Climate tech is poised for explosive growth, projected to reach a market size of $600 billion in annual turnover by 2030. Europe’s position in this emerging sector is at risk, the reports states, with the continent falling behind the US and China – without further efforts – as climate tech moves to the most favourable markets.
- The climate tech industry is set to grow threefold, reaching a market size of $600 billion by 2030.
- To reach its own climate targets, Europe needs to increase its annual investments in climate tech to the tune of €140 billion in the public sector and €560 billion in the private sector, compared to the last decade.
- The current investment gap in the European energy sector alone is as high as €200 billion per year, with €40 billion and EUR160bn of missing public and private funding, respectively. If this gap is not addressed, climate tech markets might move out of the EU.
The report notes that the climate tech sector is poised for explosive growth, projected to reach a market size of €600 billion in annual turnover by 2030. However, Europe’s position in this emerging sector is at risk, the reports states, with the continent falling behind the US and China – without further efforts – as many climate tech companies move to the most favourable markets.
The report suggests that the investment gap in the European energy sector alone is as high as €200 billion per year. Despite a boom in climate tech investments reaching almost $100 billion worldwide in 2022, funding is unevenly distributed among sub-sectors.
The report offers policy recommendations to bolster Europe’s climate tech industry by, among others: creating a common EU platform for funding access, increasing collaboration between the private sector and research institutions, attracting institutional capital, reducing bureaucratic hurdles, and mandating procurement of climate tech solutions.
Risk and opportunity in the EU climate tech space
Europe’s energy autonomy and the goal of a 55% greenhouse gas emission reduction by 2030 require robust climate tech innovation. The industry’s projected value of €600 billion by 2030 underscores its significance. However, both China and the US have surged ahead in clean energy investments, emphasizing the need for rapid action in Europe.
The recent decision by Marvel Fusion, a German nuclear fusion startup, to establish a laser fusion factory in collaboration with Colorado State University highlights the urgency of strengthening Europe’s ClimateTech position.
“If the EU does not match some form of support like the US and China, the fusion energy industry and others such as batteries are unlikely to develop well and survive in the EU,” said Lucio Milanese, Co-Founder of Proxima Fusion, a European climate tech startups featured in the report as a case study.
The funding gap
To support the net-zero transformation, substantial public and private investments are essential. However, the current investment landscape falls short. The International Energy Agency (IEA) estimates that annual global clean energy investments of $4.5 trillion are needed by 2030.
The EU alone requires €1.5 trillion annually between 2021-2030, which is €700 billion more per year than current levels. According to the study, €560 billion of this would have to come from the private sector and €140 billion from the public sector.
“Europe […] needs to make public financing approvals more efficient and increase investment volumes in European climate tech,” said Markko Waas, chief executive and founder of Claims Carbon, a European climate tech startup featured in the report as a case study.
Current annual clean energy investments in the EU are around €400 billion, leaving a substantial gap. The public investment gap for energy alone is approximately €40 billion annually, with an additional €160 billion from the private sector required.
. It is already a major investor in green energy infrastructure, including wind and solar farms, green hydrogen, and green ammonia.
While the EU budget allocates over578 billion for the green transformation, national initiatives are also emerging. Germany recently announced a 212 billion climate and transformation fund, while France plans a 500 million annual tax credit in support of wind, solar power, heat pumps, and batteries. Benelux and Nordic countries are also launching ambitious climate-related industrial policies. It’s a start, but much more is needed.
The technology gap
It’s widely understood that innovation will be crucial for achieving net-zero goals. Mature technologies alone will contribute to only 25% of the required CO2 emissions reductions. Over 75% of emissions reductions must come from emerging technologies. To achieve this, $3.3 trillion in average annual investments in innovative technologies is needed between 2020-2040.
Venture capital is one route to accelerated funding of climate tech. Climate tech venture capital (VC) and private equity (PE) in climate tech and clean tech companies rose from $43.3 billion in 2019 to $97.3 billion in 2022.
European companies secured approximately 30% of these funds in 2022, with promising potential for growth. There is a funding mismatch, however, with the highest-emission sectors receiving less funding than others.
The sectors with the highest emissions (particularly manufacturing, the agrifood sector and the building sector) – and therefore the greatest potential to decarbonise – do not receive the most funding, which goes into the energy and transport sectors.
Policy support is where EU countries can accelerate capital deployment
Given the challenges facing climate tech developments, the report argues that further efforts are required to create a globally competitive industry. Policy recommendations include streamlining funding, creating a common EU platform for funding access, supporting long-term financing through blended financing, and mandating procurement of climate tech solutions.
“French public and private investors are well positioned to fund EV infrastructure. However, standardisation at the European level is crucial, for example in the case of CO2 emission certificates,” said Vincent Gaillard, deputy chief executive of Electra, a European climate tech startup featured in the report as a case study.
Other recommendations involve attracting institutional capital, improving capital market conditions, increasing collaboration between the private sector and research institutions, and reducing bureaucratic hurdles.
“If companies want to do an IPO, they will do one. Unfavourable market conditions in Europe will lead to IPOs abroad,” said Arthur Singer, co-founder of energy storage startup STAB.