What is Climate Infrastructure?
Climate infrastructure involves the development of physical structures and systems that are designed to combat or mitigate the effects of climate change. There are various industries that use climate infrastructure to either improve upon existing systems or create new systems that will ultimately lead to greater sustainability or climate resilience. Infrastructure goes beyond the digital world of software and establishes tangible processes that interact with the environment we live in.
In regards to infrastructure startups, these companies will inherently cost more to scale than software companies because they are in fields like carbon capture and materials science. As explained in Sifted’s article on green infrastructure, these startups will either work in deep-tech or in developing existing technology.
“VCs are having to come up with a whole new playbook to back these capital-intensive businesses, or else they risk missing out on the next wave of climate innovation.”
Common deep-tech companies are those focusing on technologies like nuclear fusion and carbon capture, both of which require building construction for facilities. Successful climate action requires the development of green infrastructure and a huge opportunity will be lost if VCs fail to acknowledge the potential and impact of these startups. Without the proper support from VCs, startups have to find alternative ways for funding. Sifted’s second article on funding infrastructure startups shares that founders are now looking to banks and property owners to scale their businesses.
“To solve the climate crisis, Europe needs to build a lot of new infrastructure: be it gigafactories to produce electric vehicle batteries, renewable energy assets or infrastructure for greener manufacturing.”
Both proactive and reactive infrastructure are necessary to address the different challenges that climate change presents. This includes climate adaptation, such as optimizing existing infrastructure to withstand extreme weather conditions. It also includes climate mitigation like developing new infrastructure with technology to prevent, reduce, or remove further emissions. Bioenergy with Carbon Capture and Storage (BECCS) technology falls into the latter category as it requires equipment, facilities, engineers, and processes that will continue to remove carbon for decades.
What Types of Infrastructure Startups Currently Exist?
Gigafactory developers have become a common type of infrastructure startup in the market. In several European countries, many policymakers are phasing out the traditional combustion engine in favor of a more sustainable option with electric vehicles. Because the electric vehicle (EV) industry has grown rapidly in recent years, so has the construction of gigafactories. According to the IEA, electric cars’ share of the global car market rose from 4% in 2020 to 14% in 2022 with more than 10 million electric cars sold worldwide in 2022. In 2023 sales are expected to increase by another 35%.
Currently, Northvolt is one of two battery manufacturers that will be constructing a gigafactory in Europe scheduled for the year 2026. Headquartered in Stockholm, Sweden, Northvolt is a lithium-ion battery manufacturing company. With a value of $12 billion, Northvolt focuses on producing batteries at scale and is in the process of building a new EV battery plant in Germany. While investing in gigafactories takes time and requires significant funding, it is expected that the largest automotive market will be fully electric by 2035. As such, the development of gigafactories can also be expected to grow significantly. A recent press release details that in 2017 the global lithium-ion battery market was valued at $30,186.8 million and by 2025 it’s projected to reach $100,433.7 million.
Carbon capture project developers are also a growing category for infrastructure startups. Combined heat and power (CHP) plants, pulp and paper mills, and other existing biomass facilities have begun to look into Bioenergy with Carbon Capture and Storage, also known as BECCS. BECCS operates in industrial facilities with the implementation of biomass as feedstock and can be implemented at CHP plants, biogas plants, or pulp and paper mills. Biogenic emissions from these industrial processes are captured by BECCS technology and sequestered permanently underground.
BECCS addresses one of the biggest concerns caused by the climate crisis, excess atmospheric carbon.
Similar to gigafactories, carbon capture with BECCS requires significant capital in the order of hundreds of millions of dollars, to properly implement the technology at existing facilities. Despite this large capex cost, cost and energy requirements are lower in comparison to other forms of carbon removal per tonne of CO2. The biogenic sources of CO2 for BECCS can be used to produce heat and power. This makes BECCS the sole CDR technology that can also contribute to energy production when operations are implemented at facilities like CHP plants.
Recently, interest in BECCS has increased, leading to the creation of government incentives in numerous countries. The US Inflation Reduction Act established an expansion of tax credits for CCS technology. In Sweden, the government invested SEK 36B, the equivalent of 3.3 billion USD for BECCS technology. Between January 2021 and June 2022, plans for more than 50 new BECCS facilities were announced. Along with these government incentives, there is a strong indication that the CCS industry will rapidly expand in upcoming years. By 2030 the global market for CCS is expected to reach 7.1B EUR according to a report by Global Industry Analytics.
Along with carbon removal and the EV industry, climate-resilient infrastructure is another indispensable component of climate action. The Organization for Economic Co-operation and Development (OECD) defines climate-resilient infrastructure as a system that is “built and operated in a way that anticipates, prepares for, and adapts to changing climate conditions.”
When up against disruptions caused by extreme climate conditions, climate-resilient infrastructure should hold up against those conditions and recover quickly. This infrastructure may look like elevating bridge heights to prepare for rising sea levels. It can also be the implementation of infrastructure that upgrades natural drainage systems. This kind of infrastructure is designed to replace pipes and concrete with greener methods such as stormwater filters and rooftop vegetation that mimic the water cycle. In 2017 the OECD published a report on climate investments where it found that an estimated $6.3 trillion per year would be required for green infrastructure from 2016 to 2030.
Why is Infrastructure Important for Climate Action?
In order to deliver tangible results in the fight against climate change, investments will need to go beyond software companies. Climate infrastructure is the only system that has the potential to generate change on a global scale. Eliminating excess atmospheric carbon and reducing emissions requires the physical construction of facilities and systems to reverse and repair environmental damages. Preparing for the threat of harsh weather conditions will require green infrastructure to minimize destruction from flooding and other extreme events.
The OECD published a report on climate-resilient infrastructure policies and found that the infrastructure sector would suffer 30-55% of flood damages in Paris, France. It also estimated that “35% to 85% of business losses” would result from disruptions to the transportation and electricity supply from a major flood. An investment in green infrastructure could reduce these damages by expanding water storage, flood defenses, and water supply and sanitation.
“Climate impacts are projected to lead to increases in investment required for infrastructure, particularly water storage, flood defenses, and water supply and sanitation in some regions.”
Both the carbon capture and EV industry play an important role in reducing and removing emissions. While BECCS infrastructure requires large investments, its scalability is substantial. One BECCS facility alone has the capacity to remove carbon emissions in the hundreds of thousands of tonnes per year. Other removal options may only remove carbon emissions in the tens of thousands range. Scaling carbon removal to this level globally has the ability to prevent global temperatures from surpassing the 1.5-degree threshold.
Gigafactories and EVs have the potential to significantly reduce the amount of emissions that come from the transportation industry. In the United States, the transportation industry contributes 29% of greenhouse gas (GHG) emissions in the country with 60% of emissions originating from passenger vehicles. In Europe, transportation is responsible for nearly 25% of the EU’s total GHG emissions. Soley relying on SaaS solutions without diversifying investments into scalable infrastructure will be a missed opportunity in markets like carbon removal, renewable energy, and EVs with a massive potential for exponential growth.
