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“I don’t think that there has been a slam dunk case on a company that we’re excited about yet.”
At San Francisco Climate Week, everyone wanted to talk about artificial intelligence.
“I was looking through all of the events on SF Climate Week, and it seemed like every single one of them had AI somewhere in the name,” joked (sort of) Rohan Nuttell of OpenAI last week, while moderating a panel called AI for Climate.
Sure, with over 300 events, there were opportunities for climate nerds to learn about carbon dioxide removal or sustainable fashion or grid infrastructure. But AI was inescapable. I heard from companies using AI to monitor flood risk, model forest carbon sequestration, and help utilities identify vulnerabilities from climate threats. I even learned about a company using AI to decarbonize pet food.
Yet one notable section of the climate world wasn’t buying the hype: Investors. In my one-on-one conversations with venture capitalists and other financiers throughout the week, the prevailing approach was wait and see. It was a striking departure from the rest of Silicon Valley, where 6-month-old AI startups are getting multi-billion-dollar valuations.
“I think there are very few large business opportunities that have single-handedly been unlocked,” Sophie Purdom, managing Partner at climate tech VC Planeteer Capital, told me, with regards to AI. “Maybe they make it better or faster or whatnot. But I don’t think we’ve seen a whole lot of new large markets that have suddenly been uniquely unlocked in climate.”
One problem is that AI can mean anything from “we have a machine learning algorithm” to “we use a large language model to help write your climate grant applications,” as this company does. But that distinction is important. Generative AI, which takes in reams of data and spits out brand-new content (think ChatGPT or DALL-E), is what’s been driving the AI hype machine since OpenAI released ChatGPT in November 2022. Eventually, generative AI could have powerful climate implications — think the development of novel EV battery chemistries or synthesis of new, more climate-friendly proteins.
But not quite yet, Shawn Xu, a partner at climate tech VC Lowercarbon Capital, told me.
Xu said he was left disappointed after a Climate AI hackathon that Lowercarbon hosted with OpenAI last year. “To be honest there was a lag between the number of interesting AI engineers and founders who wanted to go build real climate applications coming out of that hackathon.”
In the last couple of months though, Xu has been excited to see AI companies proposing “foundational models” for sectors like materials science and biology. These are generative models trained on large datasets that can perform a wide variety of tasks, like a ChatGPT for meteorology or architecture that could build weather models or design green buildings. “But I don’t think that there has been a slam dunk case on a company that we’re excited about yet,” Xu said.
This doesn’t mean that Lowercarbon and other climate tech investors are avoiding AI investments. There are plenty of well-funded climate tech companies using increasingly powerful machine learning models and algorithms to analyze patterns in large datasets and predict outcomes. It’s just that this isn’t exactly new. Companies across many industries have been using this type of predictive AI for much of the last decade. Now incorporating generative AI in the form of large language models is becoming relatively common too.
“Anything that’s solving workflow inefficiencies, anything that’s helping you get context from somewhere else, anything that’s helping you understand more data,” are well understood applications of AI that Juan Muldoon, a partner at climate software VC Energize Capital, told me he’s excited about.
“I think you’re going to see it materially impact long-running operational costs for [energy] projects,” Scott Jacobs, co-founder and CEO of the sustainable infrastructure investment firm Generate Capital, told me. “It’s just another use of technology replacing humans.”
That doesn’t always make for a particularly flashy business. Muldoon cited one of Energize’s portfolio companies, Jupiter Intelligence, which “takes very, very large amounts of climate, weather, and terrain data to be able to more accurately predict asset level risks associated with particular climate events,” he explained. “So that’s a data AI company. But it’s not really marketed that way.”
Maybe that’s because in this era, the term is almost self-evident. As an old editor once told me, writing that a tech company uses “machine learning” or “AI” to perform data analysis can be as mundane and obvious as advertising that a company uses “the internet.” But as generative AI moves beyond advanced chatbots and towards the type of broader foundational models that Xu is most excited about, investment could heat up.
Xu told me that Lowercarbon has made a yet-unannounced investment in a company that gathers vast amounts of earth observation data, which could hopefully one day be used to create a “foundational model for earth science.” This model could potentially do things such as generate custom maps to track natural disasters or the climate risks to crops and built infrastructure. Xu says a company like this would be “a holy grail.”
Yet the main holdup to some of these “holy grail” companies is that we often lack not only enough data but a comprehensive understanding of how to characterize that data, said Clea Kolster, partner and head of science at Lowercarbon.
