Key takeaways

• Next-gen Climate & Energy startups raised USD 2.1 billion, recovering from a three-year low in Q2 (+35% QoQ). Alternative Energy (+103% QoQ) and CCUS (+43% QoQ) accounted for ~95% of total funding. Long-duration Energy Storage (LDES) remained an investor hotspot, while regulatory tailwinds pushed funding into sustainable aviation fuel (SAF) and fusion. CCUS funding strengthened for the third consecutive quarter amid favorable climate disclosure laws and rising demand for carbon offsets. Funding across all other industries dropped, likely due to investor apprehension ahead of the US elections. 

• We observed 28 product updates (vs. 32 in Q2). The expansion of direct air capture (DAC) R&D through new facility openings was a notable theme, with Deep Sky beginning construction on the world's first carbon removal innovation and commercialization center. NeoCarbon, Avnos, and Carbon Engineering also opened new laboratories and R&D facilities. Hydrogen startups focused on mobility solutions, with new vehicles from Hyzon and Riversimple in addition to Nikola expanding its refueling station network in North America. 

• Several climate and energy industries saw AI integration, with the use cases spanning weather forecasting models (NVIDIA’s and ZestyAI), carbon management platforms (Measurabl), energy demand response programs (Voltus), and hydrogen production efficiency monitoring (ZeroAvia).

• We observed 60 partnerships (vs. 71 in Q2). The CCUS industry had the most collaborations, with disruptors such as 8 Rivers, HIF Global, and Carbicrete partnering to advance carbon utilization pathways, LanzaTech and Storegga Geotechnologies building carbon capture and storage (CCS) facilities in Asia, and Microsoft signing multiple carbon removal agreements.

• Hydrogen mobility was also a key theme, with ZeroAvia signing several customer agreements to provide hydrogen-based engines and Nikola Motor expanding its hydrogen refueling operations. Meanwhile, ITM Power, Elcogen, and Lhyfe focused on advancing green hydrogen.

• There were three M&A deals (vs. seven in Q2): 1) Changeblock acquired JustCarbon, signaling further consolidation in the carbon market; 2) Atawey acquired McPhy's hydrogen fueling station business to become the largest distributor in Europe; and 3) BP acquired SAF assets in China to expand its global reach.

• The US passed legislation to separate nuclear fusion from fission. The new law identifies radioactive materials associated with fusion as “byproducts.” These need fewer regulatory requirements than materials associated with fission (such as uranium or plutonium). Meanwhile, the proposed US Marine Act plans to provide financial support of up to USD 1 billion to advance marine energy.

• CCUS goes from strength to strength: CCUS investments have been steadily increasing, coupled with collaborations and product activity to advance technologies and expand into new geographies. The momentum is likely to continue, given favorable climate disclosure laws and the growing demand for carbon offsets, particularly from industrial customers looking to decarbonize their operations ahead of climate targets. Carbon capture is also gaining traction in Asia, with large emitters such as China, Japan, and South Korea looking to decarbonize key industries (steel, cement, chemicals, etc.). We could see more companies moving into the region, similar to LanzaTech and Storegga Geotechnologies this quarter.

• Hydrogen mobility gears up for commercialization: Interest in hydrogen mobility has picked up, with a notable number of product innovations and partnerships involving new hydrogen vehicles (Hyzon’s refuse truck and new fuel-cell electric vehicle [FCEV] and Riversimple's supercar) and the expansion of hydrogen refueling networks by companies such as Nikola Motor and Atawey. Also, ZeroAvia is developing a hydrogen electric engine for aircraft. The company has established an extensive network of collaborations to advance hydrogen-based flight and has received a slew of customer orders this quarter. We expect activity in the hydrogen mobility space to intensify with disruptors such as ZeroAvia and Riversimple moving toward commercialization in 2025, with others such as Nikola Motor, Hyzon, and Quantron focusing on expanding their portfolios. Hydrogen adoption would be further supported by government investments and regulatory tailwinds.

• The upcoming US elections will play a key role in shaping the sustainability landscape: A Republican presidency would likely have a negative impact on renewables. Party proposals include terminating the Green New Deal (a plan to transition the US to 100% clean energy) and canceling government-backed renewable energy investment incentives such as the September 2023 wind subsidies. In contrast, a Democratic presidency would likely accelerate the shift toward clean energy with the provision for clean energy tax credits and the launch of multiple Advanced Research Projects Agency for Climate (ARPA-C) projects in alternative energy, hydrogen, CCUS, and CMS. Read our insights on the 2024 US elections’ impact on emerging industries: Winners and losers of a Republican presidency and the Winners and losers of a Democratic presidency for further details.