Climate Tech is Making Europe More Resilient to Energy Shocks

Will the Iran War finally be the moment where countries move to renewables en masse, or will they rely more heavily on fossil fuels?

This week on Zero, Akshat Rathi is joined by Aurore Belfrage, a tech investor, geopolitical risk advisor, and sustainability strategist, to look at how the energy investment landscape is changing with a fresh war in the Middle East, and how climate tech is making countries more resilient.

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Akshat Rathi

Welcome to Zero, I’m Akshat Rathi. This week, climate tech is resilience.

In the weeks since the US and Israel began its war on Iran, we have seen oil and gas prices spike around the world. Iran has responded in kind, blocking the vital oil and gas artery that is the Strait of Hormuz and attacking oil and gas infrastructure across the Middle East. The war has led many to question in which direction the global economy will turn and how will it continue to power itself? Will this finally be the moment where countries move to renewables en masse, or will countries deepen their relationship with fossil fuels?

As ever, we are hearing loud voices on both sides. Last week, fossil fuel executives met at the major CERAWeek energy conference in Houston, where many said this is exactly the moment for the US gas industry to shine, providing reliable supply for the world. At the same time, the stock prices of Chinese electrotech firms have gained more than major oil companies since the war started, signalling that the market sees a more optimistic future for climate tech.

To talk about all this, I’m joined by Aurore Belfrage, a tech investor, a geopolitical risk advisor, and sustainability strategist. She is the founding partner of the investment firm and think tank, SusTechable. For a climate tech investor, she’s a broad thinker and brings a European-focused lens that isn’t often given the same weight. If you have feedback for the show, guest suggestions, or anything else, please write to us at zeropod@bloomberg.net.

Akshat Rathi

Welcome to Zero, Aurore.

Aurore Belfrage

Thank you for having me.

Akshat Rathi

So we met in February at the International Energy Agency’s conference on energy innovation in Paris, and we had a great discussion. Your comments, especially to some of the European politicians, were on point and got the discussion going in a really good way that morning. But in the past month, we’ve had a war started.

So I want to touch on investment trends and climate tech in Europe, but let’s briefly look at what’s happening in the Middle East, because you’ve had a wide-ranging career in finance, venture capital, private equity, family offices. And throughout that, you think about how risk affects investments. Geopolitical risk is one of those layers. So given what’s happening with the US and Israel attacking Iran, there is a huge impact on energy markets. How has your risk calculus changed? And crucially, has that affected your investment decisions in any way today?

Aurore Belfrage

Well, I’d say that, I mean, it’s not hyperbole that we’re in unprecedented times and we have multiple threats and opportunities to analyse. And this is, I think, adding a sense of urgency to many of them. And the question of the energy transition has gone from the one priority to being all-encompassing. But your question is, has that impacted risk? And I’m assuming that your underlying question is, has that impacted how capital flows to this type of innovation? And as you know, right now, we’re in the phase of big headlines, big emotions. So I think it’s hard to tell exactly right now how it will impact it. But my guess is that it will catalyse capital flow into energy innovation that will strengthen European energy sovereignty.

Akshat Rathi

This is a second energy shock within the last decade. Russia’s attack on Ukraine caused Europe specifically a lot of stress because of how much gas came from Russian pipelines. And it forced Europe to act on a very short turnaround. And it did so in ways that would replicate a previous energy crisis response, which is to try to get fossil fuels from somewhere else for whatever price that they could afford, try to cut use of energy, which happened in good and bad ways, industries shut down, but also households started consuming less energy. And it did something that was different: It really did speed up clean energy deployment. What do you think Europe can do now that it has this practise of trying to speed up energy transition specifically now? What can it do to speed it up further, diversify further?

Aurore Belfrage

Well, we’ve gone from plan A to plan B to plan C. So I think we’re moving along the contingency plans and there is a positive element in that. And obviously, the war isn’t one of the positive impacts, but hopefully that allows Europe in its analysis to realise that the ultimate plan needs to be European. We need to supply our own energy. And what I find astounding is we’ve known how to do that for a while. It’s not a secret contingency plan that someone’s now presented. We know that we are able to supply ourselves in Europe with solar, with wind, with battery capacity. I’m personally invested in geothermal, wave, tidal, etc. So I think it won’t be that difficult to put this in motion because the technology exists. Entrepreneurs have been building in the space, but we’ve seen a slight hesitancy from policymakers, but also from capital. And hopefully that will change now, allowing many of these technologies that have just been waiting in terms of timing to now flourish.

