COP 28: climbing up the tech-financing ladder
Climate technology - an exciting but risky piece of the 1.5°C puzzle- needs capital. Should institutional players step in?
A quick glance at the COP 28 agenda and a deliberate focus on technology stands out. The idea behind a tech-based COP diet in Dubai is to increase investor confidence in what the UAE reckons is part of its post-transition economic identity.
The UAE aims to become the world’s largest producer of hydrogen by 2031. In 2021, the Abu Dhabi National Energy Company paired up with Emirates Steel to announce the MENA region’s first green steel project. In November 2023 the UAE launched its “Air-CRAFT” initiative – a research collective aimed at scaling sustainable aviation fuel technologies. Climate technology is a linchpin of the UAE’s future economic strategy.
It is also a vital ingredient of wider global efforts to achieve net-zero targets. Given their current commercial stage, scaling up climate tech solutions require a change in both the scale of funds and the type of financiers involved.
Techno-preneurs at COP
There is a wide range of technologies collectively aimed at reducing global warming, either by reducing emissions or by removing greenhouse gases from the atmosphere.
The list is long: from green hydrogen and direct air capture to recycled batteries and climate-neutral steel. Despite differences in sectoral application, companies working on such technologies share an urgent need to scale production and an acute awareness of higher-than-average returns hidden in that exercise.
COP 28 has given entrepreneurs in the tech industry an opportunity to pitch their products.
One such company is NEG8 Carbon, an Irish company trying to commercialise direct air capture (DAC) technology. The company says its objective is to install 25,000 of its DAC units across Ireland by 2035. These will be capable of capturing 10 million tonnes of CO2 annually – nearly 4% of Ireland’s current emissions. The company’s chief commercial officer Dr. Adrian Costigan was featured at COP28.
The company says it is searching for both scale and investors: “Over the next decade, we require capital to achieve atmospheric CO2 capture rates of millions to billions of tonnes. We are seeking investors with similar ambitions to us”.
See it to believe it
To keep the dream of net-zero alive, companies such as NEG8 Carbon, need to achieve a significant expansion of their operational scale. To do so, they require a new kind of investor to join their ranks – one that possibly differs from the private equity funds and venture capitalists who have hitherto backed their growth.
The change in scale and type of capital being sought reflects a fundamental shift in the commercial stage of application a handful of climate technologies have reached.
These companies have demonstrated what scale looks like. Climeworks, a Swiss DAC company deployed the world’s first large-scale DAC plant in Iceland in 2021. At the time, Nathalie Casas the company’s head of technology said, “This facility demonstrates that carbon dioxide removal is both possible and necessary.”
In 2022, the company announced an even bigger project, nicknamed “Mammoth” capable of capturing 36,000 tonnes of carbon dioxide per year.
Proof of concept, for companies in the climate-tech industry is an essential part of their pitch.
All that said, climbing up the financing ladder means dealing with a different risk appetite. Climate-tech remains a risky, albeit promising, investment hypothesis.
Recent history is a warning too dire to ignore. In 2006, a wave of high-profile investments marked the beginning of clean-tech wave in the US. Fast-forward to 2011 and “almost all the renewable-energy start-ups in the US were dead or struggling to survive”, writes David Rotman, editor of the MIT Technology Review.
The implication being that if climate technologies are to climb up the financing ladder – their impact on an investor’s risk calculus needs critical consideration. Ultimately how investors measure and respond to risk will shape if and how they meet techno-preneurs half-way up the ladder.
“Overall, there is a gap between traditional finance and what is required to scale-up new climate technology. This gap has to be addressed with a different way to address risk evaluation”, says Dr. Mario Michan, CEO of Daphne Technology - a climate deep-tech company selected to showcase their products at COP28. The company’s products include a solution to reduce methane emissions in the oil and gas sector.
This view is also backed by Luba Nikulina, who attended this year's COP28 as chief strategy officer at IFM Investors. The Australian firm holds significant investments in UK, North America and Australia infrastructure. “COP is very much about cooperation; you bring people from around the world together with politicians which is rare at such concentration” she says.
IFM is currently looking at solutions such as carbon capture and storage: “There is a lot of technological innovation but there are challenges too - that is where we need governments to step in and set out the road to be able to help private capital to invest in the technology.”
“There are several companies represented here offering new technologies, especially from emerging markets. Whenever I get a moment, I step out to look at this to get a sense what is happening around the world, it is actually quite inspiring” Nikulina describes.
As climate-tech companies move through rounds of financing, a lot changes. The ticket sizes get larger, concepts move closer to commercialisation, technologies mature and, in some cases, regulatory approvals are received ahead of their expected arrival.
The benefits of scaling up such technology-driven solutions warrants an optimistic review from patient financiers but climate technology remains a relatively risky bet. Optimism, as it often does, is likely to proceed with caution.
This article includes additional contributions by Mona Dohle.