DOE’s $1B+ pullback from US DAC hubs will ripple across net‑zero plans, carbon markets, and energy

DOE pullback from flagship DAC hubs: Expect higher carbon-removal costs, delayed projects, and a geographic capital shift

The US Department of Energy, under the Trump administration, appears poised to terminate funding for two marquee direct-air capture hubs-Occidental’s 1PointFive South Texas DAC Hub and Project Cypress (Battelle, Climeworks, Heirloom)-that were slated to receive more than $1 billion in grants, per a DOE list obtained by MIT Technology Review. If finalized, the decision would slow large-scale carbon removal in the US, push investment and talent abroad, and force corporates to reprice and rebalance net‑zero strategies.

Executive summary

• Cost and supply shock: Reduced US DAC capacity will tighten high-durability carbon removal supply, likely lifting credit prices and extending delivery timelines.
• Policy risk premium: A visible reversal on Bipartisan Infrastructure Law demo funding adds political risk to US decarbonization projects, raising financing costs versus Europe and Canada.
• Strategic reallocation: Capital and offtake demand may pivot to non‑US projects and to alternative removals (biochar, enhanced weathering, BECCS), driving consolidation and M&A.

Market context

These hubs were the flagship awards of DOE’s Direct Air Capture program announced in 2023 under the Bipartisan Infrastructure Law, intended to catalyze first-of-a-kind plants and supply chains. In parallel, the Inflation Reduction Act’s 45Q offers up to $180/ton for DAC with geologic storage-critical to bankability. Corporates including Microsoft, Stripe/Frontier, Amazon, and JPMorgan have pre‑purchased removals, creating early demand signals. Europe and Canada are scaling supportive regimes (EU Innovation Fund, UK Net Zero programs, Canada’s CCUS ITC, Alberta’s TIER) while Iceland hosts operating DAC plants. Pulling US grants now weakens the country’s credibility as the scale-up venue of choice and could cede leadership to regions with steadier incentives.

For energy and industrials, DAC underpins “hard‑to‑abate” residuals in net‑zero plans and, for some oil & gas players, ties to CO₂ storage portfolios. A slowdown complicates compliance and voluntary strategies and may steer focus back to point‑source CCUS, electrification, and efficiency while high-durability removals remain scarce and costly.

Opportunity analysis

Short-term disruption creates room for differentiated plays. Buyers with diversified carbon‑removal portfolios will gain negotiating leverage and delivery certainty. Developers with strong balance sheets, access to tax equity, and non‑federal funding (utility partnerships, state incentives, private offtakes) can snap up assets and talent as smaller firms retrench. Software and MRV providers can help corporates pivot to multi‑path decarbonization while preserving auditability for CSRD/SEC disclosures. Supply‑chain vendors (sorbents, heat pumps, compressors) can hedge US exposure by pursuing EU/Canada projects and point‑source CCUS retrofits.

Action items

• Stress‑test net‑zero plans: Reprice DAC assumptions (availability, $/t, delivery years) and identify substitutes (efficiency, electrification, point‑source CCUS, biochar, enhanced weathering, nature‑based with strong MRV) to cover residuals.
• Diversify offtakes: Shift a portion of DAC commitments to non‑US projects and a mix of high‑durability methods; build in delivery flexibility and performance clauses.
• Secure incentives now: Maximize 45Q eligibility, state credits, and utility green procurement; explore DOE loan guarantees and private project finance to de‑risk pipelines.
• Pursue strategic partnerships: Co‑develop with storage operators and industrial hosts; consider M&A or JV options to acquire stranded DAC IP and teams at discount.
• Communicate proactively: Update boards and investors on revised decarbonization pathways, budget impacts, and risk controls; align disclosures with CSRD/SEC expectations.

Bottom line: If DOE funding is pulled, treat US DAC as capacity‑constrained for the next 2-3 years. The winners will be those who reallocate quickly, lock in credible alternatives, and use the shakeout to secure advantaged positions in carbon management and storage.