IFC Climate Expert Q&A Series: The Landscape of Climate Tech

Climate technology is growing by leaps and bounds – but which solutions are really making an impact? To get a bird’s-eye overview of the state of tech and innovation in the climate business, we sat down with Diep Nguyen-van Houtte , IFC - International Finance Corporation Senior Manager for Innovation and Business Development.

What is the state of innovation in climate business today?

If you look at the field of climate tech today, you will see that all technologies fall broadly into one of two buckets: emerging solutions and solutions with a proven track record.?? Some of the tried-and-true tech solutions include #renewable energy, electric transport, and #greenbuildings, which help reduce emissions through energy and water efficiency as well as greener, better building materials. IFC has had a great track record in deploying these solutions for our clients, particularly through our EDGE Buildings program, which brings in over a billion dollars in private investment every year, and this past year brought in over $2.2 billion. EDGE has certified over 62 million square meters of floor space in over 120 countries, improving the lives of over 108 million people and reducing CO2 emissions by 1.3 million tons per year. Some of the new tech ideas include offshore wind, #greenhydrogen, battery storage and #carboncapture.

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The great thing about these technologies is that they help us unlock decarbonization across the entire value chain and work across industries.? Take offshore wind.?? The wind turbines and their blades are colossally large so you can’t really transport them very far.? That means you have an opportunity to start manufacturing them close to the future installation site and design the manufacturing process to be as low-carbon as possible.? Then you need to deploy the infrastructure to connect them to the power grid, and of course, a suite of green finance solutions to enable it.?

Another area to look at is e-mobility.? If you look across the entire value chain, you can include the production of batteries and vehicles, construction of charging stations and related infrastructure, and a network of financial intermediaries to finance single owner or small business clients or municipalities.? So rather than focus on a single product, we can make a much greater impact if we look at the entire cross-sectoral process, soup to nuts.

What would you say are the top three promising technologies in the climate business sector today?

It’s always difficult to name just three, but if I had to choose, it would be battery storage, e-mobility and green hydrogen.? Battery storage is an essential part of the decarbonization toolkit. It delivers a great solution to the challenge of intermittent power, and I think we are close to the point where we can really standardize and scale it up for adoption across industries.? E-mobility has been coming into a much greater focus over the last couple of years, and I see the next stage as mass adoption and scaling up.? And green hydrogen is going to be the next big thing if we can solve the bankability issues.?

Let’s talk about that for a minute.? Quite a few technologies promise to deliver great impact but aren’t commercially viable yet.? How can we fully tap into their potential?

?That’s not a new problem.? Many technologies that are widely used today – like solar power – had to go through a stage where their commercial and even technical viability were in question.? That’s where policy reform and strategic use of blended finance can help get over the “risk aversion” hump and mobilize private investor financing at scale.??

IFC has an approach called “upstream” that allows us to pilot emerging technologies with early development funds or with our venture capital funds.? Once the pilot is successful, we can help launch it at commercial scale, and this reduces the risks for future investors.? Nearly all our projects in, for instance, green hydrogen, are financed with this approach.? Another recent example is Boston Metal, a transaction where we took a calculated risk at a pre-revenue stage.

We can also help de-risk these projects with blended finance facilities and risk guarantees through our colleagues at MIGA.? This is the comparative advantage of working with a large development institution like IFC. Supportive policies and reforms can also be an important piece of the puzzle. Let’s look at one recent example.? When the U.S. passed the Inflation Reduction Act, it had a tremendous impact.? The IRA delivered some of the most generous industrial policies ever seen across the entire decarbonization sector – renewable energy, e-mobility, battery storage and green hydrogen, to name a few.?? This resulted in massive attention and interest from global developers from Europe, Australia and even emerging markets coming to America to invest in these sectors.? That’s a good example of aggressive reforms that can kick-start the market to grow.

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It's interesting that you brought up an example from the U.S., a very developed market.? So many conversations about disruptive technologies are taking place in developed economies, which is not where development institutions like IFC are focused.? How do you see this play out in emerging markets compared to mature markets like the U.S. and Europe?

?It’s true that we see the most activity around climate tech in developed markets.? I see that as a “glass half full”, in that we can use the lessons learned in mature markets to bring that knowledge to emerging economies.? At the same time, some emerging markets today are already leapfrogging the more developed economies leveraging both their knowledge and their natural resources.? Countries like Chile and Brazil, for instance, have access to much cheaper renewable energy compared to the U.S., and that allows them to leapfrog the investments in green hydrogen.?

Which technologies, in your opinion, have made the most impact in moving the needle in climate?

?First, the adoption of electric vehicles and e-mobility in general.? It has really taken off over the last couple of years, and it’s wonderful to see.? Second, the intense focus and significant investment in renewable energy has made a great deal of difference.? Third, the push to green our built environment and live cleaner and greener has become mainstream.? And fourth, the growth of innovative financing instruments, from green to blue to sustainability-linked finance that’s responding to the needs of investors and really fueling the growth in climate business.