In October 2025, the Trump administration cancelled over $1.2 billion in federal funding for the two flagship US Direct Air Capture hubs — Project Cypress in Louisiana and the South Texas DAC Hub. It was the single largest withdrawal of public capital from the CDR sector in history.
The fallout is still shaping the market today.
What Changed
The Biden administration spent 2021-2024 building DAC as a standalone climate industry. The Bipartisan Infrastructure Law and Inflation Reduction Act provided the architecture: direct federal co-funding for first-of-a-kind commercial facilities, designed to prove that DAC can work at scale and attract private capital.
The Trump administration kept the $180/ton 45Q tax credit — but that credit is far more valuable for Enhanced Oil Recovery (EOR) than for permanent geological storage. The result: DAC’s most government-incentivized pathway now runs through the oil industry.
Meanwhile, the Department of Energy’s Office of Clean Energy Demonstrations — the institutional home for DAC hub oversight — was gutted. Projects that were months from breaking ground found themselves without federal partners, without co-funding, and in some cases without permits.
The Industry’s Response
The DAC sector is splitting into two tracks:
Track 1: EOR-aligned projects that can leverage the 45Q credit while capturing CO₂ for use in oil recovery. These have a clear business case — but a questionable climate case. Using captured atmospheric CO₂ to extract more fossil fuels is, at best, a complicated accounting exercise.
Track 2: Pure sequestration projects that need to find alternative funding. Canada’s new $100M Advance Carbon Removal Coalition is one example of how other countries are filling the gap. The IEA’s State of Energy Innovation report shows CDR venture capital still flowing — but the “missing middle” between VC and project finance is wider than ever.
What This Means
The US was supposed to be the world’s DAC proving ground. That role is now contested. Europe (with Germany’s €98M CDR budget and Denmark’s $4.2B CCS fund), Canada, and even Iceland are positioning themselves as alternatives.
For investors: US DAC is no longer a policy-backed bet — it’s a regulatory roulette. Political risk has replaced technology risk as the sector’s biggest variable.
For the CDR market globally: the lesson is clear. Dependence on any single government’s funding is fragile. The industry needs diversified demand — from corporate buyers (Boeing, Microsoft, Mercedes), multilateral frameworks, and multiple national programs simultaneously.
$1.2 billion disappeared overnight. The technology didn’t change. The politics did.
Source: EnkiAI — DAC Market 2026: Political Shifts Redefine Investment Risk