We Can’t Reach Net-zero Emissions Without Emerging Technologies. But Who is Going to Pay for Them?

Corporate-startup partnerships are critical to scaling and commercializing nascent technologies, particularly in the climate space. But it’s important to remember that the symbiosis here—startups leading the charge on innovation, incumbents offering infrastructure, supply chains, and capital—is merely one part of the far more complex ecosystem that’s necessary to nurture and uplift these emerging solutions. 

Even if we have the requisite technologies in place to achieve net-zero emissions by 2050, there’s little chance of actually achieving it without uncovering the business incentive to expedite investment in climatetech. In other words: who is going to fund these technologies? 

But why is this the case?

There’s the resistance that comes from incumbents themselves. While some legacy players are forward-thinking and invest in new climate technologies, many can be leery of cannibalizing their own business or are otherwise mired in calcified ways of thinking and working.

There’s also the financial risk involved. Globally, the top 20 climate unicorns are valued at roughly $88B, but the reality for most climatetech startups is far more precarious. As Tim McDonnell writes in an article for Semafor, the money climatetech startups need “isn’t just bigger, it’s of a different character” altogether. The high green premiums attached to these technologies can be daunting, and investing in them doesn’t statistically yield the best returns. It’s little surprise, given this uncertainty and risk, that private equity firms balk at funding startups. In fact, when you look at the nearly $1T that the largest infrastructure funds raised between 2017 and 2022, most were focused on long-established projects in wind and solar with reliable small-percentage returns, not first-of-its-kind (FOAK) technologies. Even risk-tolerant VCs tend to write smaller checks for new technologies, which may not sufficiently allow these startups to hyperscale.

It’s not just capital risk—there’s an operational problem to address as well. At its recent Climate Tech Summit, SOSV brought investors Scott Jacobs, Dr. Lara Pierpoint, and Douglas Schultz together to discuss financing FOAK projects. One of the salient insights from that conversation is that a capital gap often belies a broader operational gap, where developers aren’t willing to build a technology or product they know has little chance of selling. Put another way, the unknown variables of FOAK beyond the tech itself affect the confidence of capital providers and disincentivize developers from taking on projects.

So how do we incentivize climatetech investments?
  1. Catalytic government” must play an indispensable role in providing funding and closing the gap between innovation and market. Coined by Azeem Azhar, a technologist who has written extensively about climate technologies and the exponential age, such a model of intervention involves an active government body that accelerates climatetech initiatives via “incentives, investments, collaborations, and [policies]” that provide sufficient leeway for experimentation and scalability. The key is that the subsidies and funding that catalytic governments provide for new technologies should not be ad infinitum, but rather decrease over time once these technologies reach scale.
  2. We need to leverage existing infrastructure to build a coalition with incumbents. As Vinod Khosla discusses in a conversation with Azhar on our climate future, incumbents may feel antagonized by new technologies seeking to disrupt them. Approaching a technology like fusion by implementing fusion boilers in existing coal plants to increase output—rather than decrease value—is a powerful way to forge partnerships with players in the coal and natural gas industry and accelerate the adoption of new climate solutions. That said, it’s important to note the elephant in the room: these partnerships are staked on incumbents having the foresight to see this as a critical opportunity rather than a threat.    
  3. Messaging should be carefully tailored to reach both sides of the political divide. Research from Breakthrough Energy has shown that residents of DAC (direct air capture) hub regions that are predominantly Republican don’t resonate with the “climate change” angle as the impetus for building these hubs, but respond strongly to messaging pertaining to job creation and economic growth.
  4. Funding accelerators that leverage corporate involvement and incubation to commercialize climatetech is critical. The Carbon to Value (C2V) Initiative—which Greentown has been proud to run with the Urban Future Lab at NYU Tandon School of Engineering and Fraunhofer USA since 2020—is a great example of this kind of multi-stakeholder partnerships accelerator that gives startups the opportunity to work hands-on with corporates, government entities, and nonprofits at the forefront of decarbonization—including resources, mentorship, and critical networks. The results of such programs have been staggering.
    1.  In 2021, the C2V Initiative facilitated a partnership between Fluor and startup CarbonFree to commercialize its second-generation mineralization technology. Two years later, CarbonFree secured a project development agreement with bp and an MOU with U.S. Steel to build a 50,000 t/y unit, which Fluor helped identify.
    2. In 2022, CarbonDirect led Air Company’s $30M Series A after getting to know its technology and team through the C2V Initiative.
    3. In 2023, Fluor once again took advantage of the relationships they developed during the C2V Initiative to sign an MOU with Carbfix. Together, they will be focusing on carbon capture and storage solutions for hard-to-abate sectors.

I want to note that catalytic government plays a significant role in funding accelerators like the C2V Initiative. The program was launched in 2021 using catalytic funding from NYSERDA, and both the accelerator’s startups and the C2V Initiative itself have been identified as finalists for the DAC Epic Prize, which was created by the U.S. Department of Energy to award money to support the commercialization of climate technologies.

Again, there’s no doubt we will have the technologies to reach net-zero emissions by 2050, but whether we hit this target depends entirely on our ability to scale and implement them. And while the risks associated with scaling climate innovations are real, the capital needed isn’t just crucial—it’s urgent.  

We don’t have time for trial and error. Until these industries operate at scale, it’ll be challenging to keep up with our global climate goals. Right now, our focus has to be on fostering collaboration on various fronts: between incumbents and disruptors, across industries and new value chains, and among government, philanthropy, and private sectors. Fast-tracking these partnerships requires a connecting vehicle of networks, mentorship, and resources—and this is where accelerators like the C2V Initiative can move the needle.