Considerations on The Definition of "Climate Tech"
What is Climate Tech? It's not an industry, but a theme across many industries that is attracting attention from startup founders, job seekers, and investors.
The term "climate tech" was coined to describe technologies that fight climate change. But as the space grows, there is some confusion around what exactly is considered “climate tech” and what doesn’t make the cut.
Climate Tech Covers Many Industries
Climate change is already affecting the environment and people’s lives substantially, giving innovators and companies in many industries motivation to innovate with the primary goal of mitigating climate change and adapting to its effects.
Climate tech can be applied across various industries, from energy and transportation to agriculture and construction. It encompasses diverse technologies, including renewable energy, carbon capture and storage, electric vehicles, building electrification, and precision agriculture. The solutions offered by climate tech are not limited to mitigating climate change; they extend to adaptation and resilience-building measures. These may include flood prevention, drought-resistant crops, and resilient infrastructure.
Climate tech is technology developed with the primary goal of fighting climate change, whether it be reducing carbon and non-carbon emissions or helping to adapt to the effects of climate change.
This is my definition of climate tech, but others in the climate tech sector have slightly different ways of communicating the definition.
According to Climate Tech VC, “Climate tech is about evolution. The new dawn of climate tech is about acknowledging our planet’s hurtling trajectory towards an unlivable future and rewiring the way we do things to get to any reasonable place.” CTVC also describes climate tech, as opposed to cleantech, as “a more connected, practical, and future-forward transformation measured in tangible impact.”
What Is and Isn’t Climate Tech?
Climate tech encompasses technologies and innovations that aim to address climate change and its effects, but not all of these technologies or innovations necessarily qualify as climate tech. For example, some companies may market their products as "green" or "eco-friendly" without actually making a significant impact on reducing emissions and without the primary goal of fighting climate change.
What is and isn’t a climate tech is often decided by the Venture Capital firms that focus on investing in the space. Here is what some of the top VCs in climate tech think is considered “climate tech” and worth investing in:
ArcTern Ventures invests in climate tech companies that strictly fall under one of these categories - clean energy, energy efficiency, and storage, circular economy, advanced manufacturing and materials, mobility, and food systems.
Congruent Ventures focuses on investing in categories like mobility and infrastructure, energy transition-related tech, food and agriculture, and sustainability.
Climate-KIC, a European VC firm, invests in highly specific climate tech themes that they know can make an impact in the long run. These themes include health and clean cities, climate-friendly food systems and diets, and circular regenerative economies.
WorldFund said this about their climate tech investments: “We invest in tech that can save at least 100 Mt of CO2e emissions per year. Startups with such potential will be the most valuable companies of the next decade. The sectors with gigantic decarbonization opportunities are Energy, Food & Agriculture, Manufacturing, Buildings and Transport.”
Major VC Investment Themes Within Climate Tech
1. Clean & Renewable Energy
Fossil fuels are still the powerhouses for generating electricity; about 61% of global energy production is via fossil fuels, and renewable energy is slowly replacing them. About 20% of electricity production comes from renewable sources right now, and the other 19% is from nuclear.
Transitioning from fossil fuels to renewable energy to decarbonize the electric grid is one of the major ways to slow down climate change. Renewable energy is a main investment theme for climate tech VCs for good reasons:
Reduced carbon emissions: Clean energy technologies such as solar, wind, hydroelectric, geothermal, and bioenergy generate electricity without emitting carbon dioxide and other greenhouse gases that contribute to climate change. By replacing fossil fuels with renewable energy sources, we can reduce greenhouse gas emissions and make substantial progress toward net-zero goals.
Improved air quality: Burning fossil fuels not only contributes to climate change but also releases pollutants into the air, which has negative health effects on people in the immediate surrounding areas of power plants. Renewable energy technologies do not emit pollutants, improving air quality and reducing the risk of respiratory diseases.
Established market: Unlike newer markets within climate tech, such as carbon capture, renewable energy is widely proven as a feasible technology to bring to market with clear profit margins. Renewable energy even has a well-established debt-financing history, allowing for greater scalability and near-term impact.
