Funding for climate tech startups is waning. Much of it’s moving to AI.
Globally, climate-tech companies raised more than $10 billion in equity financing in the third quarter of 2024. That appears to be a lot of money, but it actually puts the full-year funding for green tech on track to fall by half compared to the year before.
Meanwhile, artificial intelligence firms are not having that problem. They raised more than $20 billion in the quarter.
Michelle Ma, a climate tech reporter for Bloomberg, joined Marketplace’s Amy Scott to talk about why the two sectors are seeing such a disparity in funding.
Amy Scott: What are we talking about when we talk about climate tech? Can you give some examples of the startups in this space?
Michelle Ma: Well, “climate tech” is a really broad term, and I think, traditionally what you think of when you think of climate tech are, you know, solar, wind, renewables, things like that. But it’s really expanded broadly to carbon capture technology, to green hydrogen, to nuclear fusion and all sorts of new battery chemistries that are being developed every day. So it’s really, really a broad sector.
Scott: So a lot of opportunities to invest. But as you reported, funding for climate tech has been falling, on track to drop about 50% this year. What are some of the factors behind that?
Ma: №1, you know, it’s a very capital-intensive sector. These are startups that are often not dealing with, you know, software. They’re dealing with hardware, with massive facilities and factories that they have to stand up. And then, №2 is they’re considered by some investors to be riskier than other technologies because they’re still kind of in that early stage of development, you know, just moving from the pilot, from the bench, from the lab to commercial scale, and in many cases, still not yet generating any revenue. So there’s a lot about all of these factors coming together that have made this year kind of a tough one for the sector.
Scott: Now, talk about the role that AI has played in this shift because, as you quoted one investor saying, AI has sucked all the oxygen out of the room.
Ma: Yeah. Compounding on top of all of these things I just mentioned, what we’ve been seeing is, the climate-tech-focused funds, they’re still focused on climate because that’s what they care about. But there’s a lot of what we call generalist investors. Those investors have been told, you know, actually, we want you to turn all of your attention to AI this quarter. That’s what we care about. That’s the buzzy new thing. And climate tech briefly had a lot of attention from tourist or generalist investors, and today that attention has shifted to artificial intelligence.
Scott: And of course, AI is extremely energy-intensive. There’s a little bit of an irony here. Is that actually going to do more damage as the money shifts from solutions to, you know, an exacerbating factor in the climate crisis?
Ma: That’s an interesting question that we’ve been asking so many people in the space, and I feel like the answer is still not clear. Proponents of AI will say, actually, it’s a good thing for the climate sector because AI is finally showing people that there is demand for clean power. You know, all of these hyperscalers, all of these data centers, require clean, renewable energy, and they want to meet their climate goals. But then, on the other hand, you’re seeing a lot of the opposite reaction as well, where AI is keeping natural gas online for longer than it would be otherwise, extending the life of fossil fuel plants that we might have shut down otherwise. And it’s also, in this case, some investors are seeing capital that could have been funneled towards climate startups going towards buzzier AI startups instead. So there’s that bit of it too, where there’s competing capital needs and AI is kind of sucking all the oxygen out of the room.
Scott: Well, one thing I wanted to ask you about is you write that commercializing new technologies is expensive and risky and favorable policy support can help bring down costs and drive demand. So with the [Donald] Trump administration having another go, I imagine that policy support could evaporate in terms of federal dollars that are incentivizing investment in cleantech. What effect could that could have on investing?
Ma: Yeah, that’s a really tough one to say right now. I think it’s too early to tell. A lot of people who are hopeful in this space will tell you that a lot of the clean energy projects that are being developed that depend on federal dollars, those are being built in red states, and those are creating jobs in red states. And a lot of the policies that were passed, like the Inflation Reduction Act, were supported by Republicans. At the same time, the best science indicates that we have a very narrow window of opportunity to turn things around right now when it comes to climate. So now is probably the most critical time for the climate tech sector to scale. If those federal dollars disappear, if those tax credits disappear, that could make a huge difference in how much progress we’re able to make or not make.
