You’re out of free articles.
Log in
To continue reading, log in to your account.
Create a Free Account
To unlock more free articles, please create a free account.
Sign In or Create an Account.
By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy
Welcome to Heatmap
Thank you for registering with Heatmap. Climate change is one of the greatest challenges of our lives, a force reshaping our economy, our politics, and our culture. We hope to be your trusted, friendly, and insightful guide to that transformation. Please enjoy your free articles. You can check your profile here .
subscribe to get Unlimited access
Offer for a Heatmap News Unlimited Access subscription; please note that your subscription will renew automatically unless you cancel prior to renewal. Cancellation takes effect at the end of your current billing period. We will let you know in advance of any price changes. Taxes may apply. Offer terms are subject to change.
Subscribe to get unlimited Access
Hey, you are out of free articles but you are only a few clicks away from full access. Subscribe below and take advantage of our introductory offer.
subscribe to get Unlimited access
Offer for a Heatmap News Unlimited Access subscription; please note that your subscription will renew automatically unless you cancel prior to renewal. Cancellation takes effect at the end of your current billing period. We will let you know in advance of any price changes. Taxes may apply. Offer terms are subject to change.
Create Your Account
Please Enter Your Password
Forgot your password?
Please enter the email address you use for your account so we can send you a link to reset your password:
Inside Climeworks’ big experiment to wrest carbon from the air

In the spring of 2021, the world’s leading authority on energy published a “roadmap” for preventing the most catastrophic climate change scenarios. One of its conclusions was particularly daunting. Getting energy-related emissions down to net zero by 2050, the International Energy Agency said, would require “huge leaps in innovation.”
Existing technologies would be mostly sufficient to carry us down the carbon curve over the next decade. But after that, nearly half of the remaining work would have to come from solutions that, for all intents and purposes, did not exist yet. Some would only require retooling existing industries, like developing electric long-haul trucks and carbon-free steel. But others would have to be built from almost nothing and brought to market in record time.
What will it take to rapidly develop new solutions, especially those that involve costly physical infrastructure and which have essentially no commercial value today?
That’s the challenge facing Climeworks, the Swiss company developing machines to wrest carbon dioxide molecules directly from the air. In September 2021, a few months after the IEA’s landmark report came out, Climeworks switched on its first commercial-scale “direct air capture” facility, a feat of engineering it dubbed “Orca,” in Iceland.
The technology behind Orca is one of the top candidates to clean up the carbon already blanketing the Earth. It could also be used to balance out any stubborn, residual sources of greenhouse gases in the future, such as from agriculture or air travel, providing the “net” in net-zero. If we manage to scale up technologies like Orca to the point where we remove more carbon than we release, we could even begin cooling the planet.
As the largest carbon removal plant operating in the world, Orca is either trivial or one of the most important climate projects built in the last decade, depending on how you look at it. It was designed to capture approximately 4,000 metric tons of carbon from the air per year, which, as one climate scientist, David Ho, put it, is the equivalent of rolling back the clock on just 3 seconds of global emissions. But the learnings gleaned from Orca could surpass any quantitative assessment of its impact. How well do these “direct air capture” machines work in the real world? How much does it really cost to run them? And can they get better?
The company — and its funders — are betting they can. Climeworks has made major deals with banks, insurers, and other companies trying to go green to eventually remove carbon from the atmosphere on their behalf. Last year, the company raised $650 million in equity that will “unlock the next phase of its growth,” scaling the technology “up to multi-million-ton capacity … as carbon removal becomes a trillion-dollar market.” And just last month, the U.S. Department of Energy selected Climeworks, along with another carbon removal company, Heirloom, to receive up to $600 million to build a direct air capture “hub” in Louisiana, with the goal of removing one million tons of carbon annually.
Two years after powering up Orca, Climeworks has yet to reveal how effective the technology has proven to be. But in extensive interviews, top executives painted a picture of innovation in progress.
Chief marketing officer Julie Gosalvez told me that Orca is small and climatically insignificant on purpose. The goal is not to make a dent in climate change — yet — but to maximize learning at minimal cost. “You want to learn when you're small, right?” Gosalvez said. “It’s really de-risking the technology. It’s not like Tesla doing EVs when we have been building cars for 70 years and the margin of learning and risk is much smaller. It’s completely new.”
