Climate tech funding slumps as investors prioritize AI

by Michelle Ma

Global climate tech equity financing fell 40% in 2024, signaling an uphill battle for emerging decarbonization technologies.

There were 1,200 deals for a total of nearly $51 billion last year, compared to almost $84 billion in 2023, according to new BloombergNEF research. This is the third straight year that venture capital and private and public equity financing have dropped for climate-focused companies. While climate tech funding dropped, venture capital funding for all sectors increased.

Among clean energy startups, nuclear companies raised the most as fusion efforts drew particular attention due to their potential to power data centers. They were led by Pacific Fusion Corp., which raised a $900 million Series A round. Carbon and nature was the only sector to experience an increase in funding, which BNEF partly attributed to favorable policies for carbon removal and growing demand for high-quality credits. 

China was a major driver of the overall dip in equity funding because of a glut of manufacturing capacity in sectors like solar and energy storage, according to Mark Daly, head of BNEF’s technology and innovation team. Tariffs on Chinese goods compounded the issue, shrinking demand.

The rise of artificial intelligence may have also blunted climate tech funding as investors shift gears. AI companies experienced a huge bump in equity funding last year, reaching nearly $100 billion while climate tech venture funding fell by $20 billion to $32 billion. 

“There isn’t an unlimited pool of capital to be invested in startups, and there’s really been a big uptick in AI,” Daly said. “It’s definitely having some impact.”

Despite the dreary outlook for equity deals, overall investment in the global energy transition rose to more than $2 trillion for the first time, according to BNEF, which analyzed spending on clean technology deployments as well as supply chain investments, equity funding and debt issuances. But growth has slowed by almost 11%, down from 29% in 2023.

Nascent technologies such as clean steel and green hydrogen are relatively expensive and require more policy support to increase demand, and that’s helped cause the slowdown, according to BNEF. Mature sectors including renewable energy and electric vehicles, though, were mostly insulated.