By Corbin Hair
E&E News, September 20, 2022
Companies that produce technologies to remove or reduce carbon emissions are “poised for strong continued growth,” reaching an expected value of $1.4 trillion by 2027, according to new market research.
The research report, recently released by the financial data firm PitchBook, predicts that the sector will be worth $905 billion by the end of this year. That makes the global climate tech sector relatively small — collectively worth less than electric vehicle maker Tesla.
But PitchBook predicts that the emerging sector will enjoy an 8.8 percent growth rate over the next five years, “thanks to increasing global focus on aggressive emissions targets and consumer interest in emissions reduction.” That rate could also increase if there were “dramatic regulatory change or technological innovation” during that time, the report for investors said.
The sector PitchBook analyzed is a broad one. It includes startups that capture or trade carbon dioxide, industrial and building firms with products that are less emissions-intensive than conventional ones, and land management companies that use or produce monitoring tools or low-emissions fertilizers.
The most valuable group of companies in the space are ones working to reduce planet-warming emissions during construction and over the lifetimes of buildings. They are currently worth almost $459 billion and are expected to increase in value to $650 billion over the next five years, according to the report.
That segment includes incumbents like building materials producers Holcim Group and HeidelbergCement, as well as startups like green construction firm Veev and energy efficiency company Resideo Technologies.
The segment PitchBook calls “green industry” is focused on decarbonizing industrial production of chemicals and raw materials. It’s valued at more than $400 billion, according to the report. Notable firms include lithium battery recycler Redwood Materials and the mining company Lilac Solutions.
PitchBook expects green industry to be the most valuable climate tech segment by 2027, with an estimated value of $657 billion. For those projections to play out, however, emissions pricing legislation like the European Union’s carbon border adjustment mechanism “will be critical to ensure that those providing green chemicals and materials are not at a disadvantage against foreign high-emissions products,” the report said.
The value of low-carbon land management companies is expected to reach $30 billion this year, increasing to $49.5 billion in five years. The segment includes major monitoring firms like Honeywell and the alternative fertilizer company Pivot Bio.
Venture capital investment in land management firms has recently slowed, the report noted. But the Inflation Reduction Act, which President Joe Biden signed into law in August, included more than $20 billion to support climate-smart agriculture practices and $5 billion in grants for fire-resilient forests, urban tree planting and forest conservation.
The smallest but fastest-growing segment of the sector is made up of carbon technology firms like the direct air capture pioneer Climeworks and the carbon trading platform Xpansiv. They’re now valued at around $9 billion and estimated to be worth $20.9 billion by 2027.
The carbon tech sector will also get a boost from Biden’s new climate law, the report said. The value of carbon captured in the United States has increased from $50 per ton to $85 for CO2 removed from smokestacks. For direct air capture projects, which suck CO2 from the atmosphere, the price they earn per ton of carbon has jumped 250 percent, to $180.
But it’s not all smooth sailing for carbon capture and trading firms.
“The core risk facing the carbon tech space is in the potential for the value of carbon to shift dramatically due to changes in policy and regulation,” PitchBook said. “The product of carbon tech (removing or reducing carbon) does not directly provide value — outside of some value as a feedstock for carbon utilization — and fiscal value from carbon tech activities is heavily driven by the value that legislative incentives and schemes place on carbon.”
Despite that risk, investors continue to be very enthusiastic about the potential for carbon capture firms. There were 11 venture capital deals in the second quarter of 2022, raising $882.2 million for Climeworks, Carbon Clean and other firms, according to PitchBook.
“This far surpasses any prior quarter, with the total invested over the previous four quarters totaling only $432.1 million,” the research firm said in another investor report published last week.
Originally posted on E&E News.