From the ground, Orca looks sort of like a warehouse or a server farm with a massive air conditioning system out back. The plant consists of eight shipping container-sized boxes arranged in a U-shape around a central building, each one equipped with an array of fans. When the plant is running, which is more or less all the time, the fans suck air into the containers where it makes contact with a porous filter known as a “sorbent” which attracts CO2 molecules.

When the filters become totally saturated with CO2, the vents on the containers snap shut, and the containers are heated to more than 212 degrees Fahrenheit. This releases the CO2, which is then delivered through a pipe to a secondary process called “liquefaction,” where it is compressed into a liquid. Finally, the liquid CO2 is piped into basalt rock formations underground, where it slowly mineralizes into stone. The process requires a little bit of electricity and a lot of heat, all of which comes from a carbon-free source — a geothermal power plant nearby.
A day at Orca begins with the morning huddle. The total number on the team is often in flux, but it typically has a staff of about 15 people, Climeworks’ head of operations Benjamin Keusch told me. Ten work in a virtual control room 1,600 miles away in Zurich, taking turns monitoring the plant on a laptop and managing its operations remotely. The remainder work on site, taking orders from the control room, repairing equipment, and helping to run tests.
During the huddle, the team discusses any maintenance that needs to be done. If there’s an issue, the control room will shut down part of the plant while the on-site workers investigate. So far, they’ve dealt with snow piling up around the plant that had to be shoveled, broken and corroded equipment that had to be replaced, and sediment build-up that had to be removed.

The air is more humid and sulfurous at the site in Iceland than in Switzerland, where Climeworks had built an earlier, smaller-scale model, so the team is also learning how to optimize the technology for different weather. Within all this troubleshooting, there’s additional trade-offs to explore and lessons to learn. If a part keeps breaking, does it make more sense to plan to replace it periodically, or to redesign it? How do supply chain constraints play into that calculus?
The company is also performing tests regularly, said Keusch. For example, the team has tested new component designs at Orca that it now plans to incorporate into Climeworks’ next project from the start. (Last year, the company began construction on “Mammoth,” a new plant that will be nine times larger than Orca, on a neighboring site.) At a summit that Climeworks hosted in June, co-founder Jan Wurzbacher said the company believes that over the next decade, it will be able to make its direct air capture system twice as small and cut its energy consumption in half.
“In innovation lingo, the jargon is we haven’t converged on a dominant design,” Gregory Nemet, a professor at the University of Wisconsin who studies technological development, told me. For example, in the wind industry, turbines with three blades, upwind design, and a horizontal axis, are now standard. “There were lots of other experiments before that convergence happened in the late 1980s,” he said. “So that’s kind of where we are with direct air capture. There’s lots of different ways that are being tried right now, even within a company like Climeworks."
Although Climeworks was willing to tell me about the goings-on at Orca over the last two years, the company declined to share how much carbon it has captured or how much energy, on average, the process has used.
Gosalvez told me that the plant’s performance has improved month after month, and that more detailed information was shared with investors. But she was hesitant to make the data public, concerned that it could be misinterpreted, because tests and maintenance at Orca require the plant to shut down regularly.
“Expectations are not in line with the stage of the technology development we are at. People expect this to be turnkey,” she said. “What does success look like? Is it the absolute numbers, or the learnings and ability to scale?”
Danny Cullenward, a climate economist and consultant who has studied the integrity of various carbon removal methods, did not find the company’s reluctance to share data especially concerning. “For these earliest demonstration facilities, you might expect people to hit roadblocks or to have to shut the plant down for a couple of weeks, or do all sorts of things that are going to make it hard to transparently report the efficiency of your process, the number of tons you’re getting at different times,” he told me.
But he acknowledged that there was an inherent tension to the stance, because ultimately, Climeworks’ business model — and the technology’s effectiveness as a climate solution — depend entirely on the ability to make precise, transparent, carbon accounting claims.
Nemet was also of two minds about it. Carbon removal needs to go from almost nothing today to something like a billion tons of carbon removed per year in just three decades, he said. That’s a pace on the upper end of what’s been observed historically with other technologies, like solar panels. So it’s important to understand whether Climeworks’ tech has any chance of meeting the moment. Especially since the company faces competition from a number of others developing direct air capture technologies, like Heirloom and Occidental Petroleum, that may be able to do it cheaper, or faster.
