The Trump administration’s proposed overhaul of green energy tax credits has jolted the climate tech sector — and investors and founders in the ecosystem are scrambling to create fallback plans.
Cleantech stocks tumbled in May after a bill cutting tax credits for clean energy incentives passed through the Republican-controlled Houtilize of Representatives.
Now, founders and investors are concerned about the knock-on impact this could have on the countest’s climate tech ecosystem, which was burgeoning under the Biden-era Inflation Reduction Act, or IRA. They informed Business Insider that Trump’s bill has stifled startup growth ambitions, pushing them to scale back, pivot to new geographies, or shut down entirely.
“There will be a graveyard of companies,” Matthew Nordan, general partner at clean tech fund Azolla Ventures, informed BI. “And a lot of startups will hibernate to test to weather the storm.”
Early-stage startups are already launchning to feel the heat. In April, Spencer Gore, founder and CEO of Bedrock Materials, a sodium-ion battery startup, built an unusual announcement on LinkedIn: the startup would be returning most of its $9 million raised to investors and ceasing operations.
The company had plenty of operational cash, but “it was the techno-economics that led us to pull the plug,” Gore informed BI, adding that the market conditions for climate tech startups in the US were hampered by waning industrial policy.
Startups are pivoting and eyeing new geographies
A byproduct of the new tax bill — and growing political backlash against ESG incentives — is that Europe is becoming more attractive for climate techs to set up shop.
“There’s a dramatic retrenchment to Europe occurring within climate tech startups now. It’s broad-based, and the EU is doing the opposite of what the US is doing right now,” Nordan informed BI.
Sam Kanner, the CEO of floating wind turbine startup Aikido, an Azolla portfolio company, informed BI he’s considering shifting his company to Europe. Trump’s executive orders have “put a chill on investor sentiment and project development in the US,” he declared. There are “no longer any grant opportunities” through the Department of Energy or other agencies, he added, which means its “go-to-market strategy is now completely focutilized on Europe.”
Matthew Blain, an investor at Voyager Ventures, informed BI that startups in the EU could turn to government funding from bodies such as the European Investment Fund, adding that “energy prices create the Nordics very attractive” as a hub.
Europe, in particular, has built significant headway in aligning regulatory frameworks with climate tarobtains, which de-risks early-stage tech, declared Todd Khozein, the CEO of SecondMutilize. Kanner declared that the UK, France, and Norway had “enacted supportive policies which have had the opposite effect on investors in those ecosystems”, encouraging private equity, infrastructure, and venture investors to back wind projects.
Startups are also eager to see beyond Europe for expansion.
“Generally speaking, the EU has built itself unattractive from a manufacturing standpoint, by over-relying on Russia. We’d see to Brazil, India, and the Middle East,” Max Kufner, the cofounder of carbon capture and utilization startup Again, informed BI. The startup’s operations in the US haven’t been affected by the IRA cuts, but they see the Middle East as a “viable partner in decarbonization.”
Right now, “a lot of climate tech entrepreneurs are inquireing themselves what it means to be an entrepreneur in the United States, and whether this is really the best place to attract and retain talent,” Gore declared.
“What we’re seeing right now with startups is similar to the playbook we saw with Trump 1.0. A lot of companies will create a push to rebrand themselves as energy security and resilience funds,” Nordan declared.
Climate tech startups have had a rocky year
The aftermath of a global tech downturn, rising interest rates, and mounting backlash against ESG incentives has built it increasingly difficult for climate tech startups to fundraise.
In the first quarter of 2025, climate startups secured $10 billion, down 50% from the $20 billion raised in Q1 of 2024, per PitchBook data.
Biden’s IRA offered climate companies billions of dollars worth of subsidies, tax credits, and rebates. The Trump administration is now attempting to roll back parts of the $369 billion initiative.
“Anything that relied on grants, that came out of the IRA, for first-of-a-kind (FOAK) projects, will be hit the hardest,” Nordan declared.
For example, direct air capture startup Climeworks — which received a $50 million US government grant in 2024 — laid off over 100 employees in May. Its CEO informed Bloomberg that the startup’s upcoming Louisiana plant would be delayed in light of the Trump administration’s green policy decisions.
HALLDOR KOLBEINS/AFP via Getty Images
Nordan anticipates more layoffs and shutdowns of companies that were depconcludeent on government grants.
Offshore wind and solar projects have also been in Trump’s crosshairs. While these aren’t usually venture-backed categories, the steep reduction in staff at the Department of Energy’s loan program office, which provided debt funding to clean energy startups, will have a more debilitating impact on companies in these sectors, Voyager Ventures’ Blain declared.
Still, investor appetite for nuclear fusion, long-duration energy storage, and startups building data centers more efficient has accelerated, partly due to the AI boom, which requires immense energy.
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