(Bloomberg) -- Clean technology investors and companies are making contingency plans as they wait to see how the US election plays out. Former President Donald Trump and Vice President Kamala Harris couldn’t have more different approaches to climate.
While Harris hasn’t spent much time touting the issue on the campaign trail, she’s expected to protect President Joe Biden’s accomplishments and follow through on priorities like limiting emissions from power plants. Trump has pledged to rescind unspent funds from the Inflation Reduction Act, the Biden administration’s signature climate law with hundreds of billions of dollars in tax credits and incentives for carbon-cutting projects.
The economic benefits of Biden’s climate legacy will likely shield it from attempts at a rollback. That has some Republicans in Congress already defending IRA subsidies because of the investments flowing into their states. Some clean technologies also have military applications that help them attract federal dollars even in a polarized political environment.
Still, the election weighs heavily on venture capitalists' bets. US-based climate tech startups raised $2.6 billion in the third quarter, a 31% drop from the second quarter and down 39% from the third quarter of 2023, Dealroom data shows.
“A lot of investors are very cautious right now,” says Sophie Bakalar, partner at New York City-based Collaborative Fund. “That’s one of the reasons why we’re not seeing as much capital being deployed at the moment.”
Even without a legislative rollback, Trump would have the latitude to slash electric vehicle incentives and scuttle federal loans for clean tech projects. The prospect of a weakened IRA if Trump wins in November has stirred up anxiety at climate tech companies.
Caelux, a startup that makes glass for solar panels, currently has a 100-megawatt demonstration plant in Baldwin Park, California, and plans to scale up US production to multiple gigawatts by 2026, Chief Executive Officer Scott Graybeal says. Without IRA incentives helping level the playing field with countries like India, though, he worries the US would fail to attract solar panel makers. If that happens, the company will walk back its US expansion plans and instead “shift gears and focus on Asia and the Middle East,” Graybeal says.
Illinois-based LanzaTech Global Inc., which converts captured carbon dioxide into industrial feedstocks using biotechnology, points out potential project delays as another concern.
Tax credits enabled by the IRA on paper have yet to deliver real-world payouts for carbon utilization companies including LanzaTech. The uncertainty about those incentives has already deterred risk-averse customers and financiers, and the US election doesn’t help, says CEO Jennifer Holmgren.
Meanwhile, the fundraising environment in both private and public markets for growth-stage climate tech companies “hasn’t gotten better” in recent months, leaving many struggling to scale technology deployment, Holmgren says. Even if some companies will eventually access capital through lending institutes and equity investors, “the real problem is time,” Holmgren says. “For a startup, a delay really matters. A three-year delay is death.”
There are other ways Trump could reshape the climate tech industry. He’d be able to shift the types of projects eligible for IRA tax credits by rewriting Treasury Department rules to tilt the playing field toward his preferred industries. Such an effort could help boost carbon capture and the making of hydrogen using fossil fuels, while making it harder for electric vehicles and renewable energy to qualify for subsidies.
He would also be able to freeze financing for new projects from the Energy Department’s Loan Programs Office, which was effectively shut down during his first term. Trump could also claw back promised support from some projects where deals haven’t formally closed, or even redirect the LPO to finance fossil-fuel projects.
“I think you would still see a slowdown to an extent” under a Trump presidency even if the IRA survived, says Chris Mangieri, principal at climate-focused Pulse Fund. By contrast, Democratic control of the White House and Congress would increase the chances of future climate legislation passing, he says.
A Trump win would affect which companies make for good investments, Mangieri added. Pulse hasn’t invested in a clean hydrogen company, and Mangieri views it as an “extremely nascent industry.” How the hydrogen tax credits are structured — still an ongoing matter — and how Trump or Harris could alter them is a source of uncertainty that makes it hard for Pulse to invest despite being “certainly interested,” he added. On the other hand, EV charging investments will remain appealing because slashing tax credits wouldn’t stop adoption, Mangieri says.
With the fate of clean tech tax credits in limbo, investors are keen to find startups that can be profitable with or without the support. A change of administration will make it important for startups “to think through, ‘How do I reforecast or replan my business model such that I am profitable or my unit economics do work without those incentives?’” says Lucy Brash, head of JPMorgan Chase & Co.'s North American Energy, Power and Renewables Equity Capital Markets group.
Some clean technologies have defense applications that make them useful in any presidential administration, says Henk Both, a principal at Anzu Partners. He pointed to companies the industrial technology investing firm has backed: One makes a cold-resistant battery component that the company says is useful in everything from EVs to drones, and another produces magnets without using rare earth minerals, the supply of which is largely controlled by China.
The idea rings true for Aaron Guo, co-founder of BladeX Technologies. The startup is devoted to manufacturing lightweight composite materials, and its website touts using them for electric motors — but also artillery shells and drones.
“If there’s a lot more defense funding or climate funding, that would influence what kind of angles we’d attack the markets at,” Guo says.
--With assistance from Michelle Ma.
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