However, Nemet was also sympathetic to the position the company was in. “It’s relatively incremental how these technologies develop,” he said. “I have heard this criticism that this is not a real technology because we haven’t built it at scale, so we shouldn’t depend on it. Or that one of these plants not doing the removal that it said it would do shows that it doesn’t work and that we therefore shouldn’t plan on having it available. To me, that’s a pretty high bar to cross with a climate mitigation technology that could be really useful.”
More data on Orca is coming. Climeworks recently announced that it will work with the company Puro.Earth to certify every ton of CO2 that it removes from the atmosphere and stores underground, in order to sell carbon credits based on this service. The credits will be listed on a public registry.
But even if Orca eventually runs at full capacity, Climeworks will never be able to sell 4,000 carbon credits per year from the plant. Gosalvez clarified that 4,000 tons is the amount of carbon the plant is designed to suck up annually, but the more important number is the amount of “net” carbon removal it can produce. “That might be the first bit of education you need to get out there,” she said, “because it really invites everyone to look at what are the key drivers to be paid attention to.”
She walked me through a chart that illustrated the various ways in which some of Orca’s potential to remove carbon can be lost. First, there’s the question of availability — how often does the plant have to shut down due to maintenance or power shortages? Climeworks aims to limit those losses to 10%. Next, there’s the recovery stage, where the CO2 is separated from the sorbent, purified, and liquified. Gosalvez said it’s basically impossible to do this without losing some CO2. At best, the company hopes to limit that to 5%.
Finally, the company also takes into account “gray emissions,” or the carbon footprint associated with the business, like the materials, the construction, and the eventual decommissioning of the plant and restoration of the site to its former state. If one of Climeworks’ plants ever uses energy from fossil fuels (which the company has said it does not plan to do) it would incorporate any emissions from that energy. Climeworks aims to limit gray emissions to 15%.
In the end, Orca’s net annual carbon removal capacity — the amount Climeworks can sell to customers — is really closer to 3,000 tons. Gosalvez hopes other carbon removal companies adopt the same approach. “Ultimately what counts is your net impact on the planet and the atmosphere,” she said.
Get one great climate story in your inbox every day:
Despite being a first-of-its-kind demonstration plant — and an active research site — Orca is also a commercial project. In fact, Gosalvez told me that Orca’s entire estimated capacity for carbon removal, over the 12 years that the plant is expected to run, sold out shortly after it began operating. The company is now selling carbon removal services from its yet-to-be-built Mammoth plant.
In January, Climeworks announced that Orca had officially fulfilled orders from Microsoft, Stripe, and Shopify. Those companies have collectively asked Climeworks to remove more than 16,000 tons of carbon, according to the deal-tracking site cdr.fyi, but it’s unclear what portion of that was delivered. The achievement was verified by a third party, but the total amount removed was not made public.
Climeworks has also not disclosed how much it has charged companies per ton of carbon, a metric that will eventually be an important indicator of whether the technology can scale to a climate-relevant level. But it has provided rough estimates of how much it expects each ton of carbon removal to cost as the technology scales — expectations which seem to have shifted after two years of operating Orca.
In 2021, Climeworks co-founder Jan Wurzbacher said the company aimed to get the cost down to $200 to $300 per ton removed by the end of the decade, with steeper declines in subsequent years. But at the summit in June, he presented a new cost curve chart showing that the price was currently more than $1,000, and that by the end of the decade, it would fall to somewhere between $400 to $700. The range was so large because the cost of labor, energy, and storing the CO2 varied widely by location, he said. The company aims to get the price down to $100 to $300 per ton by 2050, when the technology has significantly matured.
Critics of carbon removal technologies often point to the vast sums flowing into direct air capture tech like Orca, which are unlikely to make a meaningful difference in climate change for decades to come. During a time when worsening disasters make action feel increasingly urgent, many are skeptical of the value of investing limited funds and political energy into these future solutions. Carbon removal won’t make much of a difference if the world doesn’t deploy the tools already available to reduce emissions as rapidly as possible — and there’s certainly not enough money or effort going into that yet.
But we’ll never have the option to fully halt climate change, let alone begin reversing it, if we don’t develop solutions like Orca. In September, the International Energy Agency released an update to its seminal net-zero report. The new analysis said that in the last two years, the world had, in fact, made significant progress on innovation. Now, some 65% of emission reductions after 2030 could be accounted for with technologies that had reached market uptake. It even included a line about the launch of Orca, noting that Climeworks’ direct air capture technology had moved from the prototype to the demonstration stage.
