World to invest billions in climate change tech. What are the 4 key areas?

The start of the year is a boon for the data-minded in the climate and energy world: We get full coverage on the past year’s investment flows and indicators, and lots of outlook for the year ahead. Earlier this week, Eric Rosten of Bloomberg Green neatly summarized the climate numbers to watch in 2023. I have my own things to watch, indicators that will reveal what 2023 means for the scale and pace of the energy transition.

Here are the questions I’m asking, which will be resolved as the year develops:

1. Will climate tech do well in 2023 building on the bumper funding year of 2022?

According to HolonIQ, climate tech will see an 89% year-over-year increase in venture capital in 2022, with more than $70 billion invested from January to December. This is all the more surprising because 2022 was a pretty disappointing year for venture capital funding in general – dollars invested were down 42% in the first 11 months of the year compared to 2021.

Read also: The Year Ahead: Could It Be Tech To The Rescue?

For the past four years, climate tech has represented between 20% and 30% of total venture investment. It held steady when the venture market more than tripled and when it retreated sharply. As we get more data on total venture funding in 2022, climate tech could prove to be a larger percentage of the global pie.

Last year’s money flow into climate tech was substantial – 35 times more than a decade ago. Now deployed in early stage companies, it will fuel a wave of new products and business models. I will keep an eye on how much more money can be raised this year, from which investors and for what purposes.

2. Will solar-grade polysilicon and lithium continue their price trends?

For much of the past year, two key inputs to decarbonizing the global energy system were rising in cost. Solar-grade polysilicon, the metal needed to make more than 90% of the world’s solar panels, began to slide in 2021 before hitting its highest price in nearly a decade at $38 a kilogram. Prices have since fallen back to $17.51 ​​per kg, meaning they only halve by October 2022.

Similarly, the price of lithium, needed for batteries used in electric cars and energy storage systems, was spectacular, rising more than 11 times since the start of 2021 before peaking in November. This price movement was significant enough to push up lithium-ion battery prices for the first time in at least a decade. Lithium prices have also started to decline, although not as quickly as polysilicon, and are down about 13% from their 2022 highs.

Read also: US approves $2.5 billion loan to General Motors-LG venture for lithium-ion plants

What I’m watching: How far polysilicon and lithium will fall and the impact of price on the solar and EV businesses. BloombergNEF expects supply of about 50% more polysilicon, which should result in a significant drop in prices even with another record year for solar installations. Mined lithium supply could increase by more than 30% this year as well. EV sales are expected to grow even as the broader auto market returns to normal. For both the sectors, any drop in key inputs would be welcome.

3. How quickly and smoothly will the IRA and EU move from carbon border levy planning to implementation?

American readers are surely familiar with the Inflation Reduction Act and its hundreds of billions of dollars in climate support. Those funds, as well as additional billions in infrastructure legislation and the CHIPS and Climate in Science Act, are now needed to move forward. I’m watching to see how this happens. It’s not just for the federal government: Local opposition can be a killer for many projects, and it can come from the right or the left.

Meanwhile, the EU’s carbon limit adjustment mechanism has reached “agreement of a provisional and conditional nature” in the European Parliament and now needs ratification and adoption before it can enter into force in October. The next nine months of CBAM reporting obligations should provide an indication of the impact this policy will have on domestic industry and international trade.

Read also: EU’s CBAM, US carbon tax undermine international climate and trade laws

4. Will the new LNG king face trouble at home?

Last year, the US tied Qatar as the world’s top exporter of liquefied natural gas. Qatar has long held the top spot, while the US only began exporting from the bottom 48 states in 2016. Europe was the main destination for US LNG in 2022, and that was certainly welcome given Russia’s gas supply.

What I’m keeping an eye on: The impact of exports on US natural gas prices. The cost of natural gas in the US is relatively low compared to other major economies due to domestic abundance. But continued exports could change that. The Dallas Fed’s third-quarter survey on the oil and gas industry found most executives expect the age of cheap US gas to end within three years.

Rising gas prices will affect the US electricity fuel mix, potentially bringing more coal into the grid – but almost certainly also pulling in more renewables. Higher prices will also impact industry, and if they persist, they could spur deeper decarbonisation investment in the traditional domain of petrochemicals.

Nate Bullard is a Senior Contributor at BloombergNEF and Bloomberg Green. He is a venture partner at Voyager, an early stage climate technology investor.

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