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A slew of sector-specific issues — including, surprisingly, the methodical rollout of the Inflation Reduction Act — have recently made for a bumpy ride.
A hiccup?
A speed bump?
A snag?
Whatever you want to call it when investors become harder to reach, suppliers drive a harder bargain, and new hires get delayed, the climate-tech and renewables industries seem to be experiencing it.
Since the year began, the pace of new investment in climate-tech and renewables companies has slowed. High interest rates are starting to make some projects unattractive. And a slew of sector-specific issues — including Silicon Valley Bank’s collapse and, surprisingly, the methodical rollout of the Inflation Reduction Act — are causing leaders across climate-related companies to tap the brakes.
“I do think it’s a softening of the market,” Tim Latimer, the CEO of Fervo Energy, a Houston-based geothermal startup, told me. “Without a doubt, it’s more difficult and it takes longer to close funding rounds today than it did 12 or 24 months ago.”
“There’s definitely been a little bit of a slowdown,” Jorge Vargas, the cofounder and CEO of Aspen Power Partners, a renewables developer, said.
Last quarter, venture-capital investment in climate-tech startups dropped to its lowest level since the spring of 2020, according to Pitchbook data. The total value of deals fell 36% since the previous quarter and is down 51% since 2021’s all-time high.
In raw totals, there were only 279 climate-tech deals completed in the first three months of the year — the lowest level since 2019, according to Pitchbook.
“People made a variety of bets over the past 36 months as capital — which was long overdue — came into climate tech,” Latimer said. “Now people are being a little bit more discerning about which companies and teams are hitting their milestones.”
“It’s nowhere near as pronounced as what we’ve seen in the tech space,” he added.
The industry clearly isn’t in crisis yet. New climate-focused venture funds are still opening. By any measure, climate-tech startups are having an easier time fundraising now than they did in the late 2010s, when less than $2 billion flowed into the space in some quarters, Pitchbook data shows.
Still, the pullback has caused some of the very youngest companies to delay hiring or reduce their headcount, Latimer said. At least one climate-tech unicorn has made a similar move. Last week, Arcadia, a climate-data and software provider last valued at $1.5 billion in December, laid off about 9% of its employees. The company had “almost 700” employees late last year.
“This painful but necessary decision was reached after carefully weighing Arcadia’s market-leading position against the uncertain outlook for the economy,” Gabriel Madway, the company’s vice president of communications, told me in a statement.
But Arcadia is an unusual climate-tech firm in some respects: Founded in 2014, it is nearing its 10th birthday, a de facto make-or-break moment for venture-funded companies. Most climate-tech startups are younger and have spent less of their investment. And the market for climate-curious engineers, programmers, and project managers is still brisk, by all reports. Climate-tech job boards such as Climatebase still show hundreds of open positions.
“Valuations were good enough in ‘21 and ‘22 that people raised fairly sizable [investment] rounds, and people have positioned their company so they have 18 months of runway,” Latimer, the Fervo CEO, said.
If leaders see a slowdown, that “means you would’ve grown 10x and now you’re growing 3x,” he told me. “If you zoom out on a five-year time horizon, it’s nothing. It’s at most a blip.”
Clay Dumas, a partner at the climate-focused fund Lower Carbon Capital, doubted that climate tech was in a serious moment of crisis. “While investors are catching their breath post-[Silicon Valley Bank], the tailwinds for climate tech are only gathering strength,” he told me in an email.
Whatever you want to call it — a blip? a breather? a gurgle? — most executives agreed that companies are dealing with two sector-specific sources of uncertainty beyond the broader, economy-wide fears of a recession. The largest might surprise environmental advocates: It’s President Joe Biden’s flagship climate law, the Inflation Reduction Act.
On paper, the Inflation Reduction Act, or IRA, should be good for anyone in the climate business. Since the act — initially forecast to spend $374 billion on climate — was passed last year, banks have fallen over themselves to publish new and engorged estimates of its impact. The law will pay out more than $800 billion, Credit Suisse analysts insisted in October. No, it will spend $1.2 trillion, and unleash another $3 trillion in private investment, a Goldman Sachs team replied last month.