Enhanced energy security: As renewable energy sources are distributed, they lead to increased energy security. Energy security is the uninterrupted availability of reliable and affordable energy sources, an especially important factor in developing countries.
2. Food & Agriculture
In 2020, the agriculture sector alone emitted ~11% of the total greenhouse gas emissions in the US.
Nowadays, food and agriculture tech startups are coming up with innovative solutions to reduce the industry’s carbon and methane emissions. These include precision agriculture technologies, alternative protein sources, sustainable packaging and food storage solutions, enhanced weathering, and climate-smart crops. VCs believe these technologies can play a significant role in directly reversing climate change.
Sustainable agriculture practices: Agriculture tech can help farmers adopt more sustainable practices that reduce greenhouse gas emissions, such as no-till farming, cover cropping, and precision agriculture.
Reduced food waste: Food tech can help reduce food waste by improving the efficiency of food storage, transportation, and distribution.
Alternative protein sources: Companies can develop alternative protein sources, such as plant-based and lab-grown meat, which have a lower environmental impact than traditional animal agriculture. These alternative protein sources also have the potential to reduce the demand for animal agriculture, which is a significant contributor to greenhouse gas emissions.
Enhanced weathering: Startups like Lithos Carbon are helping farmers maximize the carbon captured by their soil by using basalt. Spreading optimized amounts of crushed-up basalt (volcanic rock) over soil causes a chemical reaction that allows for the soil to remove carbon from the atmosphere “about 100 to 1,000 times faster.” Innovations like these, combined with other technologies and methods, can eventually make some agricultural companies carbon-negative.
Climate-smart crops: Technology can help develop climate-smart crops that adapt to changing weather patterns and withstand drought, floods, and other extreme weather events. These crops can help farmers adapt to climate change and maintain food security in the face of increasingly unpredictable weather.
3. Mobility & Transport
The mobility and transport sector is the sector most heavily invested in by climate tech VCs. The sector is the second-highest greenhouse gas emitter, and from 2013 to 2021, VCs worldwide invested $132 billion (61% of total VC climate tech investment) in mobility and transportation companies.
Electric vehicles: EVs themselves don’t emit greenhouse gases, directly reducing the carbon footprint of the transportation sector and making it possible to replace fossil fuels for vehicles with renewable energy distributed or in the grid.
Alternative fuels: Mobility and transport tech can also help develop alternative fuels such as biofuels, hydrogen fuel cells, and synthetic fuels that emit fewer greenhouse gases than fossil fuels.
Smart transportation systems: Smart transportation systems that use real-time data and analytics can help optimize traffic flow and reduce congestion. This can help reduce greenhouse gas emissions from idling cars and trucks and improve the efficiency of transportation systems.
Sustainable logistics: Logistics tech can help optimize supply chain operations and reduce emissions associated with shipping and transportation. This is primarily done by optimizing routes and using electric vehicles in as many parts of the supply chain as possible.
4. Circular Economy
The circular economy is a climate tech theme that helps minimize waste and reduces the need for new resource extraction and manufacturing processes, which can be energy-intensive and emit large amounts of greenhouse gases.
Resource conservation and sustainable packaging: New technology can help conserve natural resources by promoting a closed-loop system where materials are recycled, reused, or repurposed rather than discarded and sent to a landfill. This can help reduce greenhouse gas emissions associated with extracting and processing new resources.
Waste reduction: Reduce waste by promoting more efficient uses of resources and minimizing the amount of waste generated, thus reducing greenhouse gas emissions associated with landfilling and incineration.
Energy efficiency: Promote energy efficiency by optimizing production processes and increasing the use of renewable energy sources.
Who Decides The Definition of Climate Tech?
It seems as though it is the Venture Capitalists who decide what is and isn’t climate tech because they are the ones creating investment theses and then deciding what is worthy of investment under those guidelines. From a startup founder’s perspective, as long as the technology being developed fits into some of the climate tech VC’s theses, they can consider their startup a climate tech startup. But even if VCs aren’t convinced an idea falls under any of the climate tech themes, it’s not game over. Focus on developing innovative solutions that address the root causes of climate change. Ultimately, what matters is the impact of new technology on the environment and society, not the label attached to it.
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