Defossilizing Industry Scaling-up CCU 2025

Funding sources that tolerate uncertainty, offer longer investment horizons or reduce dilution pressure can create much- needed breathing room. Tencent CarbonX Program aims to bridge early valleys of death BOX 3 Tencent’s CarbonX Program is designed to accelerate the commercialization of CCU technologies, particularly those that can be integrated into consumer products.61 The programme aims to bridge the valley of death between academic research and early-stage industrial pilots by providing bridging support to selected research teams and start-ups, enabling them to accelerate first-of-its-kind pilots in real- world industrial settings and establish a new CO2- to-chemicals-to-products value chain. Start-ups selected for the programme can access: –Catalytic grant funding of up to several million US dollars. –Mentorship and technical support from Tencent and its partners. –Pilot deployment funding, including coverage of the “green premium”, so that industry partners can test products at no additional cost. –Supply chain integration, enabling research teams and start-ups to validate their technologies in operational settings. CarbonX Program works closely with a wide network of ecosystem partners, including major consumer brands and industrials, with the intention of supporting the development of sustainable supply chains and enabling real-world testing of low-carbon innovations. The programme also works with a range of investment partners who may consider making equity investments when appropriate, to support the growth of the start-ups and commercialization of emerging technologies. Source: Wood Mackenzie, expert interview with Tencent. In parallel, the public sector plays a structurally distinct enabling role at this stage. First-of-a-kind technology deployments face a multidimensional risk profile, including technical, regulatory, market and integration barriers, that private investors often struggle to assess or price. Public funders are better positioned to absorb this uncertainty, taking a strategic and long-term view that aligns with climate, innovation and economic policy goals. Instruments such as public equity investments, loan guarantees, first-loss mechanisms and co- investment structures can help de-risk pilot-stage technologies and crowd in private capital. Public institutions can also aggregate technical expertise, supporting due diligence for unfamiliar or complex technology classes. Notable examples include the EIC, which blends grant and equity-based funding to scale deep tech innovation across the EU (see Box 4). Development finance institutions, such as the European Investment Bank and the Asian Development Bank, offer concessional loans, venture debt and large-scale grant funding to offset high capital intensity. However, a persistent mismatch exists between public sector decision- making timelines and the fast-paced fundraising needs of early CCU companies. Better alignment is needed to prevent promising technologies from being delayed by funding bottlenecks. A persistent mismatch exists between public sector decision- making timelines and the fast-paced fundraising needs of early CCU companies.Pilot stage: the “early equity trap” Building and operating pilot facilities introduces significantly higher capital demands, with limited short-term commercial returns. Given ongoing technology risk and long time horizons for revenue, many investors require disproportionately large equity stakes to justify early-stage backing. This dynamic, known as the early equity trap, has led some start-ups to give up an excessive share, potentially 50% or more during pilot fundraising. While this may enable progress in the short term, it often undermines longer-term viability by deterring future investors and risking founder displacement. To overcome this, patient capital becomes essential. Funding sources that tolerate uncertainty, offer longer investment horizons or reduce dilution pressure can create much-needed breathing room. Emerging models, such as Tencent’s CarbonX Program (see Box 3), provide structured pathways to de-risk early pilots and improve downstream financing options. Defossilizing Industry: Considerations for Scaling-up Carbon Capture and Utilization Pathways 25