No matter the topline number, just about everyone agrees the law will ultimately transform companies that work on climate change.
But for now, companies find themselves in a limbo where the law has been passed, and their suppliers and customers know the climate economy is about to boom — but the money hasn’t started to flow.
Although the Department of the Treasury and the IRS have set up programs for electric vehicles, they have yet to publish guidelines for some of the law’s most important tax credits, including those meant to boost the clean hydrogen industry or support renewables projects in low-income areas. The Department of Energy and the Environmental Protection Agency, which oversee some of the law’s largest targeted programs, are still setting up those opportunities or inviting organizations to apply for them.
That is making it hard for companies that will benefit from those programs to prepare for the future. “Not knowing when the incentives will hit the market makes it hard to do planning,” Andy Frank, the CEO of the home-weatherization company Sealed, told me. This could leave startups and companies less well staffed and less ready to take advantage of the IRA’s programs when they actually launch.
“If the whole goal of the IRA is to unlock private capital, the longer there is uncertainty as to what things will look like, then the longer private capital will sit on the sidelines,” Frank said. “On the other hand, if they announce rules tomorrow that are really crappy … then private capital will also sit on the side lines.”
The outlook was slightly different in renewables world, Vargas, the CEO of the renewable developer Aspen Power, said.
“We speak about a windfall, and everyone is excited, but it hasn’t trickled into the economics of projects. This stuff is barely scraping by,” Vargas, who used to lead Morgan Stanley’s solar financing office, said.
“The cost of building projects has increased because of [the] IRA,” he said. “After all the adders were announced — all the vendors, all the construction, they raised their prices. It’s just a passthrough.”
Latimer, the Fervo CEO, was more upbeat.
“We know that the IRA will be a generationally defining investment opportunity for anyone working in the clean energy sector,” he said. “But for specific technologies, for how fast and how quickly and how much capital they’ll need to scale up, we don’t know yet. The whole industry is waiting for more guidance on the law interpretation.”
At the same time, parts of the broader climate industry are just getting over a Silicon Valley Bank-shaped speed bump.
Silicon Valley Bank, or SVB, collapsed in March after suffering a run fueled by panicky investors. The bank was “an integral part of the early-stage climate tech community,” Gabriel Kra, a climate-focused venture capitalist, told me at the time. But the bank was particularly important for financing community solar projects, a type of large-scale solar farm that collectively benefits a pool of individuals, companies, or nonprofits. The bank said that it had financed 62% of all community-solar projects nationwide.
“Three to five years ago, SVB was one of the only shops in town,” Jeff Cramer, the president and chief executive of the Coalition for Community Solar, told me. “Now there are more banks that are comfortable with community solar.”
Still, the bank’s collapse problem set back Vargas’s company, Aspen Power. In early March, Aspen Power was in the final stages of closing a new lending arrangement with SVB. It also kept one of its cash accounts there.
Then SVB fell apart. “We thought, ‘Oh my God, we’re so screwed,’” Vargas told me, although he added that the firm had cash at another bank and was never in serious danger of missing payroll. Within days, the federal government stepped in to guarantee SVB’s depositors, and Aspen Power eventually opened a new lending facility with another bank.
The entire episode “slowed us down about three weeks,” he said.
“If you add in the SVB collapse and you add in uncertainty around [the IRA’s] business credits … there’s a bit of a hold” across the community solar industry, Cramer said. “It doesn’t mean that there’s uncertainty in those projects generally. It’s simply a matter of timeline that when it makes sense for those projects to energize.”
“If you go out three, four, years, I don’t think it will change the amount of [solar] capacity or number of customers overall,” he said.
A bit of a hold — a three-week delay — these things might seem like a hiccup, but they can be more destabilizing for companies that depend on a steady flow of new renewable projects coming online. The question for climate-tech and renewables companies — and the American economy — is whether the past month’s wobbles are the start of something more serious, or whether they’ll be forgotten by the summer. Dumas, the climate-focused venture capitalist, was optimistic.
“Profit motive, national security, cultural and corporate attitudes, plus more than a trillion dollars in government spending and AI-boosted discovery are all accelerating adoption of new products and technologies that [will] win,” he told me. “They’re better, faster, closer, [and] cheaper, on top of being lower carbon.”
