Climate tech investments have been rapidly climbing in recent years, topping $1.11 trillion globally last year, according to BloombergNEF. And the dollars are urgently needed. International experts warn that the window is closing for the world to avoid the worst impacts of climate change.
But the climate tech sector — which includes low-carbon innovation in clean energy, construction, transportation, agriculture and carbon removal — is getting buffeted and bolstered by larger forces at play. The slowing economy threatens the flow of investments while public policy such as the Biden administration’s Inflation Reduction Act and corporate carbon pledges strengthen the field.
So how is this playing out for those writing the checks? We checked in with two leading climate tech funds with ties to the Pacific Northwest.
Elemental Excelerator is a nonprofit that has invested in more than 150 climate startups. The organization recently announced it’s increasing funding by $13 million for participants in its upcoming 12th portfolio cohort. And it’s offering $30 million in catalytic funding for up to six projects that address community impact.
Venture capital firm Evok Innovations last year announced it had raised $150 million of a $300 million fund to invest in clean-tech in North America. The company focuses on industrial decarbonization, including reducing the carbon in oil and gas industries, steel and cement production, and mining.
Our conversations were edited for clarity and length.
Dawn Lippert, CEO and founder of Elemental Excelerator
What’s the big picture right now in climate tech investing?
We really need to continue to invest in and build the pipeline of commercial-ready technologies. This moment is particularly critical, this six-to-12-month window in which we are building the pipeline of projects that will help implement the federal funding opportunities that are coming from the Inflation Reduction Act. It’s just really important to keep momentum.
Are you seeing a slow-down of venture capital into climate tech?
We’re seeing companies that have traction and strong business models actually do quite well, and a good amount of later-stage capital available. The gap that we see most acutely is after research and development and technology development, and before companies are ready for really de-risked, scale-up capital. That’s where we lean in with catalytic capital and try to bring in other capital that can de-risk some of these early projects.
What areas in climate tech are really booming?
We are invested across every kind of climate technology, everything from energy, mobility, water, materials, carbon. We see strong momentum in carbon removal, and we know that’s required — it’s in the IPCC [Intergovernmental Panel on Climate Change] report. Carbon removal is more of a nascent industry and we’re really moving into that. We have a real interest in helping companies deploy [carbon removal] technology in a way that communities embrace it and advances social equity.
GPT-4 is going crazy. Is that infiltrating climate tech companies? Are you seeing meaningful applications?
The moment something new happens in technology, people who are trying to solve climate figure out a way to adapt it and integrate it in an interesting way. There’s really no such thing as just a hardware company anymore. The hardware companies need software, they need the brain. These technological inflection points feed back into climate in pretty quick feedback loops.
Some technologies are particularly risky due to permitting and other issues. How do you approach those areas?
For Elemental, as a nonprofit investor, we see that private, government and philanthropic funds have to coalesce to establish the foundation for technology innovation and achieve tangible outcomes. We’re absolutely not afraid of technologies that need to be permitted, we’re not afraid of hard stuff. I also think that part of the idea of the Inflation Reduction Act and the funding and incentives was to move private dollars into spaces that are more difficult, hard to decarbonize sectors. Because they’re absolutely needed to get where we need to go.
Naynika Chaubey, Evok Innovations’ Seattle-based partner
Will the economic slow-down, the collapse of Silicon Valley Bank and general anxiety around tech layoffs slow the climate tech sector?
In the longer run, the movement in all industries to a low-carbon or zero-carbon profile necessitates these [climate] technologies and it is not related to market cycles. It’s just so much capital, it’s so much work that has to be done this decade.
We are trying to stop a moving train. The climate is a freight train and you push the brakes now, that train is not going to stop for another three miles, or in the context of time it’s years, decades. Time is very much of the essence and these macro shocks are, in the broader scheme, a non-issue.
What about the boost from the Inflation Reduction Act?
It is a huge amount of incentive and money available to these companies that can scale in this decade, whether you’re in critical minerals or in alternative fuels or in carbon capture or in electrification. No matter where you sit in the industrial decarbonization space, there’s huge incentives available this decade so it is going to attract capital.
What climate tech are you excited about right now?
There are always new innovations that excite us, [but] we’ve never been excited about things like nuclear. I think fusion is a pipe dream. Fission, while interesting, is probably going take too long to get through the Nuclear Regulatory Commission. I would like to see those timelines compressed, to start deploying small modular nuclear, but I don’t have a lot of confidence.
One area that’s going to be interesting is how to create large-scale markets and products out of the waste carbon when you’re pulling hydrogen out of a hydrocarbon like natural gas [to make hydrogen fuel]. A lot of our legacy oil and gas assets could be reappropriated to producing hydrogen, and they already are — we have two companies in the blue hydrogen space in our portfolio. But if somebody can figure out what to do with that waste carbon, up-value it and create an at-scale product that can lock in carbon for hundreds of years, there’s a ton of money to be made.
The recent IPCC report makes clear that we’re in trouble with our carbon emissions, but political and economic pressures could undermine corporate commitments to carbon cuts. How does that play out?
I don’t expect corporate commitments to go away. And I am happy to see the big chemicals companies, the big industrials, the big oil-and-gas companies, and the energy majors, as well as large engineering, procurement and construction, all were present at ARPA-E [Energy Innovation Summit held in Maryland last month]. It’s just one of many conferences — at all these conferences, the big industrial majors are showing up in force.
