How will the Inflation Reduction Act impact Climate Tech?
Unless you found yourself vacationing somewhere exotic with no access to wifi this week (good for you btw) you’ve undoubtedly read about the expected passage of the Inflation Reduction Act. Among many other things, the sweeping package brings meaningful changes to the US’ approach to fighting climate change.
As such, we sat down with Peter Gajdoš, partner and co-lead of Fifth Wall’s Climate team, to better understand its impact on the climate tech ecosystem:
How will the passing of this bill influence investment in climate tech? Climate tech now has a legitimate shot of being the ‘third leg’ of a VC investment portfolio, after tech and biotech. Also, it’s clear that the bill encourages action now as opposed to in the future: production of solar now, production of batteries now, production of hydrogen now — it encourages immediate, large-scale deployment at unprecedented levels. It bodes well for growth strategies in climate tech that focus on scale-up, commercialization, and driving costs down, not just on fundamental R&D.
Will the bill change anything about how Fifth Wall Climate invests? Not much — it just reinforces the attractiveness of the sector and the importance of the mission. Besides encouraging deployment, the bill could enable us to make some bold bets in areas that have traditionally been less attractive for VC, such as smart windows.
Who are the big winners here? Aside from the global population in general, this is a huge moment for domestic producers of solar, batteries, hydrogen, and more. The bill also catapults US companies and the Federal Government to leaders in climate action after nearly two decades of underwhelming support.
Any anecdotal tidbits from our climate tech portfolio companies about how this could influence their businesses? The bill will push many companies to focus on the immediate production of their products and less on R&D. Following is some of the feedback we’ve gathered from founders:
Are there any important elements of the bill that you feel are underreported? Hydrogen production subsidies…the ability to receive up to $3/kg is huge. If you do the math, that’s more than 2.5x the current wholesale price of Henry Hub natural gas. This will create all sorts of windfall opportunities for clean hydrogen producers.
Are there any lesser known or surprising effects that could come from this? The bill may actually end up hurting certain low cost producers. Also, the focus on enhancing the domestic supply chain may cause a disruption or slow down in the near term as the cheapest lithium processing and other components that come from Asia are very hard to replace with US sources quickly.
What message does the bill send to large real estate owner/operators? Decarbonize or become a dinosaur.
