Key takeaways:
- The energy transition has reached unstoppable momentum. It is driven by fundamental technological and economic superiority, making it inevitable regardless of political shifts. Key technologies including solar power and batteries are already outperforming fossil fuels in cost and efficiency and propelling the transition forward.
- Republicans have good reasons to continue supporting climate tech. It aligns with their priorities, such as job creation, economic growth, strategic independence, and national security, making continued support likely from many within the party.
- The experts anticipate some policy changes under Trump with varying implications for climate tech. The US currently has one of the most extensive policy frameworks to support climate tech in the world. Some policies, like the BIL, are expected to remain, while others, like the IRA, may face adjustments but are unlikely to be repealed. Fewer grants and loans could impact first-of-a-kind projects.
- Despite these policy changes, we expect continued growth for climate tech in the U.S. Mature technologies will continue to compete on cost and drive local job growth. Many early-stage technologies will continue to be funded by private markets due to unchanged upside potential, other projects may need to rely more on states or start eyeing other geographies.
- Our core investing approach still holds and we continue to be bullish on climate tech. Focusing on technologies that can outperform incumbents. Policies are helpful but not essential to our investment thesis. Our diversified approach, including European exposure, ensures resilience in uncertain times.
Much has been written about the expected consequences of a second Trump administration on climate change and let’s address the elephant in the room: it is not good news.
Carbon Brief estimated that the difference between the Biden and Trump administrations would be an added 4 bn tonnes of CO2 emissions by the US by 2030*; which equates to the combined annual emissions of the EU and Japan. This is a significant chunk of the remaining carbon budget we have—making achieving 1.5 degrees even more unlikely. Trump’s victory is expected to lead to more fossil fuel extractions, fewer restrictions on fossil fuel usage and less multilateral cooperation.
The central question for us is: what will it mean for climate tech and climate tech investing? The truth is, we can’t fully predict what will happen and the full Red sweep of the House and Senate brings even more uncertainty. Anticipating what Trump will actually do compared to what he says he’ll do is like trying to read a crystal ball.
We’ve pulled together insights from experts all across the industry, including big financial outlets, specialized climate tech media, and, most importantly, top climate fund managers. Below is our synthesis, with links to original sources in case you want to read more.
While the election outcome is a setback for near-term climate progress, it’s crucial to focus on the bigger picture. We will need to wait and see how it all plays out, but the more we dove into the issues, the more reasons we found to be hopeful about climate tech’s continued development and rollout in the United States.
The unstoppable momentum of energy transition
The energy transition is propelled by fundamental drivers that transcend elections. It was well underway before Biden and we are absolutely convinced (and so are many others) the trend will not be reversed.
Despite pulling out of the Paris Agreement, the first Trump administration did not reverse the clean energy transition. Take a look at some evidence. Between 2016 and 2020:
- More wind capacity was installed under Trump than any other presidential term, and coal capacity fell under Trump more than under Obama.
- Energy transition investment in the US more than doubled from $70 billion to $180 billion (source)
Why? Most climate technologies are simply more efficient than fossil fuels (source). Clean power and electrification are already winning globally based on superior costs and product market fit alone (source). Another example: in 2023, the United States installed more heat pumps than gas furnaces. This trend began a year before, when heat pump sales surpassed those of gas and oil furnaces for the first time, with approximately 4.3 million central air source heat pumps shipped compared to about 3.9 million gas and oil furnaces.
The industry has matured significantly in recent years and is no longer just about environmental benefits—it’s about cost-effectiveness, energy independence, local jobs and economic growth. This brings us to our second point.
Why Republicans (would) want to continue supporting climate tech
There are three key reasons experts think that Republicans would want to continue supporting climate tech.
The first is domestic jobs. Since the Inflation Reduction Act (IRA) was passed in 2022, a large majority of the capital unlocked has flowed into Republican-leaning states and districts ($161B compared to $42B to blue districts), boosting clean energy manufacturing. The Department of Energy (DOE) reported in August that clean energy employment increased by 142,000 jobs in 2023* growing twice as fast as the U.S. economy overall. This allows many experts to believe Republicans wouldn’t want to completely repeal it. We’ll write more on the IRA below.
The second reason is that clean energy is good business. As stated above, most climate technologies are simply more efficient, and once they hit or go beyond cost-parity with traditional energy sources, they offer clear economic advantages. For example, Texas (who is set to attract the most clean energy investments from the White House) is one of the largest solar and wind power producers, not because of its environmental concerns but because it’s the cheapest source of power and has proven to be resilient in extreme weather events. (source)
Finally, the third reason why Republicans would want to continue supporting climate tech is that national defense is critical for Trump. In that sense, gaining material and energy independence for a broad set of technologies is pivotal to him. Many of our fund managers think that renewable energy sources and everything touching metals, batteries and their supply chains will probably continue to see government support. Furthermore, boosting U.S. manufacturing of clean energy technologies makes sense in the broader context of competition with China, which we know ranks high on Trump's and the Republicans’ agenda.
