Inconsistent policies are diverting investment away from climate infrastructure when it’s critically needed.
Recently, a biochar company we were collaborating with announced its closure. They were set up with suppliers, a strong team, and independent verification. Yet, they went bankrupt—not because the technology didn’t work, but due to a lack of funding.
Sadly, they’re not the only ones facing this issue.
There’s no chance of reaching net-zero emissions without carbon removal, which, ironically, is significantly underfunded compared to other clean technologies. I can demonstrate that the projects are viable; what they’re struggling with is funding to establish their first factory. Financial institutions really need to get involved as policy directions become more unpredictable.
The current policy climate in the U.S. is stifling climate finance. Although President Trump’s “Big Beautiful Bill” was withdrawn, related tax credits remain—but the overall outlook is rather bleak. The Department of Energy has just canceled $7.5 billion in support for clean energy and carbon capture projects after previously decommissioning $3.7 billion in May.
This indicates just how quickly circumstances can shift.
Understandably, investors are starting to retreat. Since the beginning of the year, 56 clean energy manufacturing initiatives worth over $45.9 billion and involving more than 51,000 jobs have either slowed down or paused. Investment in renewable energy has dropped by 36% compared to the latter half of last year. For the first time, more clean technology projects were canceled last quarter than were announced.
Policies do more than provide incentives; they influence how investors assess risk. Stable regulations reduce capital costs, while unstable ones increase them. The take-home message for investors is clear: don’t count on the rules staying the same. When lenders doubt the stability of regulations, they perceive projects as riskier, leading to higher interest rates, stricter loan conditions, or no financing whatsoever.
Even if we shift to decarbonization swiftly, our carbon budgets will still be exceeded. By mid-century, we’ll need to remove 5 to 10 billion tons of carbon dioxide annually. Without proper carbon removal strategies, reaching net zero seems impossible. Unfortunately, investments in the required cleantech infrastructure are minimal—only about 1% of what’s necessary.
Meanwhile, the funding that does appear tends to favor direct air capture technologies. Between 2020 and 2024, there was an influx of $3.3 billion for direct air capture alone, which is about the same as what’s been distributed to all other emerging carbon removal technologies combined. Investors are gravitating toward direct air capture not because it’s the sole solution, but because it’s conveniently supported by federal subsidies.
Of course, direct air capture isn’t necessarily the villain here, but it’s still several years away from widespread implementation. There are other methods, like biochar—this process transforms waste biomass into a carbon-sequestering charcoal-like material that demonstrates effective removal capabilities today.
For instance, biochar has successfully captured over 700,000 tons of carbon dioxide so far—the highest figure for any engineering solution. In contrast, direct air capture has only managed to sequester less than 10,000 tons. However, projects focused on biochar continue to struggle with funding.
The facilities can extract between 50,000 to 100,000 tons of carbon dioxide each year, which is promising, but not substantial enough to attract billions in project financing. They miss the exponential growth curve that investors crave. Also, they’re relatively new and heavily influenced by policy, making banks reluctant to view them as low risk. This creates a significant blockade for the projects.
We need to find ways to facilitate access to capital for biochar companies. Considering the absence of coherent federal policy, financial institutions play a vital role.
A recent $210 million agreement involving JPMorgan, Microsoft, and Chestnut Carbon suggests a possible way forward. In this deal, the developer manages delivery risks, the buyer takes on market risks, and the bank covers credit risks. This structure mirrors how financing for solar power became accessible two decades ago.
However, for now, many large-scale carbon removal agreements are unique and infrequent. How can we expedite and standardize these processes?
Banks have the opportunity to finance a portfolio of projects rather than just one. They could craft funds ensuring that major buyers and public partners shoulder the initial risks, establishing a safety net that reduces borrowing costs for others. Additionally, they could push for long-term contracts between buyers that guarantee project funding.
Financial institutions stand at a significant crossroads. They have the potential to shape and reap benefits from this sector as buyers, brokers, risk managers, and innovators. The first movers will build expertise and influence in what could become one of the largest commodity markets in the coming decades. Those who wait will have to deal with the remaining risks.
If we genuinely want fewer closure announcements and more successful launches, we must treat carbon removal as essential infrastructure. Achieving net zero is just as crucial as developing clean energy. Let’s enhance funding and cultivate the markets needed for our climate response.
Michelle Yu is CEO and Co-Founder of Carbon Removal Marketplace Supercritical.
