02.05.2026 — Edit: A previous version of this article referenced an outdated Carbon Capture Coalition readout of FY26 that contained figures not included in the final negotiated package, as well as comments based on it.
When Congress approved the Fiscal Year 2026 spending bills last month, many in the climate sector braced for cuts. The reality, however, tells a more optimistic story: despite a Republican-led Congress and a president traditionally skeptical of climate spending, the final appropriations package includes funding and policy measures that could accelerate U.S. carbon capture and removal (CDR) deployment while preparing domestic industry for a carbon-constrained global trade environment.
At first glance, the budget’s line items might seem modest. Yet the inclusion of dedicated appropriations for DOE’s Office of Fossil Energy, continued support for direct air capture hubs, and the quietly inserted “PROVE IT Act” language suggests a strategic win for the sector. These provisions collectively signal that carbon management is not only surviving but gaining legitimacy as a pillar of U.S. energy policy.
Funding Carbon Removal Innovation
Direct air capture and other forms of engineered carbon removal emerge as central pillars of the FY 26 package. According to the Carbon Removal Alliance January 20 report, the bill “supports a diverse portfolio of carbon removal technologies and monitoring systems” while ensuring funding for early deployment pilots.
Toby Bryce, Managing Director of the Yale Center for Natural Carbon Capture and Advisor to the Carbon Business Council emphasized, “It’s great to see continued bipartisan Congressional support for CDR research, innovation, and early deployments. These investments are essential to scaling carbon removal to the required levels, and to maintaining U.S. leadership of what will be a massive commercial sector in the coming decades.”
While some programs have seen reallocation — including over $1 billion in unobligated DAC hub funds shifted to other priorities — the bill maintains critical funding lines for R&D, testing, and deployment of CDR technologies.
These investments are now poised to enable carbon removal companies to bridge the gap from pilot-scale to commercial-scale operations.
The Carbon Dioxide Removal Purchase Pilot Prize has also been preserved, and in FY26 Congress allocated $45 million across at least four pathways focused on durable storage and strong monitoring standards.
This is a vital program that can cut down costs and echoes efforts elsewhere. The Netherlands recently announced an $11.5 M carbon removal innovation subsidy program to accelerate R&D and scale CDR and the European Union is actively exploring an EU‑wide purchasing program.
Carbon Capture: Keeping the Momentum
Point-source carbon capture remains a core component of federal energy strategy but has suffered cuts. Since the last full-year appropriations in FY2024, funding for carbon management initiatives supported by the DOE has continued to decline. Compared with those levels, available dollars have been cut by almost $120 million, leaving fewer resources for program deployment and development.
This has left the Carbon Capture Coalition — a nonpartisan collaboration of companies, unions, conservation and environmental policy organizations — disappointed and warning that, “Pulling back on the U.S. government’s strong support for foundational carbon management programs risks ceding long-standing leadership in the sector.“
But there are some funds still left:
- Gas post-combustion carbon capture – $10 million
- Coal and gas pre-combustion carbon capture – $10 million
- All applications of carbon capture technologies – $25 million
- Point-source carbon capture – $75 million
- Enhanced oil recovery – a minimum of $19 million
- Regional carbon sequestration partnerships – $25 million
Senator Kevin Cramer (R‑ND) mentioned them in his statement after the FY26 appropriation bills passed confirming his long held view that investment in capture technology is not simply a climate imperative but an industrial one.
Combined with the preserved 45Q tax credit, this reflects a broader theme: bipartisan support for carbon capture is increasingly justified in economic and competitiveness terms, rather than solely environmental ones.
The momentum preserves what most big oil companies want. Exxon in particular has been developing a complete value chain while Occidental has been focusing on a dual approach to enhanced oil recovery and direct air capture. The CEO of the latter, Vicky Hollub, recently spoke with DOE Secretary Wright in Davos and referenced the potential for a “net zero carbon barrel of oil.”
Measuring Carbon Intensity: The PROVE IT Act
Perhaps the most surprising element of the FY 26 appropriations is the insertion of the PROVE IT Act language, requiring the DOE’s National Energy Technology Laboratory to conduct a study of U.S. manufacturing’s carbon intensity relative to global peers. The legislation aims to quantify and showcase American products’ comparatively low emissions, a metric increasingly relevant given the EU’s new Carbon Border Adjustment Mechanism (CBAM).
Importantly, this study is not a replacement for the EPA’s Greenhouse Gas Reporting Program (GHGRP), which is still under review. As Jack Andreasen, Senior Research Associate leading the Carbon Management Research Initiative at Columbia notes, the NETL initiative “is simply a study to quantify the emissions intensity of American products” and does not encompass the full regulatory scope of the GHGRP. Still, it positions the U.S. to provide credible, independent carbon data for trade purposes, a growing priority as CBAM and other global mechanisms take effect.
Implementation Risks and Technical Challenges
Even with these wins, challenges loom. Bill reports (including the PROVE IT language) are technically not law, meaning DOE’s commitment and resourcing are key determinants of success. Andreasen notes, “The risks in implementation are that DOE doesn’t actually carry out the study, doesn’t put adequate resources towards the study, which delays the release and/or undermines the accuracy.”
Moreover, carbon intensity measurement and life cycle analysis (LCA) are complex endeavors. Decisions about boundaries and methodology can meaningfully influence results, and Europe has been prescriptive about what constitutes acceptable data for CBAM purposes.
And while there is some interest in a U.S. CBAM, Andreasen cautions that legislation is unlikely to pass this Congress. Nonetheless, understanding carbon intensity data now will be crucial for any future domestic trade or tariff-esque policy.
A Net Positive for Carbon?
So, is FY 26 a win for the sector? Given previous expectations — yes. Both CDR and carbon capture programs retain core funding, the PROVE IT Act provides a pathway for credible carbon data generation, and bipartisan support suggests these measures will be implemented seriously. As Toby Bryce notes, the next step is execution: “The key next step to watch for now is that the relevant federal agencies disburse this money as Congress has directed.”
While there are risks ranging from funding reallocation to technical challenges in carbon intensity measurement, the FY 26 appropriations package demonstrates that even in a traditionally energy-focused Congress, carbon management has gained a foothold. For stakeholders in CDR and carbon capture, the package represents not only survival but a platform for growth and leadership in a sector increasingly essential for climate and competitiveness alike.
Read more: India Puts $2.4 Billion Behind Carbon Capture Push In Next Budget
