In This Issue
Winter Issue of The Bridge on Frontiers of Engineering
December 25, 2021 Volume 51 Issue 4
The NAE’s Frontiers of Engineering symposium series forged ahead despite the challenges of the pandemic, with virtual and hybrid events in 2021. This issue features selected papers from early-career engineers reporting on new developments in a variety of areas.

Who Pays for DAC? The Market and Policy Landscape for Advancing Direct Air Capture

Tuesday, January 4, 2022

Author: Colin McCormick

The technological promise of DAC will be largely irrelevant to the climate crisis if the question “who pays?” cannot be resolved.

Direct air capture (DAC) is a key climate technology with the potential to make major contributions to stabilizing atmospheric CO2 levels (McQueen et al. 2021). It is location-flexible, uses relatively little land area, and produces a verifiable, high-purity stream of CO2 that can be permanently sequestered or utilized for a variety of purposes. These features have led to a great deal of interest in the technology, and aspirations to deploy it at large scale as part of the response to the climate crisis (Hanna et al. 2021).

However, as with all technologies, DAC cannot reach large-scale deployment without a profitable business model, in which the cost of building and operating DAC facilities is offset by revenue from one or more sources. This is particularly challenging for DAC because it does not directly displace a technology or product with an existing market.

Also, the current cost of the technology, roughly $500 per ton of ­carbon dioxide (tCO2), is high compared to most other options for removing CO2 from the atmosphere (NASEM 2018). Investments in research, development, and demonstration (RD&D) and learning by doing will bring this cost down over time, but the challenge of finding revenues will persist (­Baker et al. 2020; Lackner and Azarabadi 2021). Therefore, realization of the ­technology’s climate potential requires an answer to the question “Who pays for DAC?”

Options to Pay for Direct Air Capture

Companies that build and operate DAC facilities have three basic options for securing revenue: sell CO2, participate in voluntary offset markets, and receive policy subsidies. These options have significantly different values, market sizes, and reliability. Some combinations of them can be jointly claimed by DAC facilities, while others are mutually exclusive. Currently, none are valuable or reliable enough on their own for a DAC company to depend on exclusively, which means that complex revenue “stacks” are necessary to make projects economically viable.

Sale of DAC-Sourced CO2 for Utilization

Although CO2 is an unwanted pollutant in the atmosphere, it has economic value in uses such as enhanced oil recovery (EOR), air to fuels, cement and concrete, commodity chemicals, and food and beverage. The sale of CO2 removed from the atmosphere to these ­markets is known as CO2 utilization. There is considerable ongoing research effort to expand such uses, and small amounts of early revenue for the DAC industry already come from niche utilization markets (Sandalow et al. 2017).

But the existing commercial market that provides CO2 relies on sources that are much cheaper than DAC, including capture from bioethanol and ­ammonia production plants (largely for the merchant market) and natural/geological sources (largely for the EOR market) (Lorch 2021; Nichols et al. 2014). While some small applications in the US merchant market pay well over $100/ton for high-purity CO2, the average price for CO2 used in EOR (by far the largest market) is approximately $40/ton, reflecting low production costs (Núñez-López and Moskal 2019).

Without major DAC technology cost reductions and/or policy intervention, it is hard to see how DAC-sourced CO2 could be economically competitive in CO2 markets at scale.[1] DAC companies are therefore ­unlikely to rely on utilization by itself as a revenue source, even though they may seek to secure some part of the revenue stack from EOR and/or merchant market sales.

In addition to these price and cost considerations, it is worth noting that the total market for CO2 utilization is well below the volume that must be removed to meet global climate targets (IEA 2019; NASEM 2019). Further, while some forms of utilization have a direct climate benefit by displacing the use of fossil fuel as a feedstock, many of these forms are best characterized as “recycling” because CO2 is returned to the atmosphere on timescales of days to months (Bhardwaj et al. 2021).

Thus while utilization has important climate benefits, they are less than those of DAC paired with geological sequestration or other permanent storage. These considerations will influence policymakers as they examine options for policy support (see below).

DAC Participation in Voluntary Offset Markets

Voluntary offset markets, which are largely ad hoc for DAC, consist of companies (or even individuals) that wish to buy carbon removal services to offset their own emissions without any government requirement or incentive to do so. DAC has begun to attract attention in this realm as traditional offsets, which are heavily reliant on forestry projects, face increasing concerns about their quality (Badgley et al. 2021).

