Startups that began by selling carbon removal credits are turning to power generation as energy demand soars.
Why it matters: It's the latest climate sector to get sucked into the vortex of data center power demand growth.
Driving the news: Arbor Energy, a startup that makes an efficient, compact and low-cost turbine, says it's working with infrastructure partner GridMarket to deliver 5 GW of its tech starting in 2029.
- Arbor, which is backed by Lowercarbon Capital and Climate Capital, originally focused on using waste biomass as a feedstock for its turbine and generating revenue by selling carbon removal credits.
- But Arbor more recently tweaked its product so that customers can also use natural gas as a feedstock, and the company is less laser-focused on carbon removal.
What they're saying: "[Everyone's] first, second and third priority right now is just speed to power," says Arbor CEO Brad Hartwig.
- In comparison, carbon removal has "been in this nice-to-have bucket for folks trying to hit their sustainability targets," he says.
State of play: Direct air capture startups are realizing they need a revenue stream beyond just carbon removal credits.
- Spiritus, a VC-backed DAC startup, is developing a product called "Orchard Power," which pairs gas generation with carbon capture for data centers.
- "There's a problem being created by this rush for behind-the-meter generation," which is majority gas, says Spiritus CEO Charles Cadieu. It creates a "carbon liability."
- Parallel Carbon and Greenlyte are pairing DAC with hydrogen production, while Capture6 combines carbon removal with water recovery.
The big picture: Carbon removal had a quiet 2025, as the DAC hype cycle died down and the Trump administration pulled support for carbon removal.
- In contrast, hyperscalers continue to hunt for power for AI data centers and are rapidly buying up land, energy supply and power infrastructure.
- Data center companies and nuclear energy drew 30% of the $21.6 billion that venture capital and private equity firms invested in U.S. climate-focused companies last year, according to research firm Sightline Climate.
- Energy demand growth caused a 28% surge in investment in U.S. "climate tech" companies last year compared to 2024.
The bottom line: The era of businesses depending on carbon removal revenue alone is over, and power generation remains the hot sector in 2026.