“We’ve seen a lot of pitches on AI for chemistry,” she told me. And while AI could spit out new atomic and molecular combinations for use in novel battery cells, “the amount of those new things that are actually going to be good is probably very small until you actually start to have a better understanding of how many of these materials work in different structures and environments.”
Even if scientists and researchers get a better handle on the datasets they’re working with, Purdom told me she’s generally skeptical of investing in companies that use AI to do basic R&D, citing the buzzy example of AI being used in critical minerals exploration and extraction “The competency of the prospecting and the R&D approach seems distinct to me from the actual value extraction, physical resource extraction part of the business,” she told me. The same could be said of using AI for battery design or protein development. “I have seen few examples where the platform approach of just the research and identification part is where there’s been a big standalone business.”
Not to say everyone takes that point of view. Bay Area-based KoBold Metals, an AI-enabled minerals exploration company, has raised over a billion dollars, with Bill Gates’ climate tech VC, Breakthrough Energy Ventures as a leading investor.
But overall, the potential for novel applications of AI in the climate space is still largely being figured out. And in these early stages, many climate investors are treading carefully.
“I have talked to a number of these AI companies,” Jacobs told me. “They’re talking about climate impacts and they have real value propositions that they’re going after. Great! But they don’t have real success stories yet.”
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“We had enough assurance that the president was going to deal with them.”
A member of the House Freedom Caucus said Wednesday that he voted to advance President Trump’s “big, beautiful bill” after receiving assurances that Trump would “deal” with the Inflation Reduction Act’s clean energy tax credits – raising the specter that Trump could try to go further than the megabill to stop usage of the credits.
Representative Ralph Norman, a Republican of North Carolina, said that while IRA tax credits were once a sticking point for him, after meeting with Trump “we had enough assurance that the president was going to deal with them in his own way,” he told Eric Garcia, the Washington bureau chief of The Independent. Norman specifically cited tax credits for wind and solar energy projects, which the Senate version would phase out more slowly than House Republicans had wanted.
It’s not entirely clear what the president could do to unilaterally “deal with” tax credits already codified into law. Norman declined to answer direct questions from reporters about whether GOP holdouts like himself were seeking an executive order on the matter. But another Republican holdout on the bill, Representative Chip Roy of Texas, told reporters Wednesday that his vote was also conditional on blocking IRA “subsidies.”
“If the subsidies will flow, we’re not gonna be able to get there. If the subsidies are not gonna flow, then there might be a path," he said, according to Jake Sherman of Punchbowl News.
As of publication, Roy has still not voted on the rule that would allow the bill to proceed to the floor — one of only eight Republicans yet to formally weigh in. House Speaker Mike Johnson says he’ll, “keep the vote open for as long as it takes,” as President Trump aims to sign the giant tax package by the July 4th holiday. Norman voted to let the bill proceed to debate, and will reportedly now vote yes on it too.
Earlier Wednesday, Norman said he was “getting a handle on” whether his various misgivings could be handled by Trump via executive orders or through promises of future legislation. According to CNN, the congressman later said, “We got clarification on what’s going to be enforced. We got clarification on how the IRAs were going to be dealt with. We got clarification on the tax cuts — and still we’ll be meeting tomorrow on the specifics of it.”
Neither Norman nor Roy’s press offices responded to a request for comment.
The foreign entities of concern rules in the One Big Beautiful Bill would place gigantic new burdens on developers.
Trump campaigned on cutting red tape for energy development. At the start of his second term, he signed an executive order titled, “Unleashing Prosperity Through Deregulation,” promising to kill 10 regulations for each new one he enacted.
The order deems federal regulations an “ever-expanding morass” that “imposes massive costs on the lives of millions of Americans, creates a substantial restraint on our economic growth and ability to build and innovate, and hampers our global competitiveness.” It goes on to say that these regulations “are often difficult for the average person or business to understand,” that they are so complicated that they ultimately increase the cost of compliance, as well as the risks of non-compliance.
Reading this now, the passage echoes the comments I’ve heard from industry groups and tax law experts describing the incredibly complex foreign entities of concern rules that Congress — with the full-throated backing of the Trump administration — is about to impose on clean energy projects and manufacturers. Under the One Big Beautiful Bill Act, wind and solar, as well as utility-scale energy storage, geothermal, nuclear, and all kinds of manufacturing projects will have to abide by restrictions on their Chinese material inputs and contractual or financial ties with Chinese entities in order to qualify for tax credits.