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Rob and Jesse digest the Ways and Means budget bill live on air, alongside former Treasury advisor Luke Bassett.
The fight over the Inflation Reduction Act has arrived. After months of discussion, the Republican majority in the House is now beginning to write, review, and argue about its plans to transform the climate law’s energy tax provisions.
We wanted to record a show about how to follow that battle. But then — halfway through recording that episode — the Republican-controlled House Ways and Means Committee dropped the first draft of its proposal to gut the IRA, and we had to review it on-air.
We were joined by Luke Bassett, a former senior advisor for domestic climate policy at the U.S. Treasury Department and a former senior staff member at the Senate Committee on Energy and Natural Resources. We chatted about the major steps in the reconciliation process, what to watch next, and what to look for in the new GOP draft. Shift Key is hosted by Jesse Jenkins, a professor of energy systems engineering at Princeton University, and Robinson Meyer, Heatmap’s executive editor.
Subscribe to “Shift Key” and find this episode on Apple Podcasts, Spotify, Amazon, or wherever you get your podcasts.
You can also add the show’s RSS feed to your podcast app to follow us directly.
Here is an excerpt from our conversation:
Jesse Jenkins: Let’s come back to this as a negotiation. This is the first salvo from the House. What does this tell you about where we go from here? Is this a floor? Could it get worse? Is it likely to get better as the lobbying kicks off in earnest by various industries threatened by these changes, and they try to peel things back? What do you think happens next?
Luke Bassett: If you run with the horror movie analogy here, this is scary. I think a lot of people, especially in any energy startups or folks who have been penciling out deals, to start really lining up new projects — or even folks looking for a new EV to buy are suddenly going to have to totally rethink what the next few years look like.
And, you know, whether or not they want to build a factory, buy a car, or have to switch from an electric heat pump to a whale oil burning stove. Who knows? That said, there are champions for each of these in very different ways in the Senate. There are lobbyists who —
Jenkins: — in the House, too.
Bassett: Exactly. There will be lobbyists weighing in. And I think it matters to really think through … I think we’ve been faced with gigantic uncertainty since January. And there’s a part where companies all across the energy sector are looking at this text as we speak and thinking, whoa, I didn’t sign up for this. And to combine this with tariffs, to combine it with the cuts to other federal programs in the other committees’ jurisdictions, it is just a nearly impossible outlook for building new projects. And I bet a bunch of people, CEOs and otherwise, are thinking, I wish Joe Manchin were back in the Senate. But you know, it is what it is.
Robinson Meyer: I will say that it could get worse from here because they will be negotiating with the House Freedom Caucus and with various other conservative House members. And they’ll also be negotiating against the president’s wishes, which is that this move and get done as soon as possible. And so when I talked to Senator John Curtis, Republican of Utah, who’s a supporter of the IRA, or wants to see it extended in large part, and I asked him questions like, what happens if Republicans really go to work in the House on the IRA and then it gets sent to the Senate? One dynamic we’ve already seen during this Congress is that te House Republican Caucus in this Congress is unusually functional and unusually strategic, and has been unusually good at passing relatively extreme and aggressive policy and then jamming the Senate with it.
And unlike what has happened in the past, which is the House Republican Caucus can’t really do anything, so the Senate passes a far more moderate policy, sends it to the House and dares the House to shut things down. This time the House, if folks remember back in March, the House passed a fairly aggressive budget and kicked it to the Senate and then dared the Senate to shut down the government, and ultimately the Senate decided to keep the government open.
I asked Curtis what happens if they do the same with the IRA. What happens if they really go to task on the IRA? They pass fairly aggressive cuts to it and they send it to the Senate. And his answer was, well, I don’t think the House is going to do that. I don’t think a bill that really savages the IRA could pass the House.
We’ll see, but I just don’t think there’s any floor here. I think there’s no floor for how bad this gets. And I think I just don’t, you know … Before we went into the administration, there was a lot of confidence that the Trump administration and the new Republican majority and the Congress was not going to do anything to substantially make the business environment worse. We’ve discovered there does seem to be a degree of tariffs that will make them squeal and pull back, but we actually haven’t found that in legislature yet.