But it cautioned that DAC needs “to be scaled up dramatically to play the role envisaged,” in the net zero scenario. Climeworks’ experience with Orca offers a glimpse of how much work is yet to be done.
Read more about carbon removal:
Log in
To continue reading, log in to your account.
Create a Free Account
To unlock more free articles, please create a free account.
On Trump’s gas boom, Germany’s fusion push, and Meta’s Canadian complex
Current conditions: Sandusky, Ohio, just saw 17 inches of rain in one day, smashing the previous state record of just under 11 inches and blowing past the 1-in-1,000-year threshold of less than 9 inches • Another heat dome is forming over the western United States, threatening landlocked desert cities such as Phoenix, Las Vegas, and Palm Springs with temperatures over 110 degrees Fahrenheit • An extremely rare tornado touched down in Alaska’s Susitna Valley, one of just 11 recorded in the state since 1950.

The record-shattering heatwave that roasted Europe last month killed thousands — and potentially far more than initially estimated. Last week, the French government released its estimate for the death toll from the elevated temperatures: 2,025 people died who wouldn’t have under average weather conditions. But Le Monde, the nation’s newspaper of record, suggested the tally was undercounting. On Tuesday, Carbon Brief published a new analysis by two scientists suggesting the actual figure surpassed 2,700 deaths. To calculate the difference, the two American researchers compared the observed temperatures from June 12 to 29 with their baseline average from 1980 to 2025 to understand the disparity between the number of deaths during heat waves then versus now. “We found that France experienced around 2,700 heat-related deaths above the average baseline,” the report concluded. “Day-to-day heat-related mortality rates rose from less than 100 to almost 300 on the hottest days of June 24 to 25.” In Germany, meanwhile, the Federal Statistical Office’s preliminary data shows more than 5,000 excess deaths during the late-June heat wave, Bloomberg reported. During the last full week of June, the agency known as Destatis recorded 5,486 more deaths than during the median from the same period from 2022 to 2025. Now yet another extreme heat wave is forming in Europe this week, the third so far this year.
The lethal heat has raised the volume and temperature of Europe’s ongoing debate over air conditioning. Much ink has been spilled over why, exactly, Europeans eschew the cooling appliances Americans adore. My colleague Robinson Meyer offered one of the most interesting explanations I have seen yet: Europe’s otherwise superior window design makes traditional AC units difficult to place. Either way, Europe’s surging far-right parties see a political opportunity in championing AC. France’s Rassemblement National, led by Marine Le Pen, has begun campaigning on expanding access to cooling. Germany’s far-right Alternative für Deutschland, meanwhile, has accused the country’s center-right government of “abstaining from air conditioning” due to “climate hysteria,” leaving people to be “sacrificed on the altar” of energy austerity, per The Guardian.
When President Donald Trump took office at the start of 2025, the U.S. Energy Information Administration predicted that 23 gigawatts of new gas plant capacity would be built in the U.S. between 2026 and 2030. The agency’s latest forecast for that same period is now 66 gigawatts. The boom reflects what E&E News described as both Trump’s energy policies and the rise of artificial intelligence. At the same time, a new International Energy Agency analysis suggests that Trump’s war against Iran dampened forecasts for global gas consumption for only the third time in seven years. Worldwide demand is expected to drop by 0.5% this year in response to major disruptions of liquified natural gas shipments from Qatar and the United Arab Emirates. Gas demand in Asia in particular softened amid higher prices and government efforts to switch from LNG to other fuels, such as coal. Fresh fighting in the Strait of Hormuz suggests the contraction could continue if the fragile ceasefire signed last month breaks. On Tuesday, two tankers were struck by projectiles while passing through the narrow waterway at the mouth of the Persian Gulf. The U.S. military accused Tehran of the attacks and launched new strikes on Iran, according to Al Jazeera. Trump told reporters at the NATO summit in Turkey this morning that the ceasefire was “over.”
In a more direct analysis of the effect of Trump’s energy policies on actual prices Americans pay, the think tank Energy Innovation found that the administration’s overall spending cuts and changes would force U.S. households to pay an additional $650 billion for energy between 2026 and 2040. That’s an average of $460 per household in 2035 and $490 in 2040. By eliminating incentives for electrification and green-energy manufacturing, the report concluded, the administration’s policies cost the U.S. a cumulative $2.3 trillion in lost gross domestic product through 2040.