Akshat Rathi

So let me come back to climate tech, but there is a dynamic we should address before we get into the investment trends in Europe, which is that Russia, Ukraine, this war in the Middle East, Trump’s attack on Europe are forcing Europe to have a strong desire now to rearm. And many of the ESG funds, these environmental, social, governance funds that were important in investing in climate tech, are now opening themselves up to invest in defence orientated companies and technologies. Is that bad news for climate tech because limited money is getting diverted?

Aurore Belfrage

No, not at all. I would say climate tech has always been resilience tech, if you want. We’re now re-skinning ourselves. So many of the portfolio companies that I work with, they would call themselves something. And the buzzword du jour is demonstrating how this type of technology also is a defence security and resilience. But it’s not fundamentally changing anything in the actual technology.

It has always been about defence and resilience. And I think this scenario that we’re facing is just allowing new buckets of money to understand that what was called climate tech isn’t some sort of boho experiment and some sort of trendy green tech that it’d be nice to have. It’s also part of the security apparatus. But I’ve been thinking about something that I’d like to discuss with you when it comes to this, when it comes to defining climate tech versus defence tech. As policymakers, but I’m looking at myself as an investor, we’re all trying to predict the future somehow. And I’m not aware of anyone that has the actual crystal ball.

And we are rearming, as you’re saying, and we’re investing in defence as a security measure against a threat. And this is ultimately a probability challenge. The likelihood of an invasion is mathematically somewhere between one and zero. And in recent times, we’re concerned that this is closer to one than before, so to speak. And there is also potentially a threshold where we increase investments and that acts as a deterrent. And this is not my field, so I’m going to stay in my lane and observe. But if we analyse the same investment thinking regarding climate, which also has a probability between one and zero, and there are massive amounts of data and scientists that have a fairly good grasp on future scenarios as we overconsume and exceed our planetary boundaries. And it ain’t pretty. And here’s my question to you.

Why is the sentiment around climate investment, ‘it’s too expensive?’ And I’d argue that the probability of disaster is high. And I don’t want to go in and compare because it’s not a competition. But why in the defence investment, it’s justified as some sort of threat deterrent, an essential security measure, measurement, it’s life and death as it should be. However, climate requires a return on investment and it needs to strictly adhere to the rules of the market and it needs to make financial sense only. And I find these two separate ways of thinking in similar tech hard to understand. And I’m sure there’s a smart reason, but I just don’t get it. How do you see this?

Akshat Rathi

Well, it’s a good point. I was thinking about Bloomberg Green’s launch, which happened in January 2020. You know, Bloomberg was making this big bet on the desire that people have to read more coverage about climate and climate solutions and how governments and investors are thinking about this big challenge in front of us. And just about then, of course, the pandemic happened and we were all locked down. And there was a moment of sort of reflecting inward as the Bloomberg Green team was being put together like, oh my god, you know, we were going to focus on this big, important challenge, but now the world is going to be focused on a pandemic. Like, you know, what will people want to read about?

And it turned out, actually, people wanted to read more about climate change at that moment because the pandemic was sort of showing you there’s this big global challenge that because we did not do enough about, now we are suffering and climate is something we have understood and we actually can do something about. And we saw in your investment world a huge boom in climate tech investments in 21 and 22. So when I was reflecting on that in this current moment, it actually turns out that if anything, in this six-year period, technologies have only gotten better. Green technologies have only gotten cheaper. And so now that this crisis is upon us and it’s a very different kind of crisis than the pandemic, but it is focussing the reader’s mind on the war because of the uncertainty, because of the price of energy.

But the overall way to react to this in the climate space will be to try and speed up the deployment of these technologies, which have become easier to get and cheaper to build. And the reason I think we don’t treat it as equivalent to, say, investing in the defence technologies that are necessary, is the human timeline on which these crises play out. The pandemic was a live crisis playing out within a year or two years. The war plays out over months and maybe years.

Whereas climate change is a decadal challenge. And so you tend to lower it in the priority list because, yes, we will have to deal with it, you know, even after the war is over, even after the pandemic is over. And it is certainly not being treated with the same urgency. So that’s my observation of how I’ve seen, you know, investors and politicians treat this challenge. What I will note is that in the background, most of them do not start ignoring climate, even if they might put it down the priority now.

Aurore Belfrage

And I agree with that. I think especially many energy intensive industrial players know that this calculation isn’t changing. The physical environment is changing. There’s an insurance play on that. My physical assets are at risk. My energy cost is increasing. Many key players that are affected are continuing to double down on climate, both in terms of an investment. But the general mood still fascinates me because when it comes to defence and the pandemic to a degree, the return on investment wasn’t important. We weren’t talking about it in terms of an investment that needed a return.

