North American climate companies win the attention of international VCs

The Inflation Reduction Act has increased climate-tech investment in North America, enabling the region to take home the vast bulk of the sector’s annual deal value worldwide.

Investors have already signed contracts as a result of the IRA, which was approved in August and has greatly increased interest in subsidised technologies like the generation of biofuels and hydrogen energy.

According to Ben Wolkon, a partner at the climate-focused VC company MUUS Climate Partners, “the industry mobilised pretty quickly.”

 The climate-tech sweep in North America

According to a PitchBook analyst note, North America has contributed 58% of the industry’s total deal value for climate-tech venture capital so far in 2023, up from 43% in 2022. Recent landmark transactions include a $525 million round for Xpansiv, which operates a trading platform for carbon offsets and renewable energy credits, and a $880 million round for the sustainable infrastructure firm Generate.

The year 2023 got off to a difficult start for US climate-tech entrepreneurs as they saw a three-year low in dealmaking in Q1 and lost one of the sector’s most well-liked financiers, Silicon Valley Bank.

In Canada, more startups are focusing on climate technology.

A $35 million investment was announced by Toronto-based utilities storage solution Peak Power in May, and Calgary-based geothermal firm Eavor concluded a $80 million Series B round on June 14.

Climate Substitute Is Already Affecting Almost Everybody on Earth

With the introduction of a national carbon tax in 2019, Wolkon asserted, “We’re seeing a lot of really great innovation out of Canada.”

The world’s leading economies have made decarbonization a political priority in order to reduce their reliance on international energy markets and gain a competitive edge in climate change mitigation solutions.

Technology for solar and battery-powered vehicles is at the forefront in China: According to the International Energy Association, it produces 75% of all lithium-ion batteries and controls around 75% of the global supply chain for the manufacturing of solar panels. However, according to the analyst report, Asia’s proportion of climate-tech VC investment has consistently decreased, from 47% in 2017 to 16% in 2018.

Following the Russian invasion of Ukraine in 2022, there have been vociferous calls in the EU and the UK for a similar proposal that strengthens energy security. These requests were sparked by the IRA. The EU enacted a number of tax benefits for green businesses in February.

Nevertheless, Europe’s share of deal value decreased from 29% to 22% this year as the region struggles to overcome the twin problems of supply chain bottlenecks and surging energy costs.

However, there are numerous reasons to continue to be optimistic about the European climate-tech ecosystem. The EU is revamping its carbon market, or Emissions Trading System, which regulates industrial emissions and domestic flights inside the union, as part of its efforts to significantly reduce emissions.

A carbon border tax was approved by EU ministers in December, and it will completely take effect in 2026. The price will be levied on imports of high-emissions goods like steel. Additionally, there is a chance that the tariffs may encourage the global implementation of carbon taxes, which would have a substantial negative impact on the biggest polluters.

Even if there isn’t a carbon pricing in place yet, Wolkon claimed that the mere possibility of one “starts the innovation wheel in motion.”
According to PitchBook senior analyst John MacDonagh, who wrote the analyst note, European climate startups have experienced gradual and consistent development in contrast to the US climate companies, who have experienced big swings in investment.

Content Protection by

Back to top button