AI’s Electricity Demands May Stall Carbon Capture Development

Booming electricity demand may delay the development of technologies to cut carbon dioxide emissions from manufacturing and energy production, such as direct air capture or green chemical production, writes John MacDonagh, emerging technology analyst at PitchBook, Morningstar’s private-markets research arm.

Demand for low-carbon electricity, particularly from artificial intelligence-related data center growth, is increasing costs for renewable energy.

Direct air capture, which aims to extract CO₂ directly from the atmosphere, relies on low-carbon electricity. Indeed, the business model for direct air capture companies is to generate and sell carbon credits based on capturing carbon. Using conventionally produced electricity to power direct air capture technology “would work against the aim of net decarbonization … so DAC companies need low-carbon energy power purchase agreements to operate,” writes MacDonagh, in PitchBook’s 2025 Outlook on renewable energy. Similarly, startups developing technologies to produce low-carbon chemicals require substantial energy, particularly those that make chemicals from captured carbon. “Without low-carbon inputs, the chemicals produced can no longer be considered ‘green’ chemicals,” he adds.

Venture investment in carbon capture technologies is strong. Deal value for carbon capture technologies was $842.3 million for the first three quarters of 2024, exceeding the $503.6 million for all of 2023.

But while direct air capture companies have aggressive plans, most are still planning and constructing pilot facilities. “The availability of affordable clean energy is potentially make-or-break for these projects,” MacDonagh writes, noting that startup CarbonCapture paused development of a project planned for construction in Wyoming, citing competition for clean electricity.

“Climate tech startups are generally not as capable of competing relative to data centers, which are a far more mature technology. Continued growth in data center investment will result in a more challenging environment for startups, and the ability of data center operators to pay higher rates for clean energy will result in project delays, relocations, and cancellations for carbon & emissions tech startups—particularly in the DAC and green chemicals spaces,” MacDonagh writes.