing CCUS infrastructure in industrial clusters. First-mover advantage in GGR policy. | Establish the UK as the first major economy with a regulated compliance market for engineered removals. Attract global DAC developers and investment. | The ETS integration plan transformed the opportunity from theoretical to tangible, creating a specific, dated pathway to a large-scale regulated market. |
| Threats | Policy uncertainty and potential changes in government priorities. Competition from lower-cost abatement and nature-based solutions. | Risk of under-delivery on cost reduction targets. Potential for UK ETS price volatility to undermine project bankability. Public opposition. | The threat shifted from general policy uncertainty to specific execution risks: whether the ETS price will be sufficient and stable enough to make projects viable. |
UK ETS Integration, Future Bankability Signals for DAC Projects
The most critical factor for the UK’s DAC sector heading into 2026 is whether the government’s policy architecture can successfully bridge the gap between high current costs and the future price of carbon in the UK ETS. The success of the entire strategy hinges on the bankability of the newly created market signals. If the combination of 15-year contracts and the prospect of ETS integration provides sufficient revenue certainty, the UK could see a wave of investment in first-of-a-kind commercial DAC facilities.
Key Signals to Monitor
Investors and developers should watch for specific indicators of market traction.
- First 15-Year Contract Awards: The first cohort of projects awarded 15-year contracts will be a major validation point. The strike prices and project scales will reveal the real-world cost of removals the government is willing to underwrite.
- UK ETS Price Trajectory: The forward price curve of UK Allowances (UKAs) will be scrutinized. A consistently high and stable price will be essential to make DAC projects attractive for compliance buyers and private financiers post-2029.
- Private Sector Co-Investment: A key signal will be the ability of pilot projects, like those from Mission Zero or Origen, to secure significant private follow-on funding for larger-scale deployments based on the new policy landscape. Success in securing advance market commitments, a strategy used to scale technologies like those from Arbor, will be crucial.
- Supply Chain Development: Watch for investments in UK-based manufacturing for DAC components like sorbents and contactors. A domestic supply chain is needed to support cost reduction and scaling, a challenge faced by related hardware-intensive sectors like onboard maritime capture, involving firms like Carbon Ridge and Seabound.
| Source/Target⇅ | Market Segment⇅ | Cost per Tonne CO2 (USD)⇅ | Context⇅ | Year⇅ | Source⇅ |
|---|---|---|---|---|---|
| Global First-of-a-Kind (FOAK) Plants | Operational Cost | $400 – $1000 | Represents the actual cost of early full-scale plants operating globally. | 2025 | Prospects for Direct Air Carbon Capture and Storage: Costs, Scale … ↗ |
| UK SAF Mandate Compatibility | Market Price Target | < $480 (< £400) | The cost needed for DAC CO2 to be compatible with the buyout price in the UK's Sustainable Aviation Fuel mandate. | 2025 | Cost and profitability of direct air capture in Scotland ↗ |
| UK Government Commercial Target | Government Policy Target | ~$240 (£200) | The target cost for commercial-scale DACCS to be considered viable under UK Government proposals. | 2025 | Hot air꞉ Carbon removals risk high costs and underdelivery in the UK ↗ |
| Future Nth-of-a-Kind (NOAK) Plants | Future Cost Projection | $194 – $230 | Projected cost for mature, scaled-up DACCS plants (1 MtCO2/year scale), driven by economies of scale. | 2025 (Projection) | Global Assessment of Direct Air Capture Costs – IEAGHG ↗ |
| Project Name / Company⇅ | Market Segment⇅ | Lead Organization⇅ | Key 2025 Milestone / Target Capacity⇅ | Technology Focus⇅ | Source⇅ |
|---|---|---|---|---|---|
| DACMIN Project | DAC Pilot Plant | Cambridge Carbon Capture Ltd. | Aim to deliver a pilot plant capturing 100 tonnes/year of CO2. | Direct Air CO2 Capture and Mineralisation | Direct Air Capture and Greenhouse Gas Removal Innovation … ↗ |
| Mission Zero Technologies | DAC-to-Building Materials | Mission Zero Technologies | Launched world's first fully integrated DAC-to-building materials production demonstration in May 2025. | Solid Sorbent DAC with direct utilization | Mission Zero Technologies opens new direct air capture … ↗ |
| ENCORE Project | DAC Technology Development | Equinor | Published final Phase 2 report outlining successful development and testing of a novel DAC technology. | Solid Sorbent DAC | ENCORE (ENvironmental CO2 REmover) Phase 2: final report ↗ |
| Unnamed Project | DAC Demonstration Plant | Develop detailed design for a demonstration plant to capture 1,800 tonnes of CO2 per annum. | Sorption-based DAC | Direct Air Capture and Greenhouse Gas Removal Innovation … ↗ |
| Policy/Mechanism⇅ | Market Segment⇅ | Key Development in 2025⇅ | Stated Objective⇅ | Timeline⇅ | Source⇅ |
|---|---|---|---|---|---|
| UK Emissions Trading Scheme (UK ETS) | Compliance Carbon Market | Government confirmed plans to integrate engineered Greenhouse Gas Removals (GGRs), including DAC. | Create a single, cost-effective carbon market valuing both emissions reductions and verified removals. | Integration planned by 2029 | How the UK Gov is Aiming to Integrate Carbon Removal by 2029 ↗ |