“Foreign entity of concern” is a U.S. government term referring to entities that are “owned by, controlled by, or subject to the jurisdiction or direction of” any of four countries — Russia, Iran, North Korea, and most importantly for clean energy technology, China.
Trump’s tax bill requires companies to meet increasingly strict limits on the amount of material from China they use in their projects and products. A battery factory starting production next year, for example, would have to ensure that 60% of the value of the materials that make up its products have no connection to China. By 2030, the threshold would rise to 85%. The bill lays out similar benchmarks and timelines for clean electricity projects, as well as other kinds of manufacturing.
But how companies should calculate these percentages is not self-evident. The bill also forbids companies from collecting the tax credits if they have business relationships with “specified foreign entities” or “foreign-influenced entities,” terms with complicated definitions that will likely require guidance from the Treasury for companies to be sure they pass the test.
Regulatory uncertainty could stifle development until further guidance is released, but how long that takes will depend on if and when the Trump administration prioritizes getting it done. The One Big Beautiful Bill Act contains a lot of other new tax-related provisions that were central to the Trump campaign, including a tax exemption for tips, which are likely much higher on the department’s to-do list.
Tax credit implementation was a top priority for the Biden administration, and even with much higher staffing levels than the department currently has, it took the Treasury 18 months to publish initial guidance on foreign entities of concern rules for the Inflation Reduction Act’s electric vehicle tax credit. “These things are so unbelievably complicated,” Rachel McCleery, a former senior advisor at the Treasury under Biden, told me.
McCleery questioned whether larger, publicly-owned companies would be able to proceed with major investments in things like battery manufacturing plants until that guidance is out. She gave the example of a company planning to pump out 100,000 batteries per year and claim the per-kilowatt-hour advanced manufacturing tax credit. “That’s going to look like a pretty big number in claims, so you have to be able to confidently and assuredly tell your shareholder, Yep, we’re good, we qualify, and that requires a certification” by a tax counsel, she said. To McCleery, there’s an open question as to whether any tax counsel “would even provide a tax opinion for publicly-traded companies to claim credits of this size without guidance.”
John Cornwell, the director of policy at the Good Energy Collective, which conducts research and advocacy for nuclear power, echoed McCleery’s concerns. “Without very clear guidelines from the Treasury and IRS, until those guidelines are in place, that is going to restrict financing and investment,” Cornwell told me.
Understanding what the law requires will be the first challenge. But following it will involve tracking down supply chain data that may not exist, finding alternative suppliers that may not be able to fill the demand, and establishing extensive documentation of the origins of components sourced through webs of suppliers, sub-suppliers, and materials processors.
The Good Energy Collective put out an issue brief this week describing the myriad hurdles nuclear developers will face in trying to adhere to the tax credit rules. Nuclear plants contain thousands of components, and documenting the origin of everything from “steam generators to smaller items like specialized fasteners, gaskets, and electronic components will introduce substantial and costly administrative burdens,” it says. Additionally the critical minerals used in nuclear projects “often pass through multiple processing stages across different countries before final assembly,” and there are no established industry standards for supply chain documentation.
Beyond the documentation headache, even just finding the materials could be an issue. China dominates the market for specialized nuclear-grade materials manufacturing and precision component fabrication, the report says, and alternative suppliers are likely to charge premiums. Establishing new supply chains will take years, but Trump’s bill will begin enforcing the sourcing rules in 2026. The rules will prove even more difficult for companies trying to build first-of-a-kind advanced nuclear projects, as those rely on more highly specialized supply chains dominated by China.
These challenges may be surmountable, but that will depend, again, on what the Treasury decides, and when. The Department’s guidance could limit the types of components companies have to account for and simplify the documentation process, or it could not. But while companies wait for certainty, they may also be racking up interest. “The longer there are delays, that can have a substantial risk of project success,” Cornwell said.
And companies don’t have forever. Each of the credits comes with a phase-out schedule. Wind manufacturers can only claim the credits until 2028. Other manufacturers have until 2030. Credits for clean power projects will start to phase down in 2034. “Given the fact that a lot of these credits start lapsing in the next few years, there’s a very good chance that, because guidance has not yet come out, you’re actually looking at a much smaller time frame than than what is listed in the bill,” Skip Estes, the government affairs director for Securing America’s Energy Future, or SAFE, told me.
Another issue SAFE has raised is that the way these rules are set up, the foreign sourcing requirements will get more expensive and difficult to comply with as the value of the tax credits goes down. “Our concern is that that’s going to encourage companies to forego the credit altogether and just continue buying from the lowest common denominator, which is typically a Chinese state-owned or -influenced monopoly,” Estes said.