Germany may have infamously abandoned nuclear fission, sending electricity prices soaring and making the country more reliant on coal and Russian gas imports. But Berlin wants fusion. On Tuesday, the Germany-based Proxima Fusion announced that it had raised nearly $469 million in its latest funding round, increasing its valuation to nearly $2.9 billion and establishing the startup as Europe’s best-funded fusion company. Among the backers were Google and the German utility giant RWE. “Google’s investment underscores continued interest in fusion as a potential source of abundant, carbon-free, firm energy over the long-term,” Proxima said in a press release. “One of the largest private investments in European technology this year — and the largest ever in European fusion — the round reflects growing recognition of fusion power as a strategic technology for energy security, economic resilience, and industrial competitiveness.”
Sign up to receive Heatmap AM in your inbox every morning:
A major new mining project in Arizona that promises to increase the domestic supplies of at least five critical minerals just received final approval of its environmental review. On Tuesday, the U.S. Forest Service gave the developer South32’s Hermosa Critical Minerals Project the green light on the last step of its yearslong National Environmental Policy Act study. The completion of the NEPA process paves the way for the project to build key infrastructure beyond privately held property onto the federal land that’s part of the Coronado National Forest, including a primary access road, a tailing facility, and allowing the local utility to build a portion of a 138-kilovolt power line. It’s also a symbolic win for the Trump administration. The project was the first mine included in the federal FAST-41 permitting program to speed up approvals for key projects. South32 secured its place on that list due to the mine’s potential to generate zinc, silver, and manganese — all of which are needed for modern energy and military technologies. “From the beginning, we designed Hermosa to be a different kind of mine, and the federal review process helped make it even better,” Pat Risner, South32’s president in charge of Hermosa, said in a statement. Arizona Senator Ruben Gallego, a potential contender for the Democratic presidential nod in 2028, praised the project for “producing critical minerals that will power our 21st Century energy economy.”
Meanwhile, the American lithium-mining startup EnergyX just pulled in a significant new investment to complete its giant project in Chile. Already a top global producer of the metal needed for batteries and electric vehicles, the South American nation’s new right-wing government is trying to draw in more private investment as it rethinks the country’s domestic energy policies, as I reported last week. On Monday, EnergyX unveiled a $225 million strategic investment from the Italian oil giant Eni. As I told you last year, Eni has bucked other oil majors’ downsizing the ambitions of their greener ventures, even investing $1 billion into Commonwealth Fusion Systems last fall.
New Jersey Governor Mikie Sherrill approved a suite of legislation Tuesday to overhaul the process for siting data centers in the state, placing a new tariff on large loads, requiring companies to disclose water and energy use, and scaling back tax credits for server farms themselves. It’s no surprise: Sherrill, a Democrat, won last year after campaigning on cracking down on soaring power rates in a state Heatmap’s Matthew Zeitlin described last week as “ground zero for the political backlash to high electricity prices.” In a statement, Sherrill blamed “poor oversight, outdated policies, and rising demand on our electric grid by unchecked actors” for the price spike. “This is a breakthrough moment,” Rewiring America cofounder Ari Matusiak, who served on Sherrill’s transition team, said in a statement. “For the first time, a state has created a policy pathway for data centers to fund verified demand flexibility, including energy efficiency, demand response, behind-the-meter storage, and managed electrification. That means rising electricity demand can become an opportunity to invest in homes, businesses, and communities instead of shifting costs onto families and small businesses.
Hyperscalers, meanwhile, are now looking northward. On Tuesday, the Canadian outlet Juno News published a scoop identifying Meta as the mystery developer behind a $10 billion data center complex in Alberta, the western province of Canada also known for its tar sand oil fields. The Facebook parent company’s project is tied to a 932-megawatt gas-fired power plant.
The UAE’s oil and gas shipments are just starting to flow again — a reality that could remain tenuous as fighting renews in the Strait of Hormuz. But one thing has changed for sure: Abu Dhabi’s crude production is now unleashed. Since quitting the OPEC oil cartel in April, the UAE’s output of oil topped 3.8 million barrels per day, unnamed sources told Reuters. That’s a six-year high, apparently vindicating Abu Dhabi’s push against OPEC’s restrictions on pumping.
The EV maker appears to be poised to start construction on its second factory.