| Voluntary Carbon Markets (VCMs) | Voluntary Carbon Market | Government launched plans to strengthen VCMs to help leverage private finance for climate projects. | Unlock private finance to address the climate emergency while ensuring high integrity of credits. | Plans launched April 2025 | UK backs businesses to trade carbon credits and unlock finance ↗ |
| Seventh Carbon Budget | National Climate Policy | Published statutory advice to government, reinforcing the critical role of CDR technologies like DAC for long-term targets. | Provide advice on the level of the carbon budget for the period 2038 to 2042. | Published Feb 26, 2025 | The Seventh Carbon Budget ↗ |
| Forecast Provider⇅ | Market Segment⇅ | 2025 Market Size ($B)⇅ | 2030 Forecast ($B)⇅ | 2033-2035 Forecast ($B)⇅ | CAGR (%)⇅ | Source⇅ |
|---|---|---|---|---|---|---|
| Mordor Intelligence | Direct Air Capture | 0.19 | 2.58 | 34.86 * | 68.32 | Direct Air Capture Market Size, Trends & Share Report 2030 ↗ |
| Market Research Future | Direct Air Capture | 0.20 | 4.19 * | 27.50 | 62.10 * | Direct Air Capture Market Size, Share, Trends, Report 2035 ↗ |
| Grand View Research | Carbon Capture & Storage (CCS) | 3.90 | 5.63 * | 6.70 | 7 | Carbon Capture & Storage Market Size Report, 2026-2033 ↗ |
| Source of Estimate⇅ | Market Segment⇅ | Time Period⇅ | Low Estimate ($/tCO₂)⇅ | High Estimate ($/tCO₂)⇅ | Source⇅ |
|---|---|---|---|---|---|
| Project Drawdown® | DAC Technology (Current) | 2025 | 600 * | 1000 | Deploy Direct Air Capture | Project Drawdown® ↗ |
| World Resources Institute | DAC Technology (Future Scale) | 2025 | 385 | 530 | 6 Things to Know About Direct Air Capture ↗ |
| C&EN | DAC Technology (Current) | 2025 | 300 | Carbon capture is struggling just as big projects start – C&EN ↗ | |
| IEAGHG | DAC Technology (Nth-of-a-kind) | 2025 | 194 | 230 | Global Assessment of Direct Air Capture Costs ↗ |
| IO Consulting | Point Source Capture (Comparison) | 2025 | 65 * | 130 * | CCS Value Chain Benchmarking ↗ |
| Date⇅ | Company / Project⇅ | Market Segment⇅ | Milestone⇅ | Value (USD)⇅ | Key Outcome / Technology⇅ | Source⇅ |
|---|---|---|---|---|---|---|
| May 2, 2025 | Mission Zero Technologies | DAC & Utilization (DACU) | Plant Launch | Opened world's first fully integrated DAC-to-building materials production demonstration plant. | Mission Zero Technologies opens new direct air capture … ↗ | |
| Jan 16, 2025 | Origen | DAC Technology Development | Series A Funding | 13,000,000 | Funding to scale limestone-based DAC technology. | Origen secures $13 million Series A to deploy limestone-based … ↗ |
| Oct 15, 2025 | Occidental (STRATOS) | Large-Scale DAC & Storage (DACCS) | Commercial Operation Start | Planned start of commercial operations for first DAC facility in Texas. (International Comparison) | Helping to decarbonize society | OGCI ↗ | |
| Mar 20, 2025 | Saudi Aramco | DAC Technology Testing | Test Unit Launch | Launched the Kingdom's first CO2 Direct Air Capture (DAC) test unit. (International Comparison) | Saudi Aramco launches the first direct air capture … ↗ |
| Date⇅ | Initiative / Policy⇅ | Announcing Body⇅ | Market Segment⇅ | Key Details (Value / Target)⇅ | Source⇅ |
|---|---|---|---|---|---|
| Dec 18, 2025 | CCUS Project Pledge | UK Government | CCUS Infrastructure | £21.7 billion pledge for projects to capture and store carbon emissions. | Carbon Capture and Storage | GE Vernova News ↗ |
| Oct 8, 2025 | Financial Backing Confirmation | UK Government | CCUS Infrastructure | Confirmed financial backing for the Acorn and Viking CCUS projects in June 2025. | STAYING THE COURSE ↗ |
| Sep 9, 2025 | Long-Term Carbon Removal Contracts | UK Government | Carbon Removal Credits | Launched 15-year contracts to back carbon removal projects. | UK government launches 15-year contracts to back carbon removals ↗ |
| Jul 22, 2025 | Integration into UK ETS | UK Government | Compliance Carbon Market | Announced plan to formally integrate engineered carbon removals into the UK Emissions Trading Scheme. | UK To Integrate Carbon Removals Into ETS ↗ |
| Jun 25, 2025 | Geoengineering Research Initiative | Advanced Research and Invention Agency (ARIA) | DAC Research & Development | £56.8 million research initiative to investigate geoengineering technologies. | The Promised Carbon Capture Revolution Is Long In … ↗ |
| Feb 26, 2025 | Seventh Carbon Budget | Climate Change Committee (CCC) | National Climate Policy | Provided advice to government on carbon budgets for 2038-2042, underpinning the need for GGR. | The Seventh Carbon Budget ↗ |
UK Lags Significantly in Direct Air Capture Project Capacity
The UK’s announced DAC projects total a mere 0.05 million tonnes of CO2 capture capacity. This positions the UK significantly behind global leaders like the US (8.71 Mt), Kenya (1.05 Mt), and UAE (1.00 Mt) in planned or under-construction projects.
Limited DAC Pipeline Threatens UK Net-Zero Goals
The UK’s minimal DAC pipeline jeopardizes its 2050 net-zero targets, as large-scale carbon removal is crucial for hard-to-abate sectors. This lack of initiatives signals insufficient investment incentives or policy frameworks compared to nations attracting greater DAC project deployment.
(Source: International Energy Agency — via Equinor Carbon Capture 2025, $714M FID with Shell)
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