Climate tech: $370bn 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.

Despite this, 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 solutions to help slash global emissions rapidly at scale.

New subsidies for renewable energy will not change that, unless investor outlooks change, too.

US climate bill bounty adds up to almost $370bn. This includes $60bn to encourage more domestic manufacturing of devices such as solar panels and $27bn for 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 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 benefited the likes of Afresh, a San Francisco company developing tech to prevent food waste.

But there is wariness towards the sector, too. A decade ago, a number of clean tech start-ups collapsed, including Solyndra, a solar-panel maker. Low prices for fossil fuels and competition from China took a toll on incentives. Impatient VCs withdrew capital.

This year, there has 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 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 also plenty of grants, tax exemptions and other incentives. VCs can help start-ups claim these. Climate tech success will reward investors with flexibility and vision.