Music for Shift Key is by Adam Kromelow.
The Ways and Means Committee released its proposed budget language, and it’s not pretty for clean energy.
The House Ways and Means Committee, which oversees tax policy, released its initial proposal to overhaul the nation’s clean energy tax credits on Monday afternoon. These are separate and in addition to the extensive cuts to Inflation Reduction Act grant programs proposed by the Energy and Commerce Committee, Transportation Committee, and Natural Resources Committee in the past few weeks.
Here’s a rundown of the tax credit proposal, which, at first glance, appears to amount to a back-door full repeal of the climate law. There’s a lot that could change before we get to a final budget, let alone have a text head to the Senate. We’ll have more analysis on what these changes would mean in the days and weeks to come.
The text proposes ending the tax credit for new EVs (that is, 30D) on December 31, 2025 — with one exception. The credit would remain in effect for one year, through the end of 2026, for vehicles produced by automakers that have sold fewer than 200,000 tax credit-qualified cars between 2010 and the end of this year. That means that no Teslas would qualify for the tax credit next year, as the company has sold far more than 200,000 tax credit-eligible vehicles. A new entrant to EVs, like Honda with its Prologue model, will likely still qualify.
The committee also proposes ending the tax credit for used EVs (25E) and commercial EVs (45W) by the end of this year. This would effectively end the “leasing loophole” that allowed Americans to redeem the tax credit on vehicles that didn’t qualify for 30D because they didn’t meet domestic content requirements, meaning consumers could get discounts on leases of a wide range of makes and models.
Lastly, the draft proposes terminating the tax credit for residential EV chargers (30C) at the end of this year.
The GOP has proposed an early phase-out of the technology-neutral production and investment tax credits, which subsidize zero-emissions power generation projects including wind, solar, energy storage, advanced nuclear, and geothermal. It also proposed significant changes for the years they remain in effect.
Currently, new clean electricity projects can earn a 2.75 cents for every kilowatt-hour they produce for the first 10 years under section 45Y of the tax code. Alternatively, project developers can get a 30% investment tax credit (48E) on new projects. The Inflation Reduction Act scheduled both of these programs to phase out beginning in 2032, and expire at the end of 2035. It included a major caveat, however: that this phase-out would only happen if greenhouse gas emissions from U.S. power generation fell below 25% of 2022 levels. Otherwise, the tax credits would be maintained at their initial amounts until this target was met.
Under the GOP proposal, both credits would start to phase down in 2029, and new projects would no longer be eligible for either credit beginning in 2032. The proposal also cuts out a key provision that would have grandfathered many more projects into the tax credit. Under current law, a project only has to start construction within a certain year to qualify for that year’s tax credit amount. The draft text changes this, requiring a project to be “placed in service” before 2032 in order to qualify.
A separate tax credit for existing nuclear power generation (45U) would also phase down on the same timeline, despite Trump and other Republicans’ interest in boosting nuclear energy.
“Transferability” supercharged the nation’s clean energy tax credits by allowing project developers with low tax liability to sell their credits to another entity that stood to benefit from them. Previously, developers could only monetize their unusable tax credits through complicated tax equity deals.
Recipients of a wide range of tax credits, including those for clean manufacturing, clean fuels, carbon capture, nuclear power, and hydrogen, can all take advantage of transferability. The provision channeled new capital into the climate economy as corporations looking to reduce their tax liability began scooping up tax credits, indirectly helping to finance clean energy projects. It also helped lower the cost of wind and solar, as developers could earn a premium on tax credits compared to what they got for tax equity transfers, because the whole transaction was cheaper to do.
The proposal would get rid of this option across all of the tax credits beginning in 2028.
The proposal would also impose new sourcing requirements across all of the tax credits, prohibiting developers from using components, subcomponents, or critical minerals sourced from “foreign entities of concern,” a term that applies to companies based in China, Russia, North Korea, or Iran. The consequences would be huge, as China dominates global markets for refined lithium, cobalt, graphite, and rare earths — key materials used in clean energy technologies.