Rivian’s stock fell 18% on Monday, but it’s hard to imagine the company’s executives are too upset. Why? Because the automaker seems to be on the verge of starting work on its long-awaited second factory, 45 miles east of downtown Atlanta.
Let’s do some reading between the lines. Rivian has had a great few weeks. The EV maker announced last week that it is on track to sell about 3,000 more cars this year than expected, and its stock has been on a tear, rising more than 37% from close on June 25 to close on Monday.
The company’s CEO, RJ Scaringe, evidently decided it was time to capitalize on the run-up. The company announced on Monday evening that it would offer another 75 million shares of its stock this week, diluting existing investors. That raise would be used to fund “general corporate purposes,” according to a federal filing, including “the funding of certain equity contributions” related to an Energy Department loan.
Back in April, the company came to new terms with the Department of Energy’s in-house bank over a nearly $6.6 billion loan to build its new Georgia factory, which is supposed to manufacture the company’s new line of cheaper R2 SUV and R3 crossovers. That federal loan — initially negotiated in the Biden administration’s final days — was downsized to $4.5 billion under the new Trump-era terms, but also rewritten to let the automaker draw more money from the deal faster. (Rivian is already making the R2 at its existing factory in Normal, Illinois, but the Georgia factory should have about 40% more capacity than that plant.)
As part of any Energy Department loan — as in any project finance transaction — borrowers have to hold a certain amount of cash in escrow and reserve accounts to secure against a deal failing. Now Rivian can fund that money without tapping its cash on hand further. The new share offering is supposed to price this evening, suggesting that despite today’s slide, the company could raise more than $1 billion from the sale. Rivian’s stock is now trading roughly where it stood a month ago.
The upshot of all of this: With the loan secured, serious building efforts could finally start soon on the automaker’s second factory. (The automaker technically broke ground in September, but has yet to begin meaningful construction.)
“We’re setting up to go vertical in the second half of this year (a.k.a. steel sticking out of the ground) but we have said previously that we expect to draw on the loan for the first time by early 2027,” Peebles Squire, a Rivian spokesman, told me in an email. “Factory timeline is production of vehicles to begin in late 2028.”
(Energy Department loans work on a reimbursement basis, so the automaker will need to begin spending on the factory before it can claim the money.)
Though Rivian is among the most successful of the U.S. electric vehicle startups, it wasn’t completely clear after President Trump took office whether the automaker would survive its trek through the valley of death. It’s still not certain, of course. But positive reviews for the R2, a $6 billion deal with Volkswagen, and its significant Sun Belt factory nearing construction all augur well for the country’s most famous EV startup not run by Elon Musk.
“It’s got nothing to do with technology. It’s nothing to do with execution capability. It’s purely due to access to capital.”
Ever since Trump reentered the White House, Europe has been a safe haven for U.S. climate tech companies fleeing an increasingly hostile policy environment. Through strong carbon pricing and stable regulations, the bloc has created demand for still-experimental technologies such as green hydrogen, thermal energy storage, low-carbon building materials, and sustainable fuels.
And yet at the same time, Europe has struggled to finance many of its own climate tech startups as they enter the capital-intensive scale-up phase. What gives?
The problem is not a lack of startups or capital. European firms raised $61 billion for climate-focused funds last year, far outpacing those in the U.S., which brought in $37 billion, according to Sightline Climate. The problem is that almost all of that European money flows to infrastructure and private equity investors backing more mature technologies. Early-stage startups also enjoy relatively strong backing, but the market starves the growth-stage middle.
The issue is both cultural and structural: Most of the bloc’s investors are unaccustomed to making the high-risk, high-reward bets required to scale climate tech. They also often can’t access tools like loan and equity guarantees, which remain limited in Europe, nor are there the institutional limited partners and growth-stage co-investors that could help de-risk those investments.
“It’s got nothing to do with technology. It’s nothing to do with execution capability. It’s purely due to access to capital,” Craig Douglas, a founding partner at the Berlin-based multi-stage venture firm World Fund, told me. That means companies that have outgrown early-stage financing but are still considered too small or too risky for larger institutional investors often either shutter or seek capital abroad. Logically, if given the chance, most startups choose the latter.
“You’re allowing U.S. investors to cherry pick European assets,” Douglas told me. The result? “European technologies and European companies that are successful end up enriching American pension funds rather than European pension funds.”