Another driver for voluntary market demand is the growing number of companies declaring net zero emissions targets (Black et al. 2021). Several have recently begun to directly procure negative-emissions services as a form of carbon offsetting and have collectively made purchases of several thousand tons of CO2 removal and storage via DAC (Shopify 2021; Stripe 2021).[2]

Prices up to $775/tCO2 have been publicly announced, although this is for extremely small volumes with a clear indication that the buyer expects future prices to be lower due to technology cost reductions.

These procurements have highlighted several challenges to scaling voluntary carbon markets: (i) a lack of well-established companies with mature carbon ­removal technologies that can participate in procurement processes, (ii) poor or inconsistent accounting regarding the longevity of storage of removed CO2, and (iii) confusion in the marketplace between carbon removal from the atmosphere and the avoidance of carbon emissions (Joppa et al. 2021).

As a technology solution for providing carbon removal and storage services, DAC paired with geological sequestration addresses some of these difficulties by offering pure removal with permanent storage. If technology costs continue to fall, DAC may therefore be well positioned for the growing voluntary market.

However, substantial uncertainty about future prices, market size, and reliability, together with competition from other lower-cost forms of carbon removal (such as high-quality forest offsets and biomass carbon removal and storage; Sandalow et al. 2021), make it likely that the voluntary market will play only a limited role in the DAC revenue stack beyond a certain scale.

Another complicating factor is that the emerging voluntary market may not accept DAC paired with certain forms of CO2 utilization such as EOR and CO2 recycling, preferring permanent storage instead. This would mean revenues from some forms of utilization and the voluntary market could not be claimed simultaneously by DAC companies, limiting the overall value of these options.

Government Policy Support for DAC

Government policy can support DAC through grants, production subsidies, tax breaks, or other mechanisms. The federal 45Q tax credit (CRS 2021) and the California Low Carbon Fuel Standard (LCFS)[3] are the primary policy support mechanisms available to DAC companies.

The 45Q tax credit is currently valued at $50/tCO2 for sequestered CO2 and $35/tCO2 for utilized CO2, while prices in the LCFS averaged $200/tCO2 in 2020. DAC projects can stack these revenues by claiming both under current policy, and this has directly influenced the economics of the first major planned DAC facility in the United States (McCulley 2020). The ­lower-value tier of 45Q can be claimed simultaneously with utilization, and EOR (but not other forms of utilization) is compatible with LCFS requirements.

However, both 45Q and LCFS have drawbacks as sources of revenue for DAC. In the case of 45Q, the credit is nonrefundable, meaning that a claimant ­cannot get more value from it than their current tax liability, which may be small in the case of newer DAC companies. Also, the facility must start construction before 2026, a challenging timeline for megaton-scale projects using novel technology. Legislation cur­rently being debated in the US Congress would address these issues and increase the value of 45Q to as much as $180/tCO2, an important step toward making this policy effective.

The LCFS does not include these problematic features in its design, but it has the drawback of a relatively small market size of approximately 15 million tons of CO2 per year (45Q is unlimited in its effective market size). A small number of megaton-scale DAC projects seeking to sell credits into the LCFS could drive down prices substantially, undermining value.

While revenue support is tremendously important, other forms of policy are also needed to enable DAC to scale. These could include

  • measures to reduce the cost of capital to finance plant construction (which is generally very high for novel technologies),
  • public funding for the construction of CO2 pipeline infrastructure (enabling DAC companies to transport CO2 for sequestration or utilization at low cost),
  • government procurement of products made with DAC-sourced CO2 or direct procurement of CO2 removal services (creating a market for DAC operations), and/or
  • a federal mandate for a subset of companies to adopt or financially support DAC (Capanna et al. 2021; Meckling and Biber 2021).

Ongoing support for RD&D will also be needed to advance new concepts in DAC toward technological maturity and address unforeseen technical complications that may arise with DAC facilities at scale.

What’s Needed to Move Forward with DAC

The technological promise of DAC will be largely irrelevant to the climate crisis if the fundamental question “who pays?” cannot be resolved. Near-term support that blends the three broad categories described above will be a key part of the answer, despite the complexity that these multiple sources of revenue create for DAC companies.

While utilization and voluntary markets can play important early roles, large and sustained policy support is needed to truly bring DAC to the vast scale required by the accelerating climate crisis.


