There’s a lot of buzz around Europe’s climate tech industry at the moment. Investment surpassed $8bn last year — seven times the figure in 2016, making the continent the fastest-growing region for climate tech in the world.
With the stakes for getting climate tech right so high, how can VCs be sure they’re putting cash in the right places?
We asked four climate scientists which tech they’re most interested in and what they think will have the biggest impact.
We had a few surprises: no one picked carbon accounting software or climate fintechs, areas that attract a lot of VC focus (investors poured $1.2bn into climate fintechs last year), though one scientist did plump for software and advocate classing Zoom as a climate tech.
Carbon dioxide removal
There are several European startups working on carbon capture and removal. Some are working on direct air capture — the process of pulling in air from the atmosphere and using chemical reactions to separate out the carbon dioxide.
Others are working on “bioenergy with carbon capture and storage” (known as BECCS) — a process that could produce renewable energy and remove carbon from the atmosphere. Biomass (usually trees) is burnt, producing energy for heat and electricity. That produces CO2, which is then captured and stored underground before it enters the atmosphere.
Proponents say that the capture of CO2, combined with the carbon that the trees sequester as they grow before being turned into biomass, mean BECCS can result in negative emissions — removing more CO2 from the atmosphere than it emits.
Sam Fankhauser, professor of climate economics and policy at the University of Oxford, says Europe has made strong developments in both BECCS and direct air capture recently.
“We have seen important pilots in direct air capture — with ClimeWorks and CarbFix, both based in Iceland — and bioenergy with carbon capture and storage with Drax in the UK,” he says.
“It’s still expensive, still only at the pilot stage, and there’s still lots of technical and environmental questions, but this is essential technology,” he says. “Most modelled decarbonisation pathways contain a lot of carbon dioxide removal, so it is good to see these technologies emerging.”
Others aren’t so sure. Matthew Menary, climate scientist at the Ecole Normale Supérieure in Paris, says he’s skeptical of carbon capture tech.
“At the moment, I don't see how they could be brought to scale in the time required to balance the books of our emissions on the one hand, and our obligations from the various climate agreements on the other,” he says.
“At the same time, without these technologies, we are locked into plenty of sea level rise over the next decades that could be very damaging indeed.”
Batteries
It’s battery gigafactory galore in Europe at the moment. Sweden’s Northvolt just announced the site of its new factory and Britishvolt just received £100m from the UK government.
Nick Eyre, professor of energy and climate policy at Oxford University, backs the tech, saying it will be critical to the transition to a lower-emission society. Batteries can store renewable energy, meaning sources like solar and wind power, which aren’t producing uniform energy across the day, can be more effective.
“Batteries will be really important for smoothing energy demand over the day,” says Eyre. “And most of the progress with batteries has come through the tech sector rather than the energy sector.”
Green hydrogen
Hydrogen is a clean fuel — water is its only byproduct. But hydrogen molecules aren’t found on their own in nature, so they have to be split apart from other molecules. It’s a process that can be carbon intensive.
Green hydrogen uses renewable energy sources to separate out the oxygen and hydrogen from water, producing a clean fuel using a renewable method.
“I am quite interested in the technologies to produce green hydrogen,” says Dr Jakob Wachsmuth from the Fraunhofer Institute in Germany.
One of the key applications of green hydrogen is the steel industry, where the fuel replaces carbon-emitting coal in the iron ore production process. Steel production using coal accounts for around 8% of global greenhouse gas emissions, so the impact could be significant.
“The first carbon-free steel produced in Sweden, using hydrogen, was an exciting step,” says Oxford’s Fankhauser (that was H2 Green Steel, a Swedish startup).
So why not use green hydrogen to power everything?
“When hydrogen is produced by electrolysis, there is a substantial loss of energy,” says Wachsmuth.
“Therefore, renewable electricity should be used directly whenever possible and not be converted to hydrogen for applications where direct electrification is possible. It’s important that we direct green hydrogen to the sectors where there is no better option.”
Heat pumps
“Heating is powered by oil or gas in most countries,” explains Eyre. “We're going to have to move to electricity, and the best way to do that is to use heat pumps, which basically air conditioners run backwards.”
The pumps heat spaces by transferring thermal energy from a cooler space to a warmer one using the refrigeration cycle (moving heat in the opposite direction to which it would move naturally).
Several European startups are working on heat pump tech. There’s Star Renewable Energy in the UK and Thermondo in Germany.
Zoom!
We don’t tend to think of Zoom as a climate tech company, but Eyre says perhaps we should.
“I'm using data, 10 or 20 watts to talk to you,” he says (over Zoom). “If I had come to visit you, the amount of energy that would use in comparison is enormous, especially if it meant flying overseas. We were moving towards business meetings online anyway, but we were doing it terribly slowly until the pandemic came along.”
… and the less useful stuff
“It’s important to consider, with tech, what contribution it’s making — and ask where that reduction in the molecules of carbon dioxide from the atmosphere is happening,” says Eyre.
He’s skeptical of offsetting platforms, for example — particularly those that promise to offset the impact of flying by customers paying to plant a tree.
“I'm not its biggest fan because at the end of the day, the thing that reduces the carbon emissions is planting the tree, not whatever exchange goes on at the airline counter that, in fact, doesn't save any carbon emissions at all.
“There’s research that backs this up to say that in many cases, people were going to plant the trees anyway.”
So how important do they think startups are?
Wachsmuth, from the Fraunhofer Institute, says we shouldn’t become over-reliant on the promise of tech to solve the climate crisis.
“I'm rather skeptical about the common belief that climate tech alone will allow us to reach our climate targets. There is a need for fundamental changes in our economy and ways of living towards circularity and sufficiency,” he says.
“We need to actively pursue these changes. If we just push for the development and application of clean technologies, we will not succeed.”
That said, he believes startups can be “strong drivers of new technologies”; but we’ll need well-established corporate companies on board too. “For instance, there is no way to achieve a climate-neutral steel production without the existing steel companies.”
But, says Eyre, “the initial ideas will come from startups. Those ideas are not going to come from BP or Shell or EDF because they can make money perfectly happily in the market that already exists.”
