Pitchbook: North American climate startups grab global VC favor
The Inflation Reduction Act has bolstered climate-tech investment in North America, helping the continent capture a majority of global deal value in the sector this year.
Investors are already inking deals off the back of the IRA, which passed in August and has injected major interest in subsidized technologies such as hydrogen energy production and biofuels.
"The industry mobilized pretty quickly," said Ben Wolkon, a partner at MUUS Climate Partners, a climate-focused VC firm.
So far in 2023, North America has supplied 58% of climate-tech VC deal value in the industry, up from 43% in 2022, according to a PitchBook analyst note. Recent blockbuster deals include an $880 million round for sustainable infrastructure company Generate and a $525 million round for Xpansiv, which runs a trading platform for carbon offsets and renewable energy credits.
Climate-tech startups in the US had a rocky start to 2023, logging a three-year low in dealmaking in Q1 and losing one of the industry's most popular lenders, Silicon Valley Bank.
More climate-tech startups are also taking off in Canada. Calgary-based geothermal startup Eavor closed a $80 million Series B June 14 and Toronto-based utilities storage solution Peak Power announced a $35 million round in May.
"We're seeing a lot of really great innovation out of Canada," said Wolkon, pointing to the implementation in 2019 of a nationwide carbon tax.
Decarbonization has become a political priority for the world's largest economies as they aim to lessen their reliance on global energy markets and acquire a competitive edge in technologies that mitigate climate change.
China has the leading edge in solar and battery vehicle technology: It controls about 75% of the global supply chain for solar panel production and produces 75% of all lithium-ion batteries, according to the International Energy Association. However, Asia's share of climate-tech VC investment has steadily fallen, from 47% in 2017 to 16% today, according to the analyst note.
The IRA spurred loud calls in the EU and the UK to pass a similar proposal that bolsters energy security, a particularly salient issue following the 2022 Russian invasion of Ukraine. In February, the EU passed a series of tax breaks for green companies.
Still, Europe's share of deal value dropped from 29% last year to 22%, as the continent deals with the compounding challenges of supply chain blockages and skyrocketing energy prices.
But there are many reasons to remain bullish on the European climate-tech ecosystem. In its efforts to dramatically slash emissions, the EU is overhauling its carbon market, or Emissions Trading System, which covers industrial emissions and internal flights in the bloc.
In December, EU ministers agreed to a carbon border tax to charge fees on imports in high-emissions sectors like steel, which will fully come into effect in 2026. The tariffs may also potentially spur wider adoption of carbon taxes internationally—with huge knock-on effects for major polluters.
"Even if the carbon price doesn't exist yet, just the expectation of it does get the innovation wheel going," said Wolkon.
Compared to the massive swings in investment in US climate startups, European climate startups have recorded slow and steady growth, according to PitchBook senior analyst John MacDonagh, who authored the analyst note.