The draft text would also terminate the clean manufacturing credit (45X) in 2032 — one year earlier than under existing law. Wind energy components such as blades, towers, and gearboxes would lose their eligibility sooner, in 2028.
The text proposes repealing three tax credits for residential energy efficiency improvements at the end of 2025. Starting next year, homeowners would no longer be able to claim the Energy Efficiency Home Improvement Credit (25C), which provides up to $3,200 per year for home energy audits, energy-saving windows and doors, air sealing and insulation, heat pumps, and new electrical panels.
It also proposes killing the Residential Clean Energy Credit (25D), which offered homeowners 30% off the cost of solar panels and battery systems to store energy from those solar panels. This credit also subsidizes geothermal home heating systems.
Both of these tax credits have existed in some form since the Energy Policy Act of 2005.
The third credit that would end this year is an up to $5,000 subsidy for contractors who construct new, energy efficient homes (45L).
The proposal would not repeal the energy efficiency tax deduction for improvements made to commercial buildings (179D).
The Inflation Reduction Act created a technology-neutral tax credit for low-carbon transportation fuels, like sustainable aviation fuel and biodiesel (45Z). It operates on a sliding scale, depending on how carbon-intensive the fuel is. The credit is set to expire after 2027, however the GOP proposal would extend it for four years, through the end of 2031.
That said, it would also make a significant change to how the credit is calculated, making it much easier for projects with questionable emissions benefits to qualify. Under the Biden administration, the Treasury Department issued rules that said producers had to account for the emissions tied to indirect land use changes resulting from fuel production. That meant that corn ethanol producers, for example, had to account for the expansion of croplands resulting from the increase of biofuel production and use — which would, in most cases, disqualify corn ethanol from claiming the tax credit. But under the GOP proposal, producers would explicitly not have to account for indirect land use changes.
The GOP proposal would deal a rapid and ruthless death blow to the 45V clean hydrogen production tax credit, requiring developers to begin construction before the end of this year if they want to claim it.
Other than ending transferability, the text makes no changes to the 45Q carbon capture and sequestration tax credit.
Most of the tax credits have provisions that allow project developers to qualify for higher amounts if they pay prevailing wages, hire apprentices, build in a qualified “energy community” or a low-income community, or use a certain percentage of domestically-produced materials. This initial draft from the GOP would not change any of those provisions.
The Energy and Commerce Committee dropped its budget proposal Sunday night.
Republicans on the House Committee on Energy and Commerce unveiled their draft budget proposal Sunday night, which features widespread cuts to the Inflation Reduction Act and other clean energy and environment programs.
The legislative language is part of the House’s reconciliation package, an emerging tax and spending bill that will seek to extend much of the 2017 Tax Cuts and Jobs Act, with reduced spending on the IRA and Medicaid helping to balance the budgetary scales.
The Energy and Commerce committee covers energy and environmental programs, while the Ways and Means Committee has jurisdiction over the core tax credits of the IRA that power much of America’s non-carbon power generation. Ways and Means has yet to release its draft budget proposal, which will be another major shoe to drop.
The core way the Energy and Commerce proposal generates budgetary savings is by proposing “rescissions” to existing programs, whereby unspent money would be yanked away.
The language also includes provisions to auction electromagnetic spectrum, as well as changes to Medicaid.Overall, the Congressional Budget Office told the committee, the recommendations would “reduce deficits by more than $880 billion” from 2025 to 2034, which was the target the committee was instructed to hit. The Sierra Club estimated that the cuts specifically to programs designed to help decarbonize heavy industry would add up to $1.6 billion.
The proposed rescissions would affect a number of energy financing and grant programs, including:
And that’s just the “energy” cuts. The language also includes a number of cuts to environmental programs, including:
Lastly, the proposal would also repeal federal tailpipe emission standards starting in the 2027 model year. These rules, which were finalized just last year, would have provided a major boost to the electric vehicle industry, perhaps pushing EV sales to over half of all new car sales by the beginning of the next decade. The language also repeals the latest gas-mileage standards, which were released last year and would have applied to the 2027 through 2031 model years, eventually bumping up miles-per-gallon industry-wide to over 50 by the 2031 model year.