The climate crisis has encouraged innovations across many sectors, but recent trends show sharp declines in investments for climate technology at the same time as significant growth for artificial intelligence (AI). A recent report from CB Insights has shed light on this phenomenon, indicating how venture capital is increasingly prioritizing AI over climate tech, leaving some environmental initiatives struggling to secure necessary funds.
According to the State of Climate Technology Q3’24 report, funding for climate tech startups on the African continent dwindled to just $900,000 during the third quarter of 2024. This stark decline stands out against the backdrop of $325 million raised earlier in the year. The report outlines how AI investments are enjoying the spotlight primarily due to their potential for faster commercialization and returns—in short, investors love speed and turnover.
Throughout the first half of 2024, climate tech represented nearly half of the $721 million raised by African startups, overtaking fintech, which brought in 22%. This observed enthusiasm from investors for climate solutions aimed at mitigating environmental issues, such as drought and desertification, now seems to have shifted dramatically.
With global climate tech investments plummeting to $4.8 billion this past quarter, marking the lowest levels since 2020, the report highlighted significant investor withdrawal as high interest rates weighed on the capital-heavy characteristics of climate projects. The immediate attraction of AI, characterized by shorter timelines for profitability and returns, has lured away many backers.
The decline raises questions about the future of those climate tech initiatives desperately needing investment. Despite this downturn, there are glimmers of hope. For example, Octavia Carbon from Kenya secured $3 million just last month—significantly surpassing what the entire climate tech sector collected for the previous quarter. This indicates a possible rebound on the horizon as interest begins to swell again for scalable climate solutions.
On the global stage, the drop-off is pronounced, yet the sector shows resilience with four new unicorns and five major exits reportedrecently. Notably, one of these was Neo Fusion, acquired for $2 billion, highlighting the growing market need for innovations within climate technology.
Meanwhile, at the UN climate conference, concerns emerged around the energy consumption required to support the AI industry. According to reports, tech companies heavily involved with AI, which operates vast data centers, are known to rely on substantial energy inputs.
Many major players within the industry have started to invest heavily in nuclear energy as one potential solution to meet AI's growing energy demands. Nuclear power, backed by supporters within the tech giants, is viewed as cleaner than traditional fossil fuels, paving the way for longer-term energy solutions.
Franklin Servan-Schreiber, the CEO of the nuclear energy startup Transmutex, pointed out, "AI requires massive, industrial-scale amounts of energy. Only nuclear power will be able to supply this massive energy demand reliably." Although nuclear power plans are still long-term goals requiring considerable investment and government action, the industry sees nuclear as possibly the only path forward to address energy needs.
Despite current footprints of just 54 operating nuclear plants within the United States, companies like Amazon and Google are already making moves toward partnerships focused on building modular reactors—smaller facilities than traditional reactors—and speeding up deployment to meet urgent demands. Still, as the physicist Edwin Lyman explains, this initial funding is only “a drop in the bucket” compared to the financial requirements for comprehensive infrastructure development.
Tech investors, aware they can’t wait years for new facilities to come online, might rely on fossil fuels as they await these developments. Their immediate reactions are underscored by the prominent voices like Toby Rice, CEO of natural gas producer EQT, urging for urgent short-term solutions tied to natural gas. "Tech is not going to wait 7 to 10 years to get this infrastructure built. That leaves you with natural gas," Rice explained.
This contradiction, with the tech industry's burgeoning energy requirements juxtaposed against their promises of sustainability, raises doubts about the companies’ long-term commitment to clean energy investments. Notably, analysts have projected data centers utilizing energy will expand dramatically over the next few years—expected to account for up to 20% of U.S. power demands by 2030. There remains deep concern about whether this can happen within the paradigms of existing environmental commitments.
Interestingly enough, leaders within the AI revolution remain hopeful. Nvidia CEO Jensen Huang recently expressed optimism, stating, "My hope is what we all see is this is the best use of energy we can have." This hopeful perspective holds significant sway as more tech companies grapple with the balance of their resource needs against pressing global climate expectations.
The intertwining narratives about AI and climate technology come at pivotal moments. The question remains as to how counts on greenhouse gas reduction, energy consumption, and fiscal responsibility will merge moving forward. While there are hurdles, opportunities abound for innovation and collaboration among sectors as necessary funding might slowly return to climate tech amid overall and reassuring growth across other fronts.
