The Newest Airline Climate Solution? Burying Sawdust

American Airlines is joining the race to remove carbon from the atmosphere, tapping a novel method that is much cheaper than many existing approaches and could boost the fledgling industry.

The airline company is purchasing credits from a startup that uses bricks of carbon-absorbing plant material to sharply lower costs, potentially making carbon removal a widely used climate solution earlier than anticipated. It is one of the first carbon-removal deals by an airline and shows how some of the biggest corporate emitters are trying to find new ways to cut their environmental footprint.

“We’re excited about this new technology because it is within reach for us,” Jill Blickstein, American’s vice president of sustainability, said in an interview.

Graphyte, the startup working with American, collects agricultural waste products such as sawdust or tree bark that naturally absorb carbon dioxide. It compresses that dried biomass into shoebox-size bricks and seals it using a special barrier to prevent the plant matter from decomposing and releasing carbon. The bricks are then buried and monitored using an embedded tracer substance to ensure they are locking away carbon.

Graphyte charges a fraction of the price companies pay for direct-air capture, the most heavily funded carbon-removal technology. That process—which employs giant fan-like devices to suck up air and separate the carbon—isn’t expected to be deployed at a large scale for at least a few years and costs an average of about $675 a metric ton, according to data provider CDR.fyi.

By contrast, Graphyte is charging American Airlines $100 a metric ton to remove 10,000 metric tons of carbon dioxide. That is the price the U.S. Energy Department and many industry executives say is the crucial threshold for broadening access to carbon removal.

The transaction could prove pivotal because scientists say billions of tons of carbon will need to be removed by 2050 to avoid the worst effects of global warming, even if emissions fall rapidly. Companies have pledged to sharply reduce their emissions by then and balance out any remaining emissions with carbon removals and other offsets.

Much of the initial funding for carbon removal came from highly profitable big tech companies such as Microsoft that paid far more than American Airlines. The U.S. government, BlackRock, Amazon.com and JPMorgan Chase also recently invested in the sector.

Carbon removal will be especially important for American and other airlines that hope to fly more passengers while reducing emissions. Sustainable aviation fuel, an alternative to conventional jet fuel that is made from cleaner energy sources, isn’t expected to be widely available for years. For now, American said its carbon-removal deal is a cheaper way to address emissions.

Graphyte’s first project in Pine Bluff, Ark., collects waste from two timber mills and a rice-milling operation. The company aims to start manufacturing its biomass bricks in January and burying them in July. By then, it hopes to be making roughly 140 pallets of blocks a day, enough to store 50,000 metric tons of carbon annually.

That would make Graphyte one of the biggest competitors in the industry and is enough to neutralize the annual emissions of more than 10,000 gasoline-powered passenger cars. But it is a fraction of American Airlines’ roughly 35 million metric tons of direct emissions last year.

Graphyte, which is backed by Bill Gates’s Breakthrough Energy Ventures, plans to apply for funding from a recently launched U.S. government program that buys carbon-removal credits. Most of the government’s carbon-removal support comes via tax credits and grants for direct-air-capture projects being developed by oil giant Occidental Petroleum and other companies.

Internationally, negotiators are expected to iron out rules for a new carbon market at the United Nations climate summit starting later this week in the United Arab Emirates.

Graphyte still needs to show its process works; many other startups are racing to use biomass for carbon removal or for making fuel, potentially creating fights over raw materials. But Graphyte Chief Executive Barclay Rogers is betting lower costs will accelerate the company’s growth.

“If carbon removal is going to happen at scale, it’s going to have to be affordable,” he said.

Write to Ed Ballard at ed.ballard@wsj.com and Amrith Ramkumar at amrith.ramkumar@wsj.com