Conventional wisdom suggests that climate tech is entering a winter season, where political and investor interest and investment levels are cooling. This is an ironic contrast with the climate itself, which keeps delivering years of record warmth. However, a new report from the International Energy Agency suggests there has never been a better time to go all-in on climate tech.
In comparing the agency’s stance from a decade ago with its position today, it is clear the world’s expectations about the future have changed dramatically in less than a generation. In 2014, the International Energy Agency assumed that, absent any international effort to rein in carbon pollution, emissions would continue to increase steadily. Even the most optimistic forecast at the time predicted a linear increase, just with a lower slope. Those scenarios essentially took the trend line from the previous few years and extended it through 2050.
Fast forward to today, and the agency’s current worst-case scenario is essentially 2014’s best case. A decade ago, without any major changes, the world was headed toward 46 metric gigatons of carbon dioxide per year by 2040. If countries cut emissions as they had pledged, the best we could have hoped for was 38 metric gigatons per year by 2040.
Today, if countries continue with business as usual, the agency expects emissions will level off at 38 metric gigatons per year. If countries follow through on their pledges, the agency suggests we will hit about 33 metric gigatons per year by 2040. It is still far off from what is needed to hit net zero by 2050, but it is a significant shift in a short amount of time.
If the agency’s earlier projections turned out to be overly pessimistic compared with where we are today, what does that say about today’s projections? How you answer that question depends on how you interpret trend lines. When forecasting the future, do you analyze today’s data? Or do you look at that data in conjunction with how our expectations about the future have changed over time?
Put another way, will the world hit net zero in 2050? Today’s trend lines suggest we will miss that target by a wide margin. But if you look at how expectations have changed over the last decade, you might come up with a different answer. Instead, you might think the rate of change has increased, that we might be in the middle of an inflection point that starts to bend global emissions downward.
There are a few recent anecdotes to support the idea that we are at an inflection point. In Germany, sales of electric vehicles have set new records even after the government repealed incentives in 2023. In developing countries, renewables are reshaping the economies of nations that were long thought to be among the last to adopt clean power. And China, which had previously refused to commit to reducing its carbon emissions, has now said its emissions will peak before 2030.
How the world views the future of carbon emissions has changed significantly over the past decade. A range of technologies have made that happen, including cheap solar and wind power paired with inexpensive batteries. In the near future, geothermal energy and grid-optimizing software could propel the next leaps in optimism. For investors who agree, the upside could be dramatic.
For many climate tech investors, these days probably feel pretty gloomy. But amidst the gloom, there are still bright patches to be found.