Clean tech outlook: How investors are strategizing given Trump’s climate antagonism

Over the past five years, growth in climate tech has been so prolific that it has drawn comparisons to the Cambrian explosion — an era some 530 million years ago when evolution rapidly dished up a huge variety of new animals.

Record-setting levels of investment, groundbreaking innovations and billions of dollars in U.S. government support stoked the sector.

Then came Nov. 5 and the re-election of former President Trump, who is pledging to gut climate actions including pulling out of the Paris Agreement, ending electric vehicle tax credits for consumers, and clawing back unspent dollars earmarked for decarbonization efforts under the Inflation Reduction Act.

Trump just named oil industry CEO Chris Wright — who has disparaged climate science — to lead the U.S. Energy Department.

While global efforts to curb climate change will take a huge hit from the absence of U.S. leadership, the crystal ball outlook for the climate tech sector is not all doom-and-gloom. Experts say that clean energy deployments will continue and some expect investments in the space to rise as the private sector tries to fill in for some of the lost federal support. But innovators and investors should also get ready for some survival-of-the-fittest, winnowing down of the climate field.

Entrepreneurs, for one, should ask themselves which climate solutions are duplicative to other efforts, which are differentiated, which are really necessary and then pursue the most promising technologies, said Susan Su, a Seattle-based climate investment partner at Toba Capital.

"These are the hard questions to ask yourselves," she said.

Su added that a "climate tech realignment" was already underway even before the election. Investments in the sector peaked in 2021 and began to decline at the same that interest in artificial intelligence has accelerated.

But there is capital to invest. Venture capital and private equity firms are sitting on huge amounts of money. The available "dry powder" was $652.2 billion in venture capital and $1.5 trillion in private equity by the end of last year, according to PitchBook.

Corporations and consumers can likewise wield their resources to support the climate field.

"If the U.S. government fails to lead in this area, U.S. and global corporations have an immensely important role to play, and consumers will have to vote with their wallets," said Naynika Chaubey, a Seattle-based partner with Evok Innovations, via email.

"If this administration lowers corporate tax rates and interest rates," she added, "we hope to see a larger group of corporations using those dollars to invest in carbon removal, electrification and clean power generation rather than things like share buybacks."

In a GeekWire interview and a LinkedIn post, Su offered specific thoughts on how entrepreneurs and venture capitalists should approach the sector in the current environment:

• Start picking winners. The explosion of new climate tech has generated lots of innovation, but not all of it is commercially viable. "It's time to coalesce around the most important solutions and technologies and put all of our chips behind those most promising ones. Our new reality means that we can't afford to throw lots of spaghetti at the wall, see what sticks, and shrug as we waste half our pot of spaghetti," Su said.
• Team up with the winners. Existing companies can absorb some of the newer innovations and help implement and scale them. And startups can focus on narrower technologies that improve and cut costs for bigger solutions that are underway.
• Target problems everyone wants to solve. Su gave the example of one widespread challenge: "peak shaving," which refers to cutting energy use when demand is at its peak and most expensive. Startups would do well to tackle problems like this, which benefit the bottom line for businesses across sectors and are politically agnostic.

Chaubey agreed with the idea that climate tech deployment is the right move for right now.

"Although fundamental tech innovation will continue, our sector's focus now should increasingly be on scaling and cost reduction of clean energy, carbon removal and electrification," she said. "Time is of the essence."

When it comes to risk in the field, Ben Eidelson, general partner of the climate venture capital firm Stepchange, predicted that later-stage startups developing R&D-intensive technologies could be vulnerable as Department of Energy funding, in particular, dries up.

Climate tech companies that have products already on the market, he added, should be able to continue scaling to meet market demand, while early-stage startups are still developing their ideas and should be less reliant on federal funds.

In a note to Stepchange investors, Seattle's Eidelson reminded them that "many of the most impactful climate companies today" launched during Trump's first term.

"The most successful climate-impacting enterprises of the 2030s will be formed during this next administration," he predicted. "They will succeed by building what consumers and businesses need now and they will capture government tailwinds if they come but will keep pushing ahead regardless."

Su is hopeful the sector comes together to help companies weather this transition.

If investors "do join forces, it's actually quite powerful," she said. "And we could make sure that the companies that are already a quarter of the way there don't die right now. We need to step in because somebody else is stepping out at this time, and this is a little bit of a unique moment."