Ioannis Ioannou, an associate professor of strategy and entrepreneurship at the London Business School, told me that the consequences extend beyond the purely financial, emphasizing that Europe runs a strategic risk by relying on foreign capital for its climate tech scale-up. “It means you lose the supply chains. You lose the skills. You lose the fine manufacturing capabilities. You lose the so-called green jobs.”
Douglas and the other specialists in European climate finance I spoke with emphasized that the ever-ominous “missing middle” funding gap is particularly pronounced in Europe. A report Douglas co-authored earlier this year, aptly titled “The Series B Funding Gap In European Climate Tech,” quantifies the problem. While 25% of U.S. climate tech companies that raised a seed round from 2010 to 2020 had moved on to secure a Series B by the first half of last year — regardless of what country the capital came from — only 15% of European companies were able to do the same. That has created a growing backlog of startups stuck in a financing limbo: The lineup of European companies looking to raise a Series B grew from 220 in 2020 to 533 in the first half of last year.
While smaller climate tech funds in Europe and the U.S. have raised similar amounts of funding for early-stage startups — $18.5 billion in Europe versus $20.2 billion in the U.S. from 2020 through the first half of 2025 — the gap at the larger end of the market is stark. The U.S closed 29 funds of at least $500 million or more, compared with just 11 in Europe. These larger funds are the ones capable of writing the $25 million to $100 million checks companies desperately need to commercialize and scale. As Douglas’ report notes, fewer than 20% of European climate funds are pursuing a growth strategy, with over 70% making early-stage investments only.
“When we raised World Fund One, we were the largest [debut] climate fund in Europe, and we’re a €300 million fund. That’s nuts,” Douglas told me. World Fund aims to help companies “reach growth-investor readiness” by supporting startups from their seed through Series B, a model Douglas would like to see replicated throughout the region. “We need another 20 World Funds out there in the market to start filling this capital shortfall,” he told me. The firm announced last February that it’s raising a second, €500 million fund, but that’s yet to close.
One of the primary reasons European growth-stage investors have less capital to deploy comes down to the structure of European financial markets, which remain heavily reliant on bank lending rather than higher-risk equity investments. As a result, institutional investors like pension funds, insurers, and endowments never built the habit of investing in venture capital, which shows up when comparing the LP bases across the two regions: In the U.S., about 72% of VC funding comes from private institutional investors, compared with just 30% in Europe. Public money, much of it from the European Investment Fund, helps bridge the gap, but it simply cannot match the scale of private institutions.
Pension funds are a telling case. They’re among the largest sources of venture capital in the U.S., allocating nearly 2% of their assets to VC. But in the EU, they allot just 0.018% — roughly 100 times less. And because the U.S. also has far more money sitting in pension funds than Europe does, this makes the gap in actual dollars reaching startups wider still. Without that deep pool of institutional funding, Europe struggles to support the $500 million- to $1 billion-plus funds that would have the wherewithal to lead growth-stage rounds.
The result is a self-reinforcing cycle. Large growth funds require large institutional backers, but precisely because European pension funds and other institutional investors haven’t stepped up, the venture market remains too small to absorb the kinds of $100 million-plus commitments pension investors managing billions of dollars typically want to make. “They don’t see [venture] as an asset class that they can invest in,” Douglas told me. “But the reason that it doesn’t exist is because they’re not investing themselves in that asset class.”
If there’s one thing I learned from my reporting, it’s that white these problems run deep, Europe is hardly standing still. Policymakers and investors are well aware of the disconnect and are now experimenting with strategies to close the scale-up gap and affirm the region’s position as a leader in climate innovation.
To attract more institutional investment, for example, a growing number of initiatives aim to create “funds of funds” and other government-backed structures that pool money from pension funds, insurers, banks, foundations, and other large investors. The fund-of-funds structure lets an institution make a single, large commitment; then, intermediary asset managers break that capital into smaller chunks and invest it across multiple venture funds. This gives large-ticket investors the scale and diversification they want without requiring them to conduct due diligence on dozens of small venture funds; venture managers, in turn, gain access to much larger pools of capital.
Germany’s Wachstumsfonds Deutschland, for example, is a €1 billion fund-of-funds backed by more than 20 investors — including insurers, pension funds, and large family offices — that invests across the German and broader European VC ecosystem, with a focus on growth-stage capital. The EU’s European Tech Champions Initiative follows a similar model. The European Investment Bank and six member-states launched the initiative in 2023 with €3.9 billion to back regional growth-stage VC funds. Now it’s raising a second tranche of money — targeting €15 billion — and is bringing in private institutional capital for the first time.
