Climate Tech VC Investments Drop for the 3rd Year in a Row, AI to the Rescue

The world of climate tech investment witnessed a significant transformation in 2024, primarily driven by the AI boom. This reshaping was about emerging technologies and sectors traditionally linked to energy and infrastructure. However, funding seems to be waning.

Funding Declines, But AI Powers New Opportunities in Climate Tech

According to PitchBook data, venture capital (VC) investment in climate tech declined globally for the third consecutive year.

Funding dropped from $25.9 billion in 2022 to $19.7 billion in 2023, and further to $17 billion in 2024, reflecting a 34% decrease over two years. 

Pre-seed and seed rounds were particularly slow last year, dropping from 246 deals to 152 deals in the U.S. For climate-tech startups, raising a seed deal is a particularly tough ask, especially for hardware businesses requiring substantial capital expenditure before reaching a pilot product.

Climate tech remains a risky area for investment, even when money is cheap. The sector took heavy blows in 2024, including Northvolt, a lithium EV battery developer that raised $9 billion in equity and convertible debt, spiraling into bankruptcy in November. Universal Hydrogen, a startup developing a fully hydrogen-powered plane, also ran out of cash. 

However, despite this decline, certain subsectors thrived. AI-driven data centers and their associated technologies emerged as pivotal drivers of growth, drawing substantial interest and funding from investors.

Sightline Climate’s review of 2024 climate tech trends highlighted that energy and building technologies, particularly those tied to AI data centers, bucked the declining investment trend.

• The energy sector saw a 12% increase in funding, reaching $9.4 billion, while building technologies grew by 10% to $2.7 billion. This surge was driven by the anticipated rise in energy consumption due to AI operations.

Generative AI models, like ChatGPT, consume nearly 10 times more energy per query compared to a standard Google search. To support such energy-intensive operations, data centers are predicted to increase their power demand by 2.4% annually until 2030. This energy requirement reverses a decade-long trend of flat growth.

Billions Flowing into Cleaner Data Centers

As AI technologies grow, so does the demand for cleaner and more sustainable data centers. Leading tech companies, including Google, Amazon, and Microsoft, have set ambitious emissions targets, creating opportunities for innovative climate tech solutions. 

Kim Zou, CEO of Sightline Climate, highlighted that AI’s rapid rise presents both challenges and opportunities. Emerging clean power solutions, like nuclear and geothermal energy, as well as energy-efficient data center technologies, are now in the spotlight. Zou specifically highlighted that:

“On one hand, we’re seeing unprecedented load growth coming onto an already constrained grid. On the other hand, AI-led demand is driving momentum for emerging clean firm power solutions…”

• RELATED: Trump’s Bold $20 Billion AI Plan: Fueling America’s Data Centers with Foreign Capital

In 2024, several notable investments reflected the urgency to meet AI’s growing energy needs sustainably, including:

Crusoe Energy’s $600 Million Raise

Crusoe Energy, originally focused on cryptocurrency mining, now provides vertically integrated AI services, including data centers optimized for clean energy. This December 2024 deal marked the largest climate tech investment of the year.

Amazon’s $500 Million Bet on X-Energy

Amazon partnered with X-Energy to deploy over 5 gigawatts of nuclear power projects in the U.S. by 2039. This capacity would represent about 10% of the additional energy needed to support U.S. data center growth through 2030, according to Goldman Sachs estimates.

Form Energy’s $405 Million Round

Form Energy developed an iron-based battery capable of storing power for up to 100 hours—20 times longer than most current systems. This innovation supports utilities in managing energy demand surges and the variability of renewable sources like wind and solar.

Scala’s $500 Million Investment

Scala, a Brazilian data center provider emphasizing clean energy, also secured a significant deal in September 2024. The company exemplifies a global push toward sustainable AI infrastructure.

Climate Tech Beyond Data Centers

While data centers dominated the climate tech landscape, other sectors also experienced notable advancements. In transportation, electric vehicle (EV) technologies continued to attract significant investment. 

Companies working on EV battery recycling and efficiency saw increased funding, driven by a growing focus on the circular economy. Additionally, startups specializing in grid management solutions gained traction, addressing the challenges of integrating renewable energy sources into existing power networks.

In agriculture, innovations aimed at reducing methane emissions and improving soil health gained momentum. Technologies such as precision farming tools and methane-reducing feed additives drew investor interest, aligning with global efforts to lower greenhouse gas emissions from the agricultural sector. 

The Role of AI in Shaping Investment Trends

AI’s influence extends beyond its direct impact on data centers. Venture capitalists are increasingly leveraging AI-driven analytics to identify promising climate tech startups. Predictive models and machine learning tools help investors assess risks and returns, enabling more informed decision-making in a complex and evolving market.

AI is also driving innovation within climate tech itself. Startups are using AI to optimize renewable energy systems, enhance energy storage technologies, and improve carbon capture methods. These advancements not only attract funding but also accelerate the deployment of climate solutions on a global scale.

Per Pitchbook data, VC investments in startups surged by nearly 30% in 2024, driven largely by the booming AI industry. Leading firms like Greycroft and Kleiner Perkins are doubling down on AI despite rising valuations. 

However, climate-tech deals are declining, even as awareness grows about the need for clean energy investments. This is crucial to meet the energy demands fueled by AI’s rapid growth, highlighting a shift in industry priorities as AI takes center stage in the venture capital landscape.

A Future Fueled by Innovation

Clean energy investors anticipate challenging months ahead for startups as the energy industry adapts to Donald Trump’s administration. With uncertainty around project financing and regulations, some VCs are advising companies to delay fundraising efforts until the landscape becomes clearer.

Investors are now focusing on scalable solutions that address both immediate and long-term needs. From energy-efficient data centers to breakthroughs in battery technology, the innovations emerging today will shape the future of climate tech. 

With billions of dollars flowing into transformative projects, the intersection of AI and climate tech offers a glimpse into a future where technology and sustainability go hand in hand. 

• READ MORE: 2025: The Year Clean Energy Dominates with Record $670 Billion Investment, Trumping Oil & Gas