Climate tech feels the squeeze

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THE BIG PICTURE

Companies that produce climate technologies aren’t having a great 2023 so far.

Venture capital investment in climate tech has fallen to its lowest level in nearly three years, according to the financial data firm PitchBook. In the first three months of this year, some 4,600 companies raised just $5.7 billion — the lowest quarterly fundraising haul for the sector since June 2020.

The downturn could have tangible impacts on efforts to combat global warming. John Kerry, the Biden administration’s special presidential envoy for climate, has said that half of the reductions needed to reach the nation’s goal of cutting carbon dioxide emissions by 50 to 52 percent by 2030 “are going to come from technologies that we don’t yet have.”

That also means there’s a good chance they’re going to come from companies that we don’t yet have — or know about. VCs provided the seed funding for a host of today’s cleantech juggernauts, including Tesla and Lyft — as well as newer startups like Generate Capital PBC, a sustainable infrastructure finance firm that raised over $880 million in January, the most of any company in the sector in 2023.

The 2023 data continues a trend from a slower fourth quarter last year. PitchBook found that both the number of venture capital investment deals and the value of those deals in that quarter were down for climate tech companies compared with quarters and years prior.

The funding dip may prove to be only a temporary setback, though. Analysts pointed to the Inflation Reduction Act, which includes incentives for renewable energy, electric vehicles, battery storage and other types of climate tech.

The IRA has helped the climate tech sector weather interest rate pressure and other economic headwinds better than most venture capital-backed industries. Those effects are likely to grow over time, according to PitchBook.

“The IRA will likely ramp up slowly in how its effects are seen in the climate tech space, as the increased support still does not shorten development and manufacturing cycles,” said John MacDonagh, an emerging technology analyst at the data firm. “Whilst some startups are already able to access the support it provides, for those less well-established, there are still challenges to be overcome before this support is available.”

MacDonagh predicted that the IRA’s effects could ripple throughout the global climate tech sector as other countries race to ensure their own decarbonization sectors aren’t disadvantaged relative to the U.S.

PitchBook also highlighted “carbon utilization” technologies such as carbon capture as an area of particular emerging interest in the private sector. VC investment in those technologies has increased every year since 2019, with a significant jump from $116.2 million in 2020 to $476.5 million in 2021 to $699.1 million in 2022.

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WHAT WE'RE CLICKING

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