Hey reader,

Happy new year! We’re kicking things off with predictions from founders and investors for what will happen in the world of climate tech in 2024 — including a number of bullish forecasts on the impact AI will have on the sector.

But I’d also like to hear more from our readers about what this newsletter should focus on in the year ahead… What should we be talking about? What shouldn’t we be talking about? Email me here.

— Freya Pratty, senior reporter

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2023 was a mixed picture for climate tech. Yes, the overall level of funding fell compared to 2022, but the sector grabbed a larger portion of the tech funding landscape than ever before.

It was also the year of the “infrastructure startup” — a new breed of company building tech with a physical footprint, be it gigafactories, biofuels or next-generation materials plants. Testament to the sector’s rise is that the four largest deals in European tech last year went to infrastructure companies. 

But what's in store for 2024?

Rachel Delacour, founder and CEO of carbon accounting startup Sweep, thinks 2024 will be the year we see AI kick into gear in the sector.

“AI will transform climate action, including accelerating and streamlining the process by which emissions are calculated,” she tells Sifted. “This will enable companies to get more precise data on their ESG footprint, allowing them to act quickly to address supply-chain emissions.

“But while AI could jumpstart and scale climate data analysis, startups will need a team in place that understands the technology and can use it effectively.”

Danijel Višević, an investor at World Fund, thinks AI will also help reduce the cost of climate tech, which will help increase the speed of development, deployment and scaling. 

“The International Energy Agency will again have to revise its forecasts for the expansion of renewable energies upwards,” he adds. “As renewables are the basis for many other climate technologies, they will be able to develop faster.”

The next 12 months will also be big for governments. “Subsidies drive choices — and governments that fail to grasp the nettle will be left behind by their European counterparts,” thinks Andreas Thorsheim, founder of solar marketplace Otovo. 

Policymakers will also “begin to realise the strain the EV push and uptake is putting on grid infrastructure, following grid operators’ calls in Berlin, Paris, London and elsewhere,” says Patric Hellermann, general partner at Foundamental. 

“As a result, technology to support a more rapid expansion of the grid — particularly through intelligent sourcing and manufacturing of grid components from reliable, politically acceptable supply-chain partners — and load management will gain strong appeal and funding.”

For all of this to work, startups working on solutions will need capital at all stages. Catriona Hyland, investor at VC firm A/O, thinks we’re reaching an inflection point in Europe when it comes to funding. 

“As we move into 2024, the rollout of several new EU climate policies could see Europe take the global lead when it comes to climate tech, not only at the pre-seed and seed stage but also at Series B,” she tells Sifted.

Do you agree? Disagree? I want to hear from you. What do you think will define climate tech in 2024? Which companies should we keep an eye on? Where will the money flow? Let me know.

Funding for European climate tech was $19.1bn in 2023, a drop of just 6% on a year earlier, figures from Dealroom suggest. 

This compares to a drop of 37% across the wider tech sector in 2023, according to Dealroom data. The climate tech industry is an anomaly within the broader tech industry in that its record year for funding was 2022 rather than 2021. 

The number of climate tech rounds for 2023 was down 1,500, down from 1,700 in 2022 and 1,500 in 2021 (with the caveat that some more recent rounds may still not have been reported). The largest round of the year went to Swedish steel maker H2 Green Steel, which raised €1.5bn in September last year. 

There’s much talk about the Series B funding gap in climate tech, but data suggests that the largest dip in deal flow was at seed and pre-seed stage in 2023, compared to 2022.

Freezing coral reefs. A team of scientists is trying to preserve coral reefs by cooling them down — way down. They’re aiming to cryopreserve species of reef-building coral at -200C in order to preserve them. Coral reefs are expected to go functionally extinct by 2035. 

The Nordics pick climate tech over AI as the golden ticket in 2023.