Climate Tech – Why Government Support is Critical

The topic of climate change is becoming more and more dominant, and many technologies and start-up companies are beginning to fall under the new category or sector of “Climate Tech.” This is reminiscent of the hype surrounding the “Cleantech” sector, circa 2006. When investment in cleantech reached its peak, in 2010, and the level of interest started to decline, entrepreneurs were advised to distance their new ventures from cleantech in order not to become associated with that sector’s losses and disappointments. A 2016 MIT report explains what went wrong for cleantech during those years.

It seems that investors learned their lesson. According to a recently published PWC report, “State of Climate Tech 2021”, mobility and transport attracted 2/3 of the overall funding. By examining the profile of these investments, it becomes apparent that investors are much more attracted to relatively mature technologies, such as EVs (both light and heavy-duty transport), which are gaining rapid market acceptance.

The report also refers to what is perceived as a reverse relation between the level of investment and the potential of future emissions reduction: “The top five technologies that represent over 80% of future emissions reduction potential by 2050 received just 25% of recent climate tech investment between 2013 and H1 2021.”

This is not surprising and is consistent with the conclusions of the 2021 IEA report which states that “in 2050, almost half the reductions come from technologies that are currently only at the demonstration or prototype phase” (see figure below).

Clearly, without government support and incentives, many of these innovations will follow the fate of the cleantech start-ups that never survived the valley of death that engulfed them during the 2008 economic crisis. Their steep decline also resulted from the reduction in oil and natural gas prices and China’s solar panel manufacturing boom. However, as the MIT report demonstrates, these are only some of the factors. Climate Tech requires more “patient capital”.

The present U.S. administration is committed to increased government funding for research and development (R&D), including support for climate-related innovation and science, as evidenced by the $22B included in the original FY’22 President’s budget.

The goal of net-zero by 2050 requires innovation and new approaches to technology development. Obviously, without global cooperation, it will be impossible to come close to accomplishing this goal. This includes R&D cooperation, specifically between the U.S. and Israel.

Israel’s Climate Tech ecosystem builds on the thriving Israeli technology sector, including agrotech, clean energy, smart mobility, water technologies, and others. According to the PlanetTech-Israel Innovation Authority report, investments in climate ventures totaled close to $3B in 2018-2020. The year 2021 was a record year for the Israeli Climate Tech sector, which raised over $2B in funding.

The fact that the current Israeli Government has expressed a strong commitment to climate policies is promising and encouraging. This has contributed to a change in attitude and a raising awareness of a topic that, until recently, was not considered a high priority in Israel.

As with other topics of strategic importance, Israel should join forces with the U.S., mainly by investing talent and resources in climate science and technology innovation. A new U.S.-Israel Climate Change R&D program should be established by utilizing existing frameworks for R&D cooperation with the private sectors of both countries.