Optimizing iCloud by storing Photos

I seem to be running out of storage on my MacBook Pro (MacOS Monterey v 12.7.6). It feels like this has only started recently.

When I try to optimize my storage by storing Photos in iCloud I receive the message "Your password is required to enable iCloud Photo Library.".

When I go to System Preferences to turn on iCloud Photo Library I can see (as expected) that Photos is already checked to be synced in iCloud. If I uncheck it it gives me the message "Do you want to download a copy of your iCloud Photos to this Mac?" and the option to either delete photos from my MBP or download them all.

I don't want to risk losing my photos so I'm asking for suggestions on how to go forward.