Climate Tech in Transition: A New Era of Optimism
Conventional wisdom suggests that climate tech is entering a winter season, where political and investor interest and investment levels are cooling — an ironic contrast with the climate itself, which keeps delivering years of record warmth.
A new report from the International Energy Agency suggests there has never been a better time to go all-in on climate tech. In comparing it with the IEA’s stance from a decade ago, it’s clear the world’s expectations about the future have changed dramatically in less than a generation.
In 2014, the International Energy Agency assumed that, absent any international effort to rein in carbon pollution, emissions would continue to go up and to the right. Even the most optimistic forecast at the time predicted a linear increase, just with a lower slope. Those scenarios essentially took the trend line from the previous few years and extended it through 2050.
Fast forward to today, and the IEA’s current worst-case scenario is essentially 2014’s best case. A decade ago, without any major changes, the world was headed toward 46 metric gigatons of CO2 per year by 2040. If countries cut emissions as they had pledged, the best we could have hoped for was 38 metric gigatons per year by 2040.
Today, if countries continue with business as usual, the IEA expects emissions will level off at 38 metric gigatons per year. If countries follow through on their pledges, the IEA suggests we’ll hit about 33 metric gigatons per year by 2040. It’s still far off from what’s needed to hit net zero by 2050, but it’s a significant shift in a short amount of time.
If the IEA’s earlier projections turned out to be overly pessimistic compared with where we are today, what does that say about today’s projections?
How you answer that question depends on how you interpret trend lines.
When forecasting the future, do you analyze today’s data? Or do you look at that data in conjunction with how our expectations about the future have changed over time? (An even nerdier way to look at it is, do you view the world through a lens of algebra or calculus?)
Put another way, will the world hit net zero in 2050? Today’s trend lines suggest we’ll miss that target by a wide margin. But if you look at how expectations have changed over the last decade, you might come up with a different answer. Instead, you might think the rate of change has increased, that we might be in the middle of an inflection point that starts to bend global emissions downward.
In Germany, sales of electric vehicles have set new records even after the government repealed incentives in 2023. In developing countries, renewables are reshaping the economies of developing countries, which were long thought to be among the last to adopt clean power. And China, which had previously refused to commit to reducing its carbon emissions, has now said its emissions will peak before 2030.
How the world views the future of carbon emissions has changed significantly over the past decade. A range of technologies have made that happen, including cheap solar and wind power paired with inexpensive batteries.
In the near future, geothermal energy and grid-optimizing software could propel the next leaps in optimism. For investors who agree, the upside could be dramatic.
For many climate tech investors, these days probably feel pretty gloomy. But amidst the gloom, there are still bright patches to be found.
