Will Climate Tech Go Away??

And. We’re. back.

I apologize for skipping last week; I can only imagine the distress that one less email on a Friday may have caused you. Please forgive me.

Truthfully, writing is a big undertaking and in order to do this well, I have made the decision to go to bi-weekly releases and changed the release day from Friday to Tuesday. I appreciate the feedback, engagement and discussion that has come through. It’s cool to see this little community of climate technologists grow.

And with that, we move to our main topic. Let’s prognosticate wildly!

What is Going to Happen to Climate Tech in the US?

It seems like everyone has an opinion on where climate technology goes under a second Trump administration. Some are circling the wagons and planning for some lean years. Others remain bullish. A few are even defiant. Everybody seems to be all over the map, so why wouldn’t I add another voice to the crowded void? Right?? Well, I’m going do it anyway.

Let’s start with the obvious; we have no idea what this is going to look like. Rather than looking for an outcome, I’m keeping my eye on a few trends that I feel have potential to shape the clean energy landscape for years to come. These are not questions that I have an answers to. They are things that the industry will have to watch and adapt to quickly.

What Kind of Support Do Frontier Clean Firm Technologies Get?

Nuclear, geothermal, hydrogen and (to a slightly lesser extent) carbon capture are all reasonably bipartisan at this point. They received incentives within the Inflation Reduction Act (IRA), had conservative support and considerable investments over the last 4 years. Republican congressional districts have reaped the lion’s share of investment dollars from the Biden administration. If congress does follow Speaker Mike Johnson’s admonition to use a “scalpel not a sledgehammer” approach to the IRA, these frontier technologies could still reap the important investment and production tax credits. I am watching for how much is actually repealed.

Another piece to watch is the Loan Programs Office (LPO) and similar types of government lending and derisking operations. Each of the frontier technologies are in the beginning stages of deployment. Some technologies, like hydrogen electrolyzers or enhanced geothermal, are further along than others but they are still relatively risky investments to financiers. Government backstops have served as a bridge in early commercialization projects to help the technologies mature enough that standard financing mechanisms can pick up new projects at reasonable rates. Will it be politically popular to pull projects such as the Palisades Nuclear Restart in Michigan or the Advanced Energy Storage Project in Utah if LPO is gutted? Do other grant or funding programs for commercialization (such as the hydrogen hubs) get the funding that they’ve been awarded?

What Happens to Inflation and Interest Rates?

Low interest rates and low inflation lead to cheaper money. As discussed above, frontier climate technology costs are incredibly sensitive to the cost of money. If debt is expensive or unavailable, then nuclear, geothermal, and carbon capture are expensive. Natural gas, whose cost breakdown is more dominated by fuel cost than capital, takes less of a hit.

Beyond project deployment, high interest rates have caused venture and private equity investors to pull back in the past. Do some of these early stage companies have the ability to weather another contraction if it occurs?

When Natural Gas Opens Up, How Much Do We Want It?

One thing we can be sure of is that the administration will return to their roots and open up as much oil and gas opportunity as they can. Gas is currently the cheapest energy option in the US and has already squeezed out other technologies (RIP coal, it wasn’t renewables that were responsible for your downfall…).

Gas isn’t without its drawbacks though. Volatility in pricing globally has made gas price more unpredictable. It is nearly impossible to site large scale distribution systems, like pipelines. Gas also does not provide reliability in extreme events, such as winter storm Uri in Texas. Does the market operate exclusively on price and overlook these issues or do we continue to see interest in clean firm technology because of their resiliency?

There is also some discussion of how large power users may sway investments and usage. Google, Amazon, and Microsoft, have all pledged to procure carbon free electricity on a 24/7 basis. When there is no political headwind to emitting, do companies still work towards that goal? That may be a hard sell to shareholders and boards if natural gas can be had for cheap.

Does Deregulation Help Move New Technologies Forward?

The ADVANCE act, which worked to streamline the Nuclear Regulatory Commission, recently passed with bipartisan support. A geothermal siting bill just passed the house with some Democrats crossing the aisle. It seems that reducing regulations will be on the agenda for the new administration and congress, but the effects of such efforts are less clear.

Total deregulation might just shift the country back to natural gas (as long as the market wants it), but certain bottlenecks in regulation could really help clean and frontier technologies. Specific deference has already been given to nuclear and geothermal, but if transmission regulatory burden is reduced then renewables would benefit tremendously. Pipeline permitting reform would bring gas, but could also assist in permitting hydrogen or CO2 pipelines

Pulling the threads on these questions and others will help the climate tech world be as nimble as we can during an uncertain time. I’m firmly in the camp that there will be both positives and negatives for this space over the next few years. If we can adapt to the landscape and control the variables that we can, then some of these frontier technologies can get to the point where the government support is less and less necessary because the markets want them more and more. But to be clear, there is a lot of work to be done to get to that point.

There will certainly be lots of development and opportunity in the near future. And what better way to get ready than learning about what happened in the past year? I sat down with a colleague as we started to map out the 2024 Climate Tech Review report which will cover the technologies and investment in nuclear, geothermal, carbon capture and more. All you have to do to access it is be subscribed and look for it to in your inbox in late January.

As always, if you have comments questions or suggestions for topics, you can reply right to this email or find me on linkedin.

-James