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The carbon removal market has quietly entered a consolidation phase.
Driven by the abrupt reversal in federal support for the industry, the lack of available growth capital, and the rapidly-approaching corporate 2030 decarbonization timeline, many in the industry agree that a contraction has begun for both developers and marketplaces. And while the usual corporate buyers continue to double down on credits, recent months have seen carbon removal companies across multiple pathways shutter, after burning through the venture capital funding they raised in the early 2020s.
For Patch, a centralized platform for the global carbon market , the clearest sign of that contraction has been the influx of opportunities for strategic partnerships, said CEO Brennan Spellacy. This week, the company exclusively shared with Latitude Media, Patch is finalizing a deal to absorb the carbon brokerage business built by Pachama, a platform for nature-based solutions.
Pachama is exiting the market business altogether in order to focus exclusively on its technical diligence services (of which Patch is a customer). Moving forward, Patch will be Pachama’s “preferred transaction partner,” meaning that instead of selling any credits, Pachama will direct buyers to Patch, which will also absorb existing buyers from Pachama’s platform.
The move isn’t a traditional acquisition — though Patch is in the midst of several conversations around those types of deals too, Spellacy said. But it’s a decisive effort by Pachama to “focus” its business model and focus on a single vertical. (The company originally had three lines of business including its credit marketplace.)
“Six months ago my inbox was quiet when it came to this kind of stuff,” Spellacy explained. “Now it feels like every week I’m having a net new conversation on a potential acquisition or divestment-type opportunity.”
Despite the lingering question of whether there would be a stable market ready for carbon removal solutions when they reached scale, it’s not the case that buyer hesitancy provoked the consolidation, Spellacy said.
“We’ve actually seen an acceleration of our business over the last 18 months, through the inauguration,” he explained.
The reasons for the boom
There are several factors driving that boost, Spellacy added. The first is simple math. Now that we’re in 2025, 2030 decarbonization goals are in corporations’ five year plans. “That climate commitment is actually starting to get back on the strategic agenda — not will we do it, but how do we do it. That’s been a really nice tailwind for us.”
At the same time, many of the companies who were able to get funding in 2021 and 2022 — when there were plenty of dollars going out the door — are starting to run out of cash. If they weren’t able to find the right product market fit, they’re now looking for a strategic exit — or in some cases, simply going out of business.
“As a result, there are just fewer market participants in the ecosystem, and a lot of that demand rolls downhill into the arms of Patch,” Spellacy explained. “We’re able to be there as an off ramp, if you will.”
Spellacy believes the carbon tech ecosystem was “massively overfunded” in 2021 and 2022. (Though Patch itself was a beneficiary of that boom, raising a $55 million Series B in 2022 led by Energize Ventures.) Now though, there’s a “flight to safety” among investors, fueled in large part by the uncertain landscape of the second Trump administration.
“Capital markets are tighter, and it’s becoming a lot clearer who’s going to be a part of the solution set of the toolkit in 2030,” Spellacy explained. Today, funding an existing player and enabling them to consolidate further is a “better bet” than funding a net new player, he added.
Rolling downhill to Patch
Patch is operating under the assumption that the carbon removal ecosystem for growth stage and earlier funding “is basically uninvestable.” That’s thanks to the “opportunity cost” of not being an artificial intelligence company that’s growing its annual recurring revenue at 30X year on year, Spellacy said.
“You’re seeing a lot of capital allocators pile money into these AI businesses, and so if you have to compete with growing five or 10X year over year, your 3X, which was a great business three or four years ago, doesn’t look good,” he explained. It’s that outlook that is driving Patch’s current game plan: to become profitable in the next two years, and never raise another venture capital round.
Patch has been decreasing its cash burn every month for the last eight months while growing between 150% and 200% year on year, Spellacey said. The company has an asset-light model, wasn’t dependent on any Inflation Reduction Act spending, and has deep-pocketed customers feeling the crunch of their impending climate goals, he added.
“It’s almost a process of elimination,” he explained. “If we keep growing at those numbers and get to a specific revenue threshold in two or three years and we’re not profitable, will the capital markets be there for us? Right now, our hypothesis is no.”