McCleery had another prediction — the regulations will be so burdensome that companies will simply set up shop elsewhere. “I think every industry will certainly be rethinking their future U.S. investments, right? They’ll go overseas, they’ll go to Canada, which dumped a ton of carrots and sticks into industry after we passed the IRA,” she said.
“The irony is that Republicans have historically been the party of deregulation, creating business friendly environments. This is completely opposite, right?”
On the budget debate, MethaneSAT’s untimely demise, and Nvidia
Current conditions: The northwestern U.S. faces “above average significant wildfire potential” for July • A month’s worth of rain fell over just 12 hours in China’s Hubei province, forcing evacuations • The top floor of the Eiffel Tower is closed today due to extreme heat.
The Senate finally passed its version of Trump’s One Big Beautiful Bill Act Tuesday morning, sending the tax package back to the House in hopes of delivering it to Trump by the July 4 holiday. The excise tax on renewables that had been stuffed into the bill over the weekend was removed after Senator Lisa Murkowski of Alaska struck a deal with the Senate leadership designed to secure her vote. In her piece examining exactly what’s in the bill, Heatmap’s Emily Pontecorvo explains that even without the excise tax, the bill would “gum up the works for clean energy projects across the spectrum due to new phase-out schedules for tax credits and fast-approaching deadlines to meet complex foreign sourcing rules.” Debate on the legislation begins on the House floor today. House Speaker Mike Johnson has said he doesn’t like the legislation, and a handful of other Republicans have already signaled they won’t vote for it.
The Environmental Protection Agency this week sent the White House a proposal that is expected to severely weaken the federal government’s ability to rein in planet-warming pollution. Details of the proposal, titled “Greenhouse Gas Endangerment Finding and Motor Vehicle Reconsideration,” aren’t clear yet, but EPA Administrator Lee Zeldin has reportedly been urging the Trump administration to repeal the 2009 “endangerment finding,” which explicitly identified greenhouse gases as a public health threat and gave the EPA the authority to regulate them. Striking down that finding would “free EPA from the legal obligation to regulate climate pollution from most sources, including power plants, cars and trucks, and virtually any other source,” wrote Alex Guillén at Politico. The title of the proposal suggests it aims to roll back EPA tailpipe emissions standards, as well.
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So long, MethaneSAT, we hardly knew ye. The Environmental Defense Fund said Tuesday that it had lost contact with its $88 million methane-detecting satellite, and that the spacecraft was “likely not recoverable.” The team is still trying to figure out exactly what happened. MethaneSAT launched into orbit last March and was collecting data about methane pollution from global fossil fuel infrastructure. “Thanks to MethaneSAT, we have gained critical insight about the distribution and volume of methane being released from oil and gas production areas,” EDF said. “We have also developed an unprecedented capability to interpret the measurements from space and translate them into volumes of methane released. This capacity will be valuable to other missions.“ The good news is that MethaneSAT was far from the only methane-tracking satellite in orbit.
Nvidia is backing a D.C.-based startup called Emerald AI that “enables AI data centers to flexibly adjust their power consumption from the electricity grid on demand.” Its goal is to make the grid more reliable while still meeting the growing energy demands of AI computing. The startup emerged from stealth this week with a $24.5 million seed round led by Radical Ventures and including funding from Nvidia. Emerald AI’s platform “acts as a smart mediator between the grid and a data center,” Nvidia explains. A field test of the software during a grid stress event in Phoenix, Arizona, demonstrated a 25% reduction in the energy consumption of AI workloads over three hours. “Renewable energy, which is intermittent and variable, is easier to add to a grid if that grid has lots of shock absorbers that can shift with changes in power supply,” said Ayse Coskun, Emerald AI’s chief scientist and a professor at Boston University. “Data centers can become some of those shock absorbers.”
In case you missed it: California Governor Gavin Newsom on Monday rolled back the state’s landmark Environmental Quality Act. The law, which had been in place since 1970, required environmental reviews for construction projects and had become a target for those looking to alleviate the state’s housing crisis. The change “means most urban developers will no longer have to study, predict, and mitigate the ways that new housing might affect local traffic, air pollution, flora and fauna, noise levels, groundwater quality, and objects of historic or archeological significance,” explainedCal Matters. On the other hand, it could also mean that much-needed housing projects get approved more quickly.
Tesla is expected to report its Q2 deliveries today, and analysts are projecting a year-over-year drop somewhere from 11% to 13%.