Trump’s Return Is Set to Revive Investment in Climate Startups

(Bloomberg) -- President-Elect Donald Trump has made clear he plans to kill or undercut many clean energy incentives. Yet the prospect of less federal support for new climate technologies is already motivating some investors to step in to fill the void.

The climate tech sector, ranging from carbon capture to green hydrogen, has benefited widely from generous federal tax incentives, loans and grants for the past few years. With the fate of those funding sources now in flux, investors are dusting off the Trump 1.0 playbook.

“The last time you had Trump in office, you saw an acceleration of private capital going into some of the climate areas to make up for the gaps that the government was pulling out of, and I would expect the same to happen again,” said Philip Krim, co-founder and chief executive officer of venture firm Montauk Climate. “We think of that as an opportunity to lean in where capital starts to dry up.”

Today’s investing landscape is very different from the first Trump term, which witnessed record climate tech investing amid a zero-interest rate environment. US venture capital funding for the sector climbed overall during that period and peaked in 2021 at almost $30 billion, according to Pitchbook data. But global climate tech corporate funding, which has also been impacted by the rise of investor interest in AI, is on track to fall about 50% this year, according to BloombergNEF.

Yet some investors see Trump’s return as an opportunity, even with macroeconomic and governance-related uncertainty. “Policy goes up and down. It's a rollercoaster,” said David Miller, co-founder and managing partner of Clean Energy Ventures. “A good investing strategy is [to] invest low when things look less certain and sell high.”

It isn’t clear yet what the president-elect’s plans are for critical parts of the clean energy ecosystem, like the Energy Department’s Loan Programs Office (LPO) and the Inflation Reduction Act (IRA). Still, “Trump's win will almost certainly translate to slower federal support for climate tech,” said Sophie Bakalar, a partner at Collaborative Fund. “And a number of very generous subsidies under the IRA are likely to come under fire.”

Pension funds and other large sources of institutional capital could step in if “the worst comes to pass at the federal level,” said Susan Su, a partner at Toba Capital. “The world is awash in capital. It’s just a matter of who’s willing to put just a little bit more into some of these areas.”

At the same time, the climate tech pitch has changed. Investors and founders alike no longer talk up sustainability and decarbonization, but rather jobs, manufacturing, onshoring and the need to compete with China. All are bipartisan priorities that can play well with Republicans who will run the White House, Senate and quite possibly the House of Representatives.

“Clean energy is big business — and it is winning in the markets based on costs and product market fit,” Tom Steyer, co-executive chair of Galvanize Climate Solutions, said in a statement after the US election. 

Many of today’s most active climate tech funds and startups launched after Trump first came to power, before the rise of the IRA and the broad expansion of the LPO. While the Biden-era tax credits that helped some of the companies may go away or become harder to get, many investors also point to potential benefits of a Republican administration, including quicker approvals for new projects.

“The real thing holding back deployment of sustainable infrastructure is we need permitting reform,” as well as quicker grid connections for clean energy, said Ben Baker, a managing director at Greenbacker Capital. “In theory, it should be the Republicans who are more inclined to reduce red tape and make things easier to permit and easier to get done.”

The global landscape for climate action looks dire, with Trump likely to pull the US out of the Paris Agreement and throw bilateral talks into disarray, said Abe Yokell, co-founder and managing partner of Congruent Ventures. But on climate tech investing, he was more sanguine: “We’ve been through this before.”

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