Badgley G, Freeman J, Hamman J, Haya B, Trugman A, Anderegg W, Cullenward D. 2021. Systematic over-crediting in California’s forest carbon offsets program. Global Change Biology, Oct 7 (

Baker SE, Stolaroff JK, Peridas G, Pang SH, Goldstein HM, Lucci FR, Li W, Slessarev EW, Pett-Ridge J, Ryerson FJ, and 15 others. 2020. Getting to Neutral: Options for Negative Carbon Emissions in California (LLNL-TR-796100). Oakland: Livermore Lab Foundation.

Bhardwaj A, McCormick C, Friedmann J. 2021. Opportunities and Limits of CO2 Recycling in a Circular ­Carbon Economy: Techno-Economics, Critical Infrastructure Needs, and Policy Priorities. New York: Center on Global Energy Policy, Columbia University.

Black R, Cullen K, Fay B, Hale T, Lang J, Mahmood S, Smith SM. 2021. Taking stock: A global assessment of net zero targets. Oxford: Energy & Climate Intelligence Unit and Oxford Net Zero.

Capanna S, Higdon J, Lackner M. 2021. Early Deployment of Direct Air Capture with Dedicated Geologic Storage: Federal Policy Options. New York: Environmental Defense Fund.

CRS [Congressional Research Service]. 2021. The tax credit for carbon sequestration (Section 45Q). Washington.

Hanna R, Abdulla A, Xu Y, Victor DG. 2021. Emergency deployment of direct air capture as a response to the climate crisis. Nature Communications 12:368.

IEA [International Energy Agency]. 2019. Putting CO2 to Use. Paris.

Joppa L, Luers A, Willmott E, Friedmann SJ, Hamburg SP, Broze R. 2021. Microsoft’s million-tonne CO2-removal purchase: Lessons for net zero. Nature 597:629–32.

Lackner K, Azarabadi H. 2021. Buying down the cost of direct air capture. Industrial and Engineering Chemistry Research (60):8196–208.

Lorch M. 2021. CO2 shortage: Why a chemical problem could mean more empty shelves. The Conversation, Sep 20.

McCulley R. 2020. ‘Scalability and cost point will determine its success’: Clearing the air in the US shale patch. Upstream, Nov 2.

McQueen N, Vaz Gomes K, McCormick C, Blumanthal K, Pisciotta M, Wilcox J. 2021. A review of direct air capture (DAC): Scaling up commercial technologies and innovating for the future. Progress in Energy 3(3):032001.

Meckling J, Biber E. 2021. A policy roadmap for negative emissions using direct air capture. Nature Communications 12:2051.

NASEM [National Academies of Sciences, Engineering, and Medicine]. 2018. Negative Emissions Technologies and Reliable Sequestration: A Research Agenda. Washington: National Academies Press.

NASEM. 2019. Gaseous Carbon Waste Streams Utilization: Status and Research Needs. Washington: National ­Academies Press.

Nichols C, Eppink J, Marquis M, Alvarado R, Heidrick T. 2014. Subsurface Sources of CO2 in the Contiguous ­United States (DOE/NETL-2014/1637). Pittsburgh: National Energy Technology Laboratory.

Núñez-López V, Moskal E. 2019. Potential of CO2-EOR for near-term decarbonization. Frontiers in Climate 1:5.

Sandalow D, Aines R, Friedmann J, McCormick C, McCoy S. 2017. Carbon dioxide utilization (CO2U): ICEF Roadmap 2.0. Innovation for a Cool Earth Forum, Tokyo.

Sandalow D, Aines R, Friedmann J, McCormick C, Sanchez D. 2021. Biomass Carbon Removal and Storage (BiCRS) Roadmap. 2021. Innovation for a Cool Earth Forum, Tokyo.

Shopify. 2021. Shopify purchases more direct air capture (DAC) carbon removal than any other company. Press release, Mar 9.

Stripe. 2021. Stripe commits $8M to six new carbon removal companies. Press release, May 26.

[1]  Remarkably, both the United States and United Kingdom have recently faced repeated shortages of industrial CO2 due to fragile supply chains. This may create a small competitive role for DAC as a reliable CO2 supply for some industrial users (Lorch 2021).

[2]  Also see Microsoft’s FY21 Carbon Removal Portfolio (

[3]  Information about the LCFS is available from the California Air Resources Board, at standard.

About the Author:Colin McCormick is an adjunct professor in the Science, Technology, and International Affairs Program in the Walsh School of Foreign Service at Georgetown University.