Key takeaways

• Funding hit a three-year low, but funding into long-duration energy storage, clean hydrogen, and CCUS continued: Next-gen Climate & Energy startups raised only USD 1.5 billion in Q2 2024 (USD 7.5 billion in Q1 2024 and USD 3.3 billion in Q2 2023). Even if we exclude Northvolt’s landmark USD 5 billion round in Q1, funding showed a decline in Q2; this was owing to declines in Alternative Energy (two-year low) and CMS (three-year low). 
• US and EU strengthened carbon regulations: Following the adoption of the US SEC climate disclosure law last quarter, two more carbon market regulations were introduced: the US Government’s release of the first voluntary carbon credit market policy guidelines and the EU Parliament’s adoption of a new law to establish a carbon removal certification system.

• Funding hit a three-year low, but funding into long-duration energy storage, clean hydrogen, and CCUS continued: Next-gen Climate & Energy startups raised only USD 1.5 billion in Q2 2024 (USD 7.5 billion in Q1 2024 and USD 3.3 billion in Q2 2023). Even if we exclude Q1’s Northvolt’s landmark USD 5 billion round, funding showed a decline in Q2; this was owing to declines in Alternative Energy (two-year low) and CMS (three-year low). 
• However, interest in long-duration energy storage (LDES), hydrogen, and CCUS held strong, attracting USD 1.1 billion in funding (72% of the total) this quarter. This reflected regulatory tailwinds from the Clean Hydrogen Acts, the 45V Hydrogen Production Tax Credit, and a recent US SEC climate disclosure law.

• The climate disclosure law drove carbon management and offsetting activity: We observed 32 product updates in Q2 2024 (cf. 36 in Q1 2024), with carbon and renewable energy companies focusing on commercial-scale launches such as Climeworks launching Mammoth, the world's largest direct air capture (DAC) plant. CMS startups were also active with CarbonChain, Watershed, ESGgo, and nZero launching new tools to assist clients with regulatory requirements related to emissions tracking and disclosure. Notable world firsts included Synhelion launching the first industrial-scale plant to produce synthetic fuels from solar heat and Lhyfe launching the first green hydrogen marketplace. 

• Collaborations were prominent in Alternative Energy, CCUS, and Hydrogen: We observed 71 partnerships in Q2 2024 (cf. 70 in Q1 2024). Biofuels, LDES, and geothermal collaborations were notable in the Alternative Energy space. The CCUS and CMS industries also had several notable partnerships this quarter, including CO280 Solutions signing an agreement with Microsoft for carbon capture projects and Pachama signing a USD 3.4 million carbon offset purchase agreement with Shopify. Startups in the Hydrogen industry collaborated to develop green hydrogen projects, while Zeroavia continued to strengthen hydrogen-powered aviation.

• There was an uptick in consolidation among CMS startups: There were seven M&A deals in Q2 2024 (cf. two in Q1 2024). Carbon management startups Sustain.Life, Traace, and Bluebird Climate sought to integrate their solutions with carbon intelligence and reporting platforms to provide end-to-end emissions tracking, management, and disclosure solutions through consolidation.

• The US Government is likely to double down on the renewables push: The US Government has shown a broad interest in potential next-generation renewable energy sources, investing over USD 7 billion in Clean Hydrogen Hubs, creating a 45V hydrogen production tax credit, developing geothermal roadmaps, forming new fusion strategies and partnerships, conducting feasibility studies for wave energy, and now providing clarity on the SAF tax credit. 
• These initiatives, across all potential renewable energy pathways, are expected to continue with equal intensity to encourage innovation, competition, and adoption as the country approaches its goal of 80% renewable energy generation by 2030 and 100% carbon-free electricity five years later. With around two-thirds of US energy production still coming from fossil fuel sources (~79% in 2021), efforts are likely to accelerate.

• Strengthening regulations drives innovation and collaboration in carbon-related industries: Carbon-related industries such as CCUS and CMS saw an uptick in product launches and collaborations since last quarter’s SEC climate disclosure law. New regulations this quarter, in the form of the Principles for Responsible Participation in Voluntary Carbon Markets (VCMs) and the regulation on Carbon Removals and Carbon Farming, are likely to push this progress further. Additional regulations are also likely to be introduced to improve the transparency and reliability of carbon markets. The carbon management industry might also focus more on consolidating its offerings to provide more end-to-end solutions, as evidenced by several acquisitions this quarter.