Not Enough Local Storage Manage Storage

I have the same issue. I created a separate 20GB volume and placed the photo library there so the size would be limited and forcing optimisation. After enabling the cloud with optimisation, the sync stopped when the photo library hit 10GB reporting "not enough local storage".

I increased the Volume size to 30GB and same result. It stopped when the library hit 13GB. I verified the rest of the volume is free by coping a large file into the remaining space.

As with all Apple icloud features, the lack of transparency regarding disk space reporting and requirements is infuriating for users. Dropbox's greatest feature is that you get what you pay for and you can see what is being used and how it is being used. iCloud is a mess for the user.

If you have not even enough local storage for iCloud to prepare the files for the upload to iCloud, you have first to free storage on your mac before you can use iCloud.

Use an external volume to move large files and folders from your mac to the external volume, then wait for your photos to upload.

When you use iCloud Photos on your mac, the mac will sync the photos between the iCloud Photos Library and the local photos Library on your mac. All iCloud Photos will download to your mac. The library will need locally on your Mac roughly 25% of the storage used in iCloud (that is just an estimate. It will depend on the file format of your image files and videos), even with "Optimise Mac Storage" enabled. Without "Optimise mac Storage" you will not save any storage at all on your mac, only download the photos from iCloud to your mac as well.