In the realm of climate technology, spend some time conversing with its pioneers and enthusiasts, and a common theme emerges: traditionally, this sector wasn’t synonymous with financial abundance. For many years, climate concerns were often viewed through the lens of expense rather than opportunity by the business world. This perspective, however, has begun to shift dramatically in recent times. A surge of interest and investment has been observed in this field, drawing in investors who are eager to tap into markets that not only promise returns in the double-digit trillions but also operate independently of the traditional tech investment sphere. As Joshua Posamentier, a managing partner at Congruent Ventures, highlighted in a conversation with TechCrunch+, this newfound interest marks a significant departure from past trends.
This uptick in climate tech investment has been particularly notable over the last half-decade. Although the sector wasn’t completely shielded from the broader startup slowdown experienced in recent years, there were encouraging signs of a rebound, especially evident in the third quarter of last year.
The robustness of this sector can be attributed partly to the pro-climate industrial policies adopted in the U.S. and Europe. The U.S. has introduced measures like the Inflation Reduction Act (IRA) and the Bipartisan Infrastructure Law, while the European Union has put forward its Green Deal. Collectively, these policies have made almost a trillion dollars in tax credits, grants, and other incentives available for climate and energy-related investments.
Yet, this trillion-dollar projection might actually be on the conservative side. The IRA alone, with its uncapped tax credits, could generate more than a trillion dollars, according to estimates by Goldman Sachs. The law’s climate provisions could trigger around $1.2 trillion in incentives, potentially catalyzing an additional $3 trillion in private investments.
While these measures may not be sufficient to achieve net-zero carbon emissions in the U.S. or the EU, nor to compensate for historical emissions, they represent a substantial commitment. The scale of investment is so large that it can be challenging to keep track of all the developments.
Today, the climate tech sector finds itself in a relatively new position, flush with capital. This influx has led to the emergence of numerous websites, apps, and startups dedicated to monitoring these financial flows and assisting companies and consumers in maximizing the benefits of these incentives.
Navigating the Incentive Landscape
However, tracking these incentives is no small task. Thomas Stephens, the co-founder of Upfront, a startup focused on cataloging incentives for merchants, lamented the absence of a comprehensive database for all these rebates and incentives. For businesses, incorporating these incentives into their sales proposals is a necessary yet complex part of operations, as noted by Tom Carden, head of engineering at Rewiring America, a nonprofit advocating for the economy’s electrification.
Energy efficiency incentives aren’t a novel concept. They have been around for decades, managed by state and local governments. However, the evolution of these programs has been somewhat disjointed, leading to a lack of uniformity and centralization. This inconsistency has posed significant challenges for industries and consumers alike. For instance, a Colorado-based electrification startup spent an enormous amount of time developing an extensive incentive-tracking spreadsheet, whimsically dubbed “the Big Kahuna.”
The introduction of the IRA in 2022, spanning 752 pages, not only introduced new incentives but also brought national attention to the complex tapestry of pre-existing incentives. Seizing this opportunity, Rewiring America developed the IRA Savings Calculator, a tool designed to demystify the policy’s benefits for individual households. This tool has seen substantial use, with over 600,000 households
having utilized it. Carden’s team has further expanded the tool’s reach by developing an API, allowing other organizations to access the underlying data. Already, about 200 organizations have availed themselves of this feature.
The IRA Savings Calculator currently focuses on incentives provided by the IRA, but Rewiring America is also committed to untangling the web of existing incentives for electrification and energy efficiency. These offers come from various sources, including state governments, local authorities, and utility-funded state-mandated energy efficiency programs. This results in a complex array of incentives that can be daunting for even the most well-informed consumers.
Carden acknowledges that Rewiring America is not alone in this endeavor. Numerous other nonprofits and commercial entities are striving to manage and make sense of this convoluted data.
One such enterprise is Upfront, co-founded by Thomas Stephens and Andrew Hoskins. The genesis of Upfront came when Hoskins, exasperated by the complexity of applying for a heat pump rebate, was challenged by Stephens: “You’ve spent 5 years at Affirm, you’re an engineer. If you can’t figure this out, how is an average customer supposed to?” Realizing the potential in this space, they engaged with merchants to assess the demand for a service that would streamline the efficiency rebate process. Their concept received positive feedback, leading to the formation of their company and their eventual participation in Y Combinator’s Winter 2023 batch. To date, Upfront has raised around $1 million in pre-seed funding, as Stephens informed TechCrunch+.
Seeking Nondilutive Funding
Beyond consumer-facing tax credits, the IRA also provides opportunities for startups and established companies. Sectors such as hydrogen, energy storage, solar, and carbon capture are particularly targeted, with many incentives taking the form of production tax credits. While these do not represent direct funding, they improve the financial dynamics of these industries, bolstering their eligibility for additional incentives, including grants and other awards.
Navigating government grants and awards, however, is not without its challenges. “One of the most painful aspects for companies applying for these awards is the timeline and the process involved,” notes Mitko Simeonov, founder of Pioneer. Even the application process is far from straightforward. Simeonov estimates that climate tech companies are eligible for tens of billions of dollars
in government funding. To assist these companies in securing more awards, Pioneer maintains a database of available government funding and employs AI models trained on both public and private data about the company to suggest potential matches.
When a client decides to pursue an application, Pioneer provides a dashboard to manage the process. The startup uses generative AI, trained on the client’s previous grant applications and other relevant data, to draft applications and supporting documents. If the AI identifies a gap in the application but cannot suggest a solution, it prompts the client with a “probing question” to help address the issue.
Pioneer’s direct competitors are traditional government grant consultants, who offer similar services. However, Pioneer hopes its sophisticated software will reduce the need for costly, labor-intensive consultancy services. The startup already boasts a diverse client base, including companies in logistics, battery technology, and electric vehicles.
Looking to the Future
The emergence of incentive-tracking apps and startups signifies a pivotal moment in the history of climate tech. After years of struggling to gain traction, the sector is now attracting significant attention from investors and governments worldwide. While building a business model or a tool dependent on political decisions carries inherent risks, the confluence of the IRA, the Bipartisan Infrastructure Law, and the EU’s Green Deal suggests a fundamental shift in industrial policy that seems increasingly entrenched.
Although the IRA’s climate provisions are set to expire in 2032, companies like Upfront and Pioneer, along with others like Eli and Pencil, have nearly a decade to establish and expand their customer bases. And the market is expected to grow; McKinsey estimates that tackling climate change will require an additional $3.5 trillion in yearly investments in energy and land use through 2050.
The past few years have been significant for climate tech, but the coming decades promise even greater developments. The influx of investments and interest in this sector shows no signs of abating, indicating a bright and pivotal future for climate technology