To summarize, some durable market dynamics are at play here that alleviate Trump's otherwise quite open skepticism toward climate change.
The potential U.S. policy changes and climate tech
Until Trump takes office and starts executing his ‘day one’ plans, no one can be certain which policy changes he’ll actually make regarding climate tech. Many experts believe Biden's climate agenda can be saved by re-framing it as a plan to protect energy security, restore manufacturing jobs, and compete with China. Still, the new administration is likely to shift priorities and change policies supporting climate tech.
Let’s try to assess three main policies supporting climate tech and their consequences on the development of new climate technologies in the U.S. In particular, let’s examine the Bipartisan Infrastructure Law (BIL), the Inflation Reduction Act (IRA) and the Department of Energy's Loan Programs Office (LPO).
1.) The Bipartisan Infrastructure Law: a robust buffer for long-term growth
Sure, the IRA dominates the conversations about climate tech supporting policies but what we hear far less about is the equally influential and robust Bipartisan Infrastructure Law (BIL). The BIL is a $1.2T program focused on revamping American infrastructure and is equally as important for climate opportunities. The program is simply not framed as much towards climate as the IRA and thus under less Republican scrutiny.
The BIL supports climate technology in the United States through several key initiatives:
- Electric Vehicle (EV) Infrastructure: The BIL allocates $7.5 billion to develop a nationwide network of EV chargers, aiming to facilitate long-distance travel and provide convenient charging options, particularly in rural and underserved communities.
- Clean Energy Investments: The law provides over $62 billion to the U.S. Department of Energy to advance a more equitable clean energy future. This includes funding for renewable energy projects, grid modernization to accommodate clean energy sources, and support for energy efficiency programs.
- Support for specific climate technologies, including $9.5 billion to support the development of clean hydrogen technologies and $8.6 billion to Carbon Capture and Storage (CCS) projects.
Very few experts think this policy is at risk as it stands out as a rare example of bipartisan agreement on climate and infrastructure policy. It reflects a broad recognition of the economic and security advantages of modernizing infrastructure and investing in sustainable, clean energy solutions.
In that sense, the Bipartisan Infrastructure Law is a pivotal driver and a robust foundation for the energy transition. By addressing foundational issues like transportation, grid expansion and renewable power deployment, the BIL ensures a robust framework for advancing climate tech innovation and deployment in the U.S..
2.) The IRA is more likely to be revised than fully repealed
The IRA is the largest climate tech government support framework to date, with an initial estimated spend of $391 billion (source) and arguably Biden’s biggest legacy for the sector. As we’ve seen above, red-leaning states are the biggest beneficiaries of the IRA.
But it is vulnerable because it was passed through a process called budget reconciliation, which unlike most legislation requires only a simple majority in the Senate. Now that Republicans control both the House of Representatives and the Senate, they could repeal it entirely if they wanted to. However, the Republicans obtained small majorities and for all the reasons listed above it looks like some of them will continue supporting this policy. In fact, in an August letter, 18 House Republicans asked current Speaker of the House Mike Johnson to spare IRA tax credits (source).
Experts believe a revision of the IRA is the likelier outcome (source). Trump could scale it back by capping funding or clawing back unallocated resources, expanding credits to include natural gas CCS technologies, or tightening eligibility requirements, particularly for EVs and renewable power (source). But there are substantial reasons to believe he won’t repeal the IRA entirely. And even if it was repealed entirely, which again we don’t believe probable, BloombergNEF estimates only a 17% drop in renewable power and storage capacity growth from 2025-2035.
3.) Loan programs supporting the scaling of climate tech companies likely to take a hit
The Department of Energy (DOE)’s Loan Programs Office (LPO) was established in 2005, long before the IRA and the BIL. Always working hand in hand with private capital, it provides funding for emerging energy technologies, particularly those that need to finance their first-of-a-kind factory. This program has supported hardware companies traversing their hardest growth phase, early commercialization, the infamous “valley of death.”
The LPO provided a $465 million loan to Tesla in 2010, which the company repaid in 2013 (Source). And during the Biden presidency, quite some climate tech companies, including some in our portfolio, have benefited.
