BNEF’s Curry Calls for Reallocation of Venture Capital Funds
Industry, Buildings, Ag Deserve Bigger Slices of the Decarbonization Pie
Venture capital is underinvesting in industry, buildings, and agriculture says Claire Curry, head of technology, industry, and innovation for BloombergNEF (BNEF), a provider of global commodities market research. Curry’s keynote interview kicked off Day 2 of Energy Week 2023, TDK Ventures and Climate Investment’s gathering of industry leaders, researchers, entrepreneurs, and investors, who will define the future of decarbonization and mobility. Curry called for more investment to grow the climate and energy-innovation pie and for bigger slices to these underserved verticals.
She said that investment in startups aimed at reducing the built-environment’s carbon footprint has remained stagnant at about $500 million per quarter. After a banner year in 2022, agriculture has seen its innovation investments plummet in 2023.
“There’s a reason VC is not going to these sectors,” Curry explained. “Most agriculture, building and industry decarbonization technologies are B2B, i.e. far removed from the consumer, and therefore harder sectors to introduce technologies into that will increase costs for the manufacturer in many cases.”
She presented charts that reflect BNEF’s research on VC and private-equity deployment. Startups in the spaces her team monitors — energy, transport, industry, buildings, agriculture, and climate/carbon — raised $16.6 billion last quarter, 19% above the 4-quarter rolling average. While that’s “not bad,” she said, the biggest chunk of early-stage capital went to the energy sector and of that, 70% was directed to lithium-ion battery startups. Chinese and American startups each collected about 30% or $4.5 billion of the funding, with the remaining 40% going to the rest of the world, mostly Europe.
She pointed out a number of interesting trends:
· Over 90% of low-carbon transport funding went to battery-electric vehicle companies
· Only one deal in the previous quarter supported the mobility sector — i.e. ride hailing or car sharing
· Of the $2.9 billion industry-focused startups raised during the quarter, $1.6 billion was directed to H2 Green Steel
· The four most active VC funds accounted for more than half the deals in industrial or building decarbonization
BNEF tracks six sectors: energy, transport, industry, buildings, agriculture, and climate/carbon, which includes carbon accounting, direct air capture, to meter-based solutions.
Curry welcomed the data on her charts that showed the world’s venture capitalists spent about $2.80 per ton of CO2 emitted on transport and $1.30 on energy-related solutions. Agriculture and buildings received about $0.70 each per ton. Industry received $0.40.
“We need to think about the role of VC in transportation,” Curry said. “In BNEF’s view, we know where we’re going — we’re electrifying it. Yes, we have our problems with SAF (sustainable aviation fuel). Aviation and shipping have their own issues. But with road transport, we know what we’re doing. The companies that are going to make that scale are the Chinese battery companies, maybe a few European, and a bunch of car companies. None of those are VC-backed anymore.”
She made a case for additional funding, along with premiums, incentives, and mandates for decarbonizing industry, and highlighted several areas that deserve greater attention.
“There are some big things we need to be decarbonizing right now,” she advised. “Cement accounts for 9% of the world’s emissions. Steel is 7%; ammonia fertilizer is 2%. Aviation is only 2%. We talk about the decarbonization of flying planes so much. But cement is almost five times that. Oil refining emits 4% of the world’s CO2 — never mind burning the oil in cars. Shipping is about 1.5%. Together, that’s a lot. Industry makes up about 24% of the world’s emissions. Agriculture is anywhere from 14% to 25%, depending on what you include.”
Governments and commodities-intensive businesses must step up to support the companies supplying carbonless components and raw materials, she said. They need to focus on the triple bottom line rather than waiting for green fuels and production methods to become cost competitive.
She said BNEF’s analysis shows that “even in a great scenario, where we have green hydrogen and 24/7 clean power, we are still not making cost-competitive/net-zero steel or cement in 2040 without subsidies or green premiums.”
Since electric vehicles and solar- and wind-generated power have demonstrated cost competitiveness, convincing investors and customers to embrace green steel and cement is an uphill battle.
“If you’re not making money, then how do you get your first-of-a-kind project funded without government support,” Curry asked. “This is where project developers have to be clever, and choose the right market to build in, optimize their supply chains and offtake agreements, partner with the right customers and investors. And of course, also seek government support. And we are beginning to see the first industrial decarbonization projects doing this with success.”
We need policy support and customers who are willing to buy green materials; both of these conditions exist in Europe, positioning it to take the lead in climate-related business and investment.
“The introduction of CBAM (Carbon Border Adjustment Mechanism) in two years’ time, and EU ETS (European Union Emissions Trading System) finally including industry transforms this story,” Curry said.
ETS, considered a central pillar of EU climate policy and a key tool for reducing greenhouse gas emissions cost-effectively, was the world’s first and remains the largest carbon market and emissions trading system. It sets decreasing annual limits on the total amount of greenhouse gases that can be emitted by all participating installations. Within this overall cap, companies can buy and sell emission allowances as needed. If a company reduces its emissions, it can keep the spare allowances to either meet its future needs or sell them to another company, whose emissions will exceed its allowances.
Power stations, industrial plants, and airlines operating within the EU must monitor and report their CO2 emissions and “spend” their allowances each year to cover their emissions.
Curry noted that the carbon price currently is around €80 per ton of CO2, with BNEF predicting a steady rise to around €140 a ton by 2030.
“That begins to finally make industry, building, and other decarbonization profitable,” she said.
Owing to protectionism and a fear of carbon leakage, previous iterations of EU ETS have extended generous free allocations exempting heavy polluters from onerous taxation. Those allowances begin to disappear in 2026.
“By 2034 — which sounds like a long way away but is not — industries including steel and cement will be (regulated) under EU ETS, which makes all this stuff incredibly expensive to emit,” Curry said. “The average oil refinery in Europe under EU ETS in 2030 will owe $100 million in carbon taxes every year. To decarbonize that facility using green hydrogen, some electricity, efficiency, and carbon capture and storage will cost about $20 million. Investing in CCS suddenly makes sense. The same with cement. You can charge a significant green premium for green cement in Europe or otherwise face huge carbon taxes.”
CBAM makes this possible by stopping carbon leakage — the tactic of moving carbon-intensive production facilities out of Europe and into jurisdictions that enforce less stringent environmental standards.
“CBAM will put a tax on your carbon footprint at the EU border,” Curry explained. “So, if you’re emitting more CO2 in India than you are in your Dutch plant, you get taxes as if you were in the EU ETS, at the point of import to the EU.”
Curry’s talk with Climate Investment Managing Partner Cindi Bough continued with a discussion of government policies that could spur VC and PE investments in climate initiatives in Europe and elsewhere. That portion of the presentation will be covered in part two of this article.
TDK Ventures and Climate Investment hosted Energy Week 2023 at London’s Goldsmiths’ Center to highlight the efforts of industry entrepreneurs, investors, and the scientific community in solving the world’s energy challenges and finding sustainable paths to decarbonization.
Energy Week 2023 featured industry leaders, experts, and visionaries, who are shaping the future of the energy landscape to help explore the latest advancements, challenges, and opportunities in sustainable energy solutions.
TDK Ventures Inc. invests in startups to bolster innovation in materials science, energy/power and related areas typically underrepresented in venture capital portfolios. Established in 2019 as a wholly owned subsidiary of TDK Corporation, the corporate venture company’s vision is to propel the digital and energy transformations of segments such as health and wellness, next-generation transportation, robotics and industrial, mixed reality and the wider IoT/IIoT markets.
