Steps for the UK to lead in climate technology

Peter Hirsch, Head of Sustainability at venture capital firm 2150, outlines how the next government can invigorate vital startups and attract investors in this burgeoning industry.

According to CBI Economics, businesses involved in the net zero economy contribute £74 billion in Gross Added Value (GAV), accounting for 3.8% of the UK's economic output. This figure highlights the sector's significant, yet untapped, potential.

London’s robust financial and professional services, coupled with the academic prowess of Oxford and Cambridge, position the UK uniquely to advance in the climate tech arena. An incoming government, with the right policies, can empower startups and investors, fostering long-term growth, high-paying jobs, and essential climate solutions for decarbonisation and resilience.

Hirsch emphasises three key priorities for the government to focus on to ensure the long-term success of the climate technology ecosystem:

1. Policy support: implementing supportive policies to encourage innovation and investment in climate tech
2. Financial incentives: offering financial incentives to startups and investors to drive growth in the sector
3. Collaboration and research: promoting collaboration between industry and top-tier research institutions like Oxford and Cambridge

By addressing these priorities, the UK can secure a sustainable future and lead the global effort in climate technology.

A clear green industrial strategy  

“The next government must send clear and predictable market signals to support an economically competitive and resilient industrial sector, powered by green solutions. Long-term planning will give investors the confidence to invest in the UK, and innovative startups and founders the assurance they need to build their businesses here. Direct technology mandates, reliable phaseout timelines, and streamlined regulatory processes must be set in stone.”

Use targeted public support to supercharge private investment

“Public investment should be used to de-risk and boost private confidence in green technologies. Targeted programmes will enable  private capital to take the reins to scale technologies and frontier industries. The government and public institutions  can use credits, guarantees, first loss agreements, low interest loans and grants to stimulate industry while making long-term returns.

“In addition, the UK can aid businesses by more closely aligning its Emissions Trading Scheme (ETS) and planned Carbon Border Adjustment Mechanism (CBAM) with the EU’s. This will facilitate trade and avoid levies on goods and create  clear incentives for businesses to decarbonise.

Late stage support to encourage startups to scale on UK shores

“Despite research by Cleantech for UK showing that venture capital investment in the country into climate tech remained buoyant during 2023 (totalling £2.6 billion compared to other sectors which saw a significant drop-off), later-stage funding is still scarce.

“This means that UK innovators can’t secure the funding they need to effectively scale their businesses and solutions. Companies and founders looking to move from first-of-a-kind (FOAK) facilities to full commercialisation are forced to consider scaling their businesses elsewhere.   

The UK can bridge this ‘valley of death’ and compete globally through strategic instruments like off-take agreements, and backing specific climate tech solutions through public incentives and streamlined regulatory processes.”