During his first presidency, Trump tried to severely cut two climate tech related DOE LPO programs. Despite the Congress being Republican-controlled, they only implemented part of the proposed budget cuts, and both continued to operate. The bigger problem was that the LPO’s activity level severely diminished during that time. Under Trump’s first term only one project was funded: a $3.7 billion in financing for the construction of a nuclear reactor in Georgia. In comparison, Biden’s administration announced 29 loans and loan guarantees (source).
Thankfully, the Biden administration has moved quickly to distribute funds—over $98 billion in the past year—making some programs untouchable. Still, as it’s a multi-year program, $400 billion has not been allocated yet according to the DOE (source).
Given statements Trump made during campaigning, and the fact that these investments will only contribute to economic growth on a longer horizon, many think that this program is the most at risk (source).
What are the key impacts we anticipate?
Continued growth of mature climate technologies, albeit potentially at a slightly slower pace
A Trump administration would likely prioritize near-term economic growth. We expect established solutions like solar, wind, EVs, batteries, and residential heat pumps to fare reasonably well. These technologies have already or are about to, cross the tipping point where they are cheaper than fossil fuel alternatives, and they bring other benefits including local energy independence.
In addition, they are already of a scale where they are contributing substantially to local jobs and economic growth—factors that align with Trump’s agenda. In 2023, solar provided 49,3% of the total new domestic generating capacity. And these additions were 50% greater that the year before. (source)
Even if some incentives are scaled back and fossil fuels become a bit cheaper, their momentum and profitability should keep them growing.
On the financial front, we believe that a pro-business Republican approach could also benefit climate tech. Tax cuts and reduced regulation are likely to boost economic growth. That, combined with policies that support financial institutions, can help open up capital markets, making it easier for companies to go public. The opening of the IPO market could also enable climate tech companies to exit, creating returns for investors, which can be reinvested. And success stories could spark further investments in the sector.
Scaling climate tech through market fundamentals and beyond federal support
Early-stage climate tech includes all sorts of things: it spans across industries and includes a wide range of business models. It is innovative, first-of-a-kind (FOAK) tech, but it’s also software or off-the-shelf hardware, like components from existing supply chains or ready-made hardware that can be manufactured by third parties. Early-stage climate tech includes lots of businesses that have outperformance potential. They will continue to scale under Trump on economics alone, and thus offer an interesting investment case for private markets. It is really only a segment of the early-stage market, financing first-of-a-kind (FOAK) projects or initial factories in particular, that presents challenges.
While DOE support has surely been valuable and has given welcomed support to many companies in this phase, it’s not essential. Simply said: under Biden, we were operating under the upside case for climate. With Trump, we’re back to the base case, where technologies need to win on fundamentals and scale with limited federal support. We have always selected fund managers who focus on technologies with these strong fundamentals—not those relying solely on DOE loans. Most climate tech companies predate the IRA and Biden’s presidency and were already on a high-scale growth journey. So, even if the program were cut, we don’t believe emerging climate tech in the US would stall.
Why? Because disruptive climate technologies with strong fundamentals—outcompeting incumbents on price and quality—continue to offer an interesting investment case with lots of upside potential. Cheap solar power has created a platform for everything electrification (cars, trucks, industry, homes), and many other technologies can compete with incumbents on fundamentals, including clean baseload power (geothermal, advanced nuclear) and plant-based proteins.
Sure, in the end more of the risk will have to be shouldered by the private markets, but we may also see states stepping up to secure new manufacturing and jobs as well as to ensure their state-level GHG reduction targets. And they already have! Private initiatives like Trellis Climate and Mark1, as well as state-level support programs (e.g., Michigan’s support for Form Energy and Luxwall), are stepping in to help make these projects viable for other investors.
So, how do we look at climate tech investing going forward?
The U.S. climate tech ecosystem still holds massive potential, even with the headwinds of a Trump administration. Technologies like solar, wind, batteries, and heat pumps are already outcompeting fossil fuels on cost, and efficiency. These advancements are not only reducing energy costs but also creating jobs and driving local economic growth, particularly in Republican-leaning states.
A segment of early-stage companies, mainly first-of-a-kind (FOAK) projects, may face more hurdles. But private markets and state-level programs may step in to provide critical support. We expect continued growth for many early-stage climate tech innovations. Their economic edge, combined with the rising importance of energy independence and national security, ensures that they will continue to thrive even in a more challenging policy.
At Carbon Equity, we focus on long-term, fundamentals-driven climate tech investing, with a balanced global approach that includes Europe’s stable political landscape. The energy transition is unstoppable—and so is our optimism.
As one of our fund managers VoLo Earth Ventures puts it (source):
“ Doing our job well means we are making the energy transition the apolitical, bipartisan ‘no-brainer’ that we see it as.”
