What Startups Have Taught Us About Unlocking Climate Policy Innovation

In our work deploying projects with climate tech entrepreneurs, we hear again and again that policy barriers present constant challenges, regardless of the industry in which they operate. In some cases it’s a patchwork quilt of policies that prevent attempts to scale into new jurisdictions, or burdensome regulations that prevent pilot projects for new solutions. Companies also struggle with long approval and procurement windows and the need to compete with inefficient and outdated fossil fuel subsidies. The result is that too often, the most promising climate innovations run right into a brick wall of the status quo. We also know that partnering with the government can create significant opportunities for startups and act as an accelerant.

It’s clear that we need to accelerate climate policy innovation with the same urgency and equity lens that we devote to tech innovation. That’s why we launched the Policy Lab on Earth Day in 2021. Its mission is to support the policy advocacy needs of climate technology innovations, recruit public policy experts to develop and scale innovative policy ideas, and advocate for policy changes to benefit the entire climate innovation ecosystem.

On the one year birthday of the Policy Lab and the 4.543 billionth birthday of the Earth, we’re reflecting on what we’ve learned about the mutually beneficial relationship between climate tech startups and policymakers.

Here are five key insights.

Lesson #1: Climate tech entrepreneurs are hungry to work with government as a partner and accelerant.

Policy plays a critical role for almost all startups in the climate tech space. Our portfolio companies recognize that policies can unlock doors and fuel the growth of their technologies through critical commercial inflection points. Our annual survey of 130+ portfolio companies shows that engaging with the government is key to their ability to thrive. Asked what areas of government involvement would accelerate their growth, 75% identified government grants and contracts; 70% identified updating government standards or requirements; and 70% identified new incentives or subsidies for customers.

This is why we work with our portfolio companies to design the best approaches and strategies for partnering with governments and communities to unlock innovation in their sectors and climate tech broadly.

Lesson #2: New policy incentives are needed to accelerate the phaseout of outdated technologies.

For many new and emerging technologies with high initial production costs, government incentives can help make those solutions cost competitive until economies of scale are reached, propelling them across the valleys of death. Additionally, in the climate technology space, many companies are building B2B (business to business) solutions to upgrade outdated or heavy-polluting systems. Without policy incentives or standards, there is often little reason for customers such as utilities or manufacturers to switch away from incumbent dirty technology options. For example:

• Dimensional Energy is engineering a sustainable aviation fuel called syngas using sunlight, carbon dioxide, and water. The creation of a production tax credit, which would give a credit to producers of sustainable aviation fuels prior to manufacturing, could help make the economics of an initial pilot work and bring their solution to market much faster.
• Nuventura is building utility switchgear that does not utilize SF6, a potent greenhouse gas found in nearly all switchgears. Regulations proposed in California and the EU to more tightly control SF6 can push utility companies to upgrade their switchgear.
• Matter has designed sophisticated filters to keep microplastics out of our waterways, protecting public health and ecosystems crucial for reducing carbon emissions. Customer adoption can be dramatically accelerated by passing legislation to make microfiber filters mandatory on washing machines, as France has done.

Lesson #3: Government funding can be catalytic for climate tech companies.

The $1.2 trillion dollar bipartisan infrastructure package includes formula and competitive grant funding for mobility, energy, electric batteries, water, and our built environment. Grant funding is an amazing opportunity for startups to build relationships with public agencies and go deep in partnership with communities, not to mention it is non-dilutive and can be instrumental in fueling a company’s growth.

In addition to the many grant opportunities, the federal government can also be a massive customer for climate tech startups. What better way to scale than through a customer that operates in every state? In the case of CarbonCure, whose technology reduces the carbon footprint of concrete, city-level governments have been huge procurement partners, buying low-carbon concrete for new public infrastructure projects such as roads and bridges.

Lesson #4: Policies can accelerate the adoption of climate technologies where they are needed most — in frontline communities.

Policy incentives are key not only for driving market adoption, but also for ensuring that market adoption happens equitably. Without the right incentives in place, it can take years or decades for clean but more expensive new technologies to become affordable enough to reach frontline communities striving to become more climate resilient.

Take the Tesla model for example; make a fancy, expensive electric vehicle and sell it to a high-paying customer segment first. Then, years later, make a more affordable model for the middle-class and eventually expect the technology to penetrate all market segments. That’s one approach but it leaves the communities who are currently looking for solutions to improve their community’s air quality waiting.

We can more quickly overcome the barriers that the most underserved communities face with policy programs like the EVs for All bill, which would use federal dollars to fund EV car share programs alongside affordable housing developments. This type of approach unlocks opportunity across all customer segments much more rapidly.

Lesson #5: Governments need climate tech startups just as much as startups need government.

As they both share the goal of making communities more climate resilient and sustainable, climate tech startups can be high-value partners for governments. While deploying solutions, climate companies are able to get proximate to the nuances and challenges that communities face. Meanwhile, government agencies can use that knowledge as they work to unknot the systemic challenges communities face without creating new problems. In many cases, we find that entrepreneurs and policymakers can have a mutually beneficial relationship. For example:

• Startups as crucial informants of needed policy changes. The policy challenges identified above to scale the technologies from Matter, Nuventura, and Dimensional Energy may not come to a lawmakers’ attention without a company sounding the alarm bell. And policymakers can ensure incentives and other policies have the desired effect if they are informed by solution providers.
• Startups as implementation partners. As the $1.2 trillion federal bipartisan infrastructure dollars start to flow, implementation will fall to state, county, and local city governments. They will need new partners to upgrade and electrify transportation infrastructure, buildings, and outdated energy, water, and waste systems. Startups are nimble and ready to spring to action.
• Startups as providers of data & tools to ensure funds are spent effectively. Not only can startups help deploy funds, they can also help inform where they should go. Swiftly, for example, has an incredible amount of data on city-level transportation trends that can help inform the way cities spend the dollars once they arrive.

Both climate-tech startups and many policymakers want the same thing — to scalably, equitably, and durably mitigate and adapt to climate change. In order to accomplish that goal, climate startups and the public sector policy makers need each other. With close collaboration and coordination between the innovation community and the public sector, we can meet the urgent need conveyed in the recent IPCC report.

(P.S. read our team’s take on the IPCC report, and pointers for how startups can leverage policy development for growth.)

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The first year of the Policy Lab has bolstered our organization’s understanding and strong belief that policy innovation is crucial to equitable tech deployment. In the coming year, we will continue the work of partnering with our portfolio companies, policy leaders, and community partners to bridge these gaps.

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