This year is shaping up to be a dramatic one for climate tech investors.
Donald Trump’s return to the White House is set to shift the US landscape, with the possible rollback of key provisions in the Inflation Reduction Act, Energy Department loans drying up and weaker regulations. Beyond the US, the prospect of more trade wars is scrambling the economy in ways that will determine which climate tech sectors to bet on.
Meanwhile, headwinds for hydrogen are throwing doubt on its viability, and artificial intelligence is now fully on investors’ radars.
Climate-tech equity raising has also dipped dramatically to an estimated $43 billion in 2024 from more than $127 billion in 2022, according to BloombergNEF. Still, market intelligence firm Sightline Climate estimates investors have roughly $86 billion in unspent cash, giving them the latitude to make big bets if they want.
Bloomberg Green spoke with a dozen investors and analysts about what’s ahead for carbon-cutting startups and what they’d like to buy, sell and hold.
Buy
AI Solutions
Tourist investors who poured cash into green technologies flocked to AI last year, and their climate-tech counterparts aren’t far behind. There are two huge AI and climate opportunities: figuring out how to cut the technology’s emissions and using AI itself to reduce carbon pollution.
AI’s massive power demand is scuttling tech companies’ net-zero goals, and they’ve been searching for carbon-free solutions ranging from the germane to the game-changing. Major data center operators are “creating transformative commercial opportunities for frontier climate technologies like nuclear fusion,” said Monica Varman, a partner at G2 Venture Partners.
BNEF research shows that nuclear startups are a rare bright spot, with funding in 2024 surpassing 2023. Fusion is years away at best, however, and there are options now to cut emissions on the cheap. Solar can be the “backbone” for running data centers on electrons, said Blair Pritchard, a partner at Australia-based Virescent Ventures. “But you need tech to manage the intermittency of solar and pair it with storage.”
Yet, even though AI is still in its infancy, startups are already using it to hone in on materials that are key for the energy transition. There’s “room for the cost curve to come down rapidly” for materials that capture carbon in particular, said Melvyn Yeo, founder and managing partner at Singapore-based climate tech firm Trirec.
AI could also help manage the unruly power grid it’s putting so much strain on, particularly in how to deal with more extreme weather. Overhauling the grid will cost $811 billion annually by 2030 in order to reach net zero, according to BNEF. AI would allow utilities to optimize their approach, saving money and labor, said Blue Bear Capital founding partner Ernst Sack.
National Security Plays
Climate tech stands a good chance of surviving and even thriving under a Trump administration. Just don’t use the c-word. Ahead of the election, startups were already considering rebranding as defense tech.
Now, that’s likely to kick into overdrive. It helps that there are areas where national security overlaps with clean tech in a near-perfect Venn diagram, such as the production of critical minerals, steel and semiconductors.
“These are massive global markets worth trillions, and we see currently a golden window to win these markets and ensure stability and prosperity,” said Sarah Sclarsic, a founding partner of Voyager Ventures.
Sack concurred, noting this convergence of priorities “will accelerate as we all look to energize the American economy and establish energy dominance.”
Growth-Stage Companies
The valley of death between prototype and commercialization has earned its name for a reason. In recent years, promising companies ranging from carbon removal startup Running Tide to electric bus maker Proterra have met their demise there.
“We need a tenfold increase in the rate at which we are building first-of-a-kind commercial facilities for critical climate tech,” said Rushad Nanavatty, head of climate tech accelerator Third Derivative.
VC firms are looking to step in to help more mature companies grow. BNEF data shows there’s been a marked dip in initial public offerings and public financing since 2022. But that hasn’t deterred investors from looking for companies ready to go commercial and some firms have even raised funding specifically for growth-stage startups.
“There are a number of climate technology startups hitting commercial inflection points,” said Varman of G2 Ventures, and the firm has money to spend “to help bridge that ‘missing middle’ of financing.”
Sell
Green Hydrogen
The pullback on hydrogen began in earnest last year, and investors see it continuing in 2025. Countries scaled back their ambitions to produce and use the gas, which can be carbon-free if it’s produced using water and renewable energy.
BNEF recently revised its forecast to find the gas will remain stubbornly expensive over the coming decades, costing as much as $5.09 per kilogram. That’s why “we continue to see some of the challenges in the sector,” said Dhanpal Jhaveri, chief executive officer of Eversource Capital.
In short, hydrogen demand “did not catch up with the hype” in 2024, said Yeo. This year could see the bubble deflate even further.
Direct Air Capture
Startups using machines to pull carbon dioxide from the air have seen a flurry of activity in recent years. That includes nine-figure fundraises; major corporate purchases; and billions in US government support.
But it costs hundreds of dollars to extract each ton of carbon and the energy requirements are huge. While the world will need some form of carbon removal and direct air capture technology has so far been a darling of the 2020s, it’s unclear if it will deliver the billions of tons of CO2 needed in the coming decades. The “uncertain” economics will prove a challenge to the technology, said Sebastian Pollok, founding partner at VC firm Visionaries Tomorrow.
Hold
Decarbonizing Buildings
Buildings are responsible for nearly 40% of global greenhouse gas emissions and would seem a smart sector to place a few green bets. The trouble is, that’s exactly what’s happened. While there’s still money to be made for investors, startups — particularly those offering carbon-cutting software — are going to need to make the case for “why they stand out and can dominate the competition,” said Pritchard from Virescent Ventures.
Hardware companies also face challenges. Though heat pumps have seen widespread adoption in developed economies, installations have dipped across Europe. Emerging economies are a huge untapped market, but companies will need to showcase “innovative approaches” to spur adoption, said Tien Nguyen, founding partner at Vietnam-based Earth Venture Capital.
Demand for other technologies that can help cut rising utility bills from batteries to rooftop solar also makes it a sector worth holding, even in the US and the prospect of reduced federal incentives. “People have already changed how their households use and control energy,” said Elta Koliou, a senior associate at the Ad Hoc Group, which provides support to clean tech startups.”That momentum doesn’t die just because there’s someone new in the White House.”
Sustainable Agriculture
Like buildings, agriculture is the source of a huge chunk of emissions. It also represents a giant market for carbon-cutting solutions, and a plethora of startups are trying to fill it by offering everything from crop-tending drones to nitrogen-producing microbes. (G2 has invested in Pivot Bio, which does the latter.)
The issue, though, is that Big Ag is so entrenched that it can be hard for startups to break through — even if the products they offer are cheaper. Costs can still win the day, though, and the “potential to tap into large value pools” makes it a sector worth holding, said Pollok from Visionaries Tomorrow.
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