Europe’s member states have also pushed institutional investors toward coordinated capital commitments in recent years, with France’s Tibi initiative serving as the model. Launched in 2019, it tasks the French government with vetting venture and growth funds, with those that qualify becoming eligible for backing from initiative’s signatories, primarily insurers and some pension funds. The program has attracted about €31 billion in commitments to date. Germany adopted a similar approach with its WIN initiative, which has now secured €12 billion in pledges from more than 30 major corporations — including Deutsche Bank, BlackRock, and Henkel — to invest in the country’s venture ecosystem by 2030.
The Irish Venture Capital Association has proposed a similar model, while Tibi’s founder — the economist Philippe Tibi himself — has been on a tour essentially pitching the idea across the bloc. But Ioannou isn’t convinced that creating country-specific Tibi-style commitments is the most efficient way for the region to scale climate tech.
“I’m not sure that fragmentation will actually solve the problem,” he told me. “Maybe it will be better if all that capital came into one larger fund, whereby the scale-ups wouldn’t have to deal with country level fragmentation, regulations, jurisdictions, legal, and all that kind of stuff.”
That’s the idea behind the new €5 billion pan-EU Scaleup Europe Fund, which is designed to invest directly in European deep-tech startups — climate tech very much included — rather than through venture funds. Announced last year, the fund has already secured roughly €2.5 billion in capital commitments from both the European Commission and private institutional investors, with a second fundraising round planned for the second half of this year. EQT, Europe’s largest private-markets investor, will manage the funds, ultimately deciding which growth-stage companies to back.
“Everything happened so quickly, from agreeing to it to executing on it to allocating it,” Douglas told me. “In effect, it happened in less than a year, which in the European context is crazy.”
The idea is to replicate what the combination of U.S. federal support and deep private capital markets has accomplished, Dimitri Colin, a policy officer at the cleantech policy and advocacy group Cleantech for Europe, told me. “The whole idea is to bring what worked in the U.S. into European public financing policies,” he said. Colin extolled the virtues of the Biden-era Loan Programs Office, as well as the efficacy of other Inflation Reduction Act-fueled efforts such as generous production tax credits when it comes to derisking investment in first-of-a-kind tech.
In our interview as well as in a recent report, Colin argued that EU funding should move from prioritizing grants to loan and equity guarantees in its forthcoming budget for the years 2028 through 2034. That’s because guarantees have proven far more effective than government grants at bringing private investors into climate tech, Colin told me. According to his report, every euro of grants or equity capital channeled through the VC arm of the European Innovation Council yields about €3 in additional investment. That’s nothing to scoff at, but it pales in comparison with InvestEU, the bloc’s €26.2 billion investment guarantee program. Every euro of guarantees from the latter attracts nearly €14.80 in private follow-on capital.
“The main idea behind the whole budget should be to focus on the leverage effect,” Colin told me, referring to how much additional private funding government backing generates. “How can the little public money that we have in Europe — because the fiscal environment is, of course, very constrained — more easily mobilize private money? That’s what the LPO did well.”
Colin also wants to change the EU’s public funding rules to make it easier to subsidize ongoing operational expenses for early-stage cleantech facilities, similar in effect to U.S. production tax credits. Currently, European policymakers often structure public support for these projects as capex grants paid out after construction is complete. This type of support is more difficult for private investors to underwrite since it doesn’t directly improve the plant’s ongoing operating economics, one of the risks investors care about most.
Getting these financing structures right is a matter of life or death for many of Europe’s most promising climate tech industries. Douglas points to batteries, critical minerals, semiconductors, and green molecules as sectors with the technological readiness to scale domestically — but not yet the capital. “One of the major risks in every sector we know is who’s going to be there, who’s going to be able to go with us on that journey to make sure the company has the capital to be successful,” he told me. Still, he sees reason for optimism. Because if there’s one thing that can be said about the E.U. at this moment, it’s that “they’re definitely taking it seriously.”
“The perfect solution doesn’t exist,” Colin told me. “We need to align the funding models, we need public de-risking tools, but we need also a true industrial strategy, China has done that, the US has done that with the IRA,” he explained. Now it’s Europe’s turn.