When the cleantech bubble burst shortly after the Global Financial Crisis, investments cooled down, and key players exited the industry. But in the past few years, the industry has witnessed a resurgence of interest driven by the rising concerns about climate change among citizens, corporations, and governments across the globe. In 2021 alone, investors poured in close to US$40B across more than 600 venture deals to fund climate tech startups.   

So, what is cleantech and is it the same as climate tech? What are the latest trends in this space? How have governments responded to the climate crisis?

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Cleantech vs Climate Tech

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Cleantech is a term that encompasses emerging technologies or business models that increase the performance and efficiency of production while minimizing negative impacts on the environment. Solutions in segments such as clean air, water treatment, clean energy, supply chain improvement, etc., fall under cleantech. 

Whereas climate tech is defined as new business models and technologies that mitigate the impacts and drivers of global greenhouse gas emissions. Solutions such as carbon capture, afforestation, geo-engineering, clean energy, supply chain improvement, etc., are classified as climate tech. 

While there are overlaps between cleantech and climate tech, they aren’t identical. They can therefore be seen as related terms with shared areas of interest. 

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Trends

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According to Holon IQ’s Global Climate Tech Venture Capital Report 2021, climate tech venture investment (excluding private equity, PIPEs, SPACs and secondary transactions) is now 23 times larger than it was in 2010 and 2.5 times larger than the pre-pandemic levels in 2019. There have been 47 climate tech unicorns since 2015 that have collectively raised US$50B at a US$130B valuation.

BloombergNEF reported that a staggering US$900B was deployed across segments like renewable energy, EVs, hydrogen, carbon capture, etc. While that sounds like a lot, McKinsey estimates that investments worth US$9T per year between 2021 and 2050 will be needed to achieve net-zero. 

The first quarter of 2022 witnessed 273 VC-backed climate tech rounds worth US$9B, which was lower than the average of 283 rounds and US$11.2B per quarter in 2021 but still markedly higher than the average of 214 rounds and US$5.5B per quarter in 2020.

Some of the most promising industries within cleantech include: 

• • Renewable Energy: The effect of fossil fuels on our planet are well documented, and hence renewable energy sources such as solar, wind, hydrogen, and geothermal are seen as an alternative. Given the pressing need to reach net-zero emissions by 2050, there’s been a lot of interest, especially in hydrogen, with research suggesting that annual production of clean hydrogen would need to increase more than sevenfold for the world to hit net-zero by 2050. 
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• • Alternative Mobility: Electric vehicles have disrupted the auto industry within the span of a decade. The success of Tesla has forced traditional automobile manufacturers to launch electric vehicles (EVs) of their own or face extinction.  Electric vehicles come in many forms, such as battery electric vehicles (BEV), fuel cell electric vehicles (FCEV), plug-in hybrid vehicles, etc.
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• • Carbon Capture, Use, and Storage (CCUS): CCUS has gained prominence in recent times since existing decarbonization solutions are seemingly inadequate to meet the net-zero target. CCUS is the process of capturing CO2 emissions for storage or upcycling the captured carbon, hence reversing its negative impacts. 

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Government Initiatives

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Annual global emissions of CO2 amount to a whopping 51 gigatons. BCG’s analysis states that existing technologies can eliminate around one-fourth of current emissions, and emerging technologies can address another 40%. New technologies are needed to address the remaining 35%. Initiatives from the government are necessary to bridge the funding gap and spur innovation in solutions that require more time to mature. The Chinese government’s subsidies for photovoltaic (PV) technology drove down the cost of solar energy dramatically, making it the leading PV producer. Similarly, South Korea’s investment in battery technology supported key breakthroughs, leading to massive reductions in lithium-ion battery costs (dropped by around 90% between 2010 and 2019). 

With US$369B in funding earmarked for climate and energy, the US Inflation Reduction Act (IRA), signed into law by President Biden in August this year, is one of the most significant laws passed that directly addresses climate change. The IRA will help companies directly involved in the energy transition, like renewable energy, alternative fuels, and EVs, to cut costs, grow faster, and accelerate innovation. The IRA includes:

• • Production tax credits for solar panels, wind turbines, batteries, and critical minerals processing amounting to US$30B.
• • Greenhouse gas reduction fund to accelerate climate technologies worth US$27B.
• • Corpus of US$20B to build new clean vehicle manufacturing facilities.
• • Another US$20B to support climate-smart agriculture practices and conservation.

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Conclusion

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Embracing clean technologies and pursuing economic growth are not mutually exclusive goals but are complementary in nature. Innovations in cleantech and climate tech will advance energy security and self-sufficiency, create new jobs, strengthen supply chains, and potentially curtail the effects of climate change. 

Technologies that have the most potential in combating the effects of climate change need more time and capital to mature, and those that are already mature need more investments to scale. So increased policy support and private sector participation are needed to promote clean technologies in the interest of our planet.