Climate tech: 369bn reasons to invest in technological solutions

Climate change has increased the severity of California wildfires in recent years, turning the skies above San Francisco and Silicon Valley dark red. Yet the local tech sector’s contribution to addressing climate change is mixed. Electric vehicles are popular and companies such as Amazon and Meta have pledged to reach carbon neutrality. But the sector has yet to produce the technical solutions required to eliminate global emissions rapidly at scale. A new subsidies package for renewable energy will not change that unless investor outlooks change, too.

The US climate bill adds up to $369bn. This includes $60bn to encourage more domestic manufacturing of things such as solar panels and $27bn in green banks to help get clean tech projects off the ground. The hope is that by 2030, the US — the world’s second biggest greenhouse gas emitter — will reduce emissions by 40 per cent compared with 2005 levels.

There are signs the private sector is already stepping up. US venture capital investment in climate tech companies reached $56bn last year, up 80 per cent on the previous year, according to Silicon Valley Bank. Recent successful funding rounds include Afresh, a San Francisco company developing tech to prevent food waste, and Unity Global, a sustainable hydrogen start-up in Texas.

But there is wariness towards the sector, too. A decade ago, a number of clean tech start-ups including Solyndra collapsed. Low prices for fossil fuels and competition from China took a toll on incentives. Impatient VCs pulled out capital. This year, there has already been a broad slowdown in tech start-up funding as rising interest rates curb demand for risky ventures. Data from PitchBook show the valuation of early-stage US start-ups fell between the first and second quarters.

The tech sector’s contribution to addressing climate change will depend on investor appetite for both risk and long-dated projects. Clean energy tech start-ups tend to be expensive and R&D intensive. Traditional five-year investment horizons do not apply. But there are grants, tax exemptions and other incentives available for VCs to help start-ups negotiate. Climate tech success is going to require flexibility from its investors.