If Europe is to achieve its goal of energy autonomy and reduce its greenhouse gas emissions by 55 percent by 2030, the continent needs a competitive climatetech industry. Significant investment in the sector is essential to achieve this. However, according to a recent study by UnternehmerTUM, UVC Partners, Allianz Economic Research and Allianz X, the current investment landscape is insufficient. For example, around €1.5 trillion would need to be invested annually in climatetech in the EU between 2021 and 2030. Measured against the actual investments of recent years, this means an investment gap of 700 billion euros per year. According to the study, 560 billion euros of this would have to come from the private sector and 140 billion euros from the public sector.
European plans for Climatetech only beginning to take shape
The exemplary look at the energy sector illustrates the situation. For example, annual investment in clean energy in the EU currently amounts to about €400 billion, leaving a public investment gap of about €40 billion per year, the study found. Another 160 billion euros is also needed from the private sector. As for the public sector, national initiatives are emerging alongside the EU budget, which provides more than €578 billion for the green transformation. These include Germany’s €212 billion Climate and Transformation Fund, for example. France, for its part, is planning an annual tax credit of 500 million euros to promote wind and solar energy, heat pumps and batteries. And the Benelux and Nordic countries are also introducing ambitious climate-related industrial policies.
However, European countries are already falling behind the USA and China. This is demonstrated by the decision of the Munich-based nuclear fusion startups Marvel Fusion to build its laser fusion factory in the USA. Lucio Milanese, co-founder of Proxima Fusion, another Munich-based nuclear fusion startup, explains in the study:
“Unless the EU provides the same form of support as the U.S. and China, the fusion energy industry and other sectors such as battery development and production in the EU are unlikely to thrive and barely survive.”
Innovation crucial for climate targets
In addition, the study emphasizes the important role that innovation plays in achieving the climate targets. This is because the further development of existing technologies is only expected to achieve around 25 percent of the necessary CO2 emission reductions. The remaining roughly 75 percent of emission reductions must come from new technologies. To achieve this, an average of $3.3 trillion in annual investment in innovative technologies will be needed between 2020 and 2040.
Venture capital (VC) and private equity (PE) are supporting this development with their investments in climatetech and cleantech companies. And these are increasing significantly, according to the study. While they were still €40.8 billion ($43.3 billion) globally in 2019, they rose to €91.8 billion ($97.3 billion) by 2022. European companies secured 30 percent of these funds in 2022.
However, the study cautions that adjustments need to be initiated at the policy level. For example, streamlined financing, the establishment of a common EU platform for access to finance, support for long-term financing through blended finance and the awarding of public contracts to climatetech solutions should improve the situation for climatetech and cleantech companies in Europe. Arthur Singer, co-founder of Munich-based climatetech startups Stabl, which is featured as a case study in the report, said:
“If companies want to do an IPO, they will do one. Unfavorable market conditions in Europe will lead to IPOs abroad.”