The emissions reduction industry is potentially one of the fastest growing sectors in our economy today. A new report published by financial data firm PitchBook in September estimates that companies operating technologies that remove or reduce carbon emissions are “poised for strong continued growth,” expected to reach a value of $905 billion by the end of this year and $1.4 trillion by 2027.
According to PitchBook’s report, the emissions reduction industry will enjoy an 8.8% growth rate over the next five years, “thanks to increasing global focus on aggressive emissions targets and consumer interest in emissions reduction.”
The rate is stated to increase if there are “dramatic regulatory changes or technological innovation” during that time, the report claims.
The sector analyzed by the firm is broad but includes the so-called “green industry”, startups that capture or trade carbon dioxide, industrial and building firms with products that are less emissions-intensive than conventional ones, and land management companies that use or produce monitoring tools or low-emissions fertilizers.
The “green industry” segment comprises companies focused on decarbonizing industrial production of chemicals and raw materials. It is the highest valued sector, according to PitchBook, as it is estimated to be worth more than $400 billion and could reach $657 billion by 2027.
The report also analyzes the companies in the space of reducing emissions during construction and over the lifetimes of buildings as currently the most valuable – over $459 billion. They are anticipated to increase to $650 billion over the next five years.
The list includes building materials producers like Holcim Group and HeidelbergCement, as well as startups like green construction firm Veev and energy efficiency company Resideo Technologies.
Carbon tech startups like Climeworks and carbon trading platform Xpansiv comprise the smallest but fastest-growing segment of the emissions reduction industry, as per the report. The segment is currently valued at around $9 billion and estimated to be worth $20.9 billion by 2027.
It is also heavily supported by Biden’s administration. The tax credit support in the US for captured carbon has increased from $50 to $85 per ton for CO2 removed from smokestacks. Direct air capture projects enjoyed a 250% jump to $180 for the credit they earn per ton of eliminated carbon.
“The core risk facing the carbon tech space is in the potential for the value of carbon to shift dramatically due to changes in policy and regulation… The product of carbon tech (removing or reducing carbon) does not directly provide value – outside of some value as a feedstock for carbon utilization – and fiscal value from carbon tech activities is heavily driven by the value that legislative incentives and schemes place on carbon,” says the report.
Despite risks in the carbon tech space, investors continue to pour money into emissions reduction ventures. According to the report, 11 venture capital deals for companies like Climeworks and Carbon Clean raised $882.2 million in the second quarter of 2022.
“This far surpasses any prior quarter, with the total invested over the previous four quarters totaling only $432.1 million,” stated PitchBook in another investor report published last week.