It was a crisis in life and death. And this crisis, the climate one, you’re not allowed to talk about it in those terms. You have to show a return on investment on every dollar spent or every crown spent. And that’s one of the things that we talked in Paris about, which I find fascinating, which is how do we create a political environment where we calculate two separate calculations? One is the cost of investment. And there I will come as a private investor in private capital and family offices, etc. And then in parallel, you compare it to the cost of inaction. What happens if we don’t do this? And you need both those numbers in order to take decisions.

Akshat Rathi

So the idea of the framing of a climate emergency was trying to do that thing where it wanted to put climate on the same moral footing as the idea of defence or dealing with a pandemic. But maybe that’s the moment to then look at this wider trend that you have been an investor for the last decade.

You have invested mostly in European companies, independent of what’s happened in the US. And we will come to the US because it does impact how you think about Europe. But independent of the US, what have you seen in the last decade of investments in climate tech in Europe? Because we went from a period where governments were very keen on subsidising these green technologies. As a result, the investors were seeing return on investment, to then yanking those subsidies as Germany did and Spain did for solar to then losing those solar companies to China. But just broadly in climate tech, how do you think the trends have evolved in your 10 year period in Europe?

Aurore Belfrage

Well, luckily, investors and entrepreneurs and researchers are different species and they work on different timelines and they have different missions, which is a good thing for both for investors such as myself, but also for humanity, which means that all those things that you talk about are macro scenarios. It’s policy, it’s yanking money back and forth, etc. And the undercurrent of mission driven, bright PhD students, professors, entrepreneurs solving problems is that they’ve actually powered through all of this.

And sometimes life becomes easier because policymakers go, ‘oh, this is exciting.’ And then suddenly life becomes harder and it’s called a winter of some sort and policymakers aren’t that interested, which also has advantages because then you can build free from all the headlines and free to build as you want and make some mistakes. So if I look at it from, I tend to be an early stage investor. I work closely with the universities and labs and what’s coming out of research and applied research. And there, the understanding of the general problems which creates opportunities has been relatively steady.

Many of the things that I invest in aren’t flashes in the pan. It is four or five, 10 years of research and dedicated brains are continued to be dedicated. So I wouldn’t say that we see that type of up and down waves when it comes to what’s actually coming out. But it affects it, of course, which is what you’re implying. Money allows you to scale quicker. It allows you to recruit. It allows you to test it in a different phase. And I’d love to hear your thoughts on the US versus Europe, because scaling and throwing money at something has its advantages.

Akshat Rathi

It’s a good moment to bring the US in because the country just seems to swing between wanting to do something about climate to trying to meddle with anyone trying to do anything on climate these days. And yet it remains the hub of climate tech. Most of the climate tech startups are still in the US.

The amount of capital available in the US is just so much bigger. And how that capital flows has an impact on Europe. After the Inflation Reduction Act was passed under Joe Biden, there’s all this fear in Europe that European startups are going to have to go to the US now because clearly the money is going to be there. And maybe we saw one or two companies, but not really that many move.

And now, of course, with all that reversed, the Inflation Reduction Act has been decapitated. It’s been reversed by an attack on clean energy. The latest headline is, you know, the Trump administration is actually going to buy out licences from Shell and Total Energies that want to build offshore wind so that they’d never get to build them again. So in this swing that happens in the US and yet the fact that there’s big capital there still, how does that affect your climate tech investments in Europe?

Aurore Belfrage

Well, it depends on which hat I’m wearing. And if you talk about that from a European geopolitical perspective, there’s a massive opportunity. The underlying trend is the same. We are moving from a fossil economy to a fossil free economy. Will that take two, three, five, six, 10, 15? I mean, it is ultimately the main trajectory.

And this allows Europe to re-establish itself as a hub for that time of climate tech. And it’s an opportunity for family offices to invest, for venture capital to jig how their statutes are built in order for them to be more aligned with the actual timelines of how this type of investment pans out. I’d argue, and I’d argued in a book that I’ve written two years ago, this is a massive geopolitical opportunity.

As we exchange the fundaments of our economy to a fossil free platform, that is the lever and the next chapter of our economy, of the human existence. And the players that are moving the fastest have a massive opportunity. I’m not sure Europe is leading yet. And I look at China, who’s leaning into renewables and the energy transition. But however, the US taking a bit of a pause currently allows an opportunity for Europe. However, if you give me, if you ask me as an investor, that creates a predicament for my European startups, because it’s easier to raise capital in the early phases in your local market with local investors.

Akshat Rathi

After the break, will countries return to coal? Or will we see a surge in interest for clean energy? If you’re enjoying this episode of Zero, please take a moment to rate and review the show on Apple Podcasts, YouTube, or Spotify. It helps new listeners find the show. Thank you.

Akshat Rathi

If we again take the last 10 years, the first Trump term was negative for climate tech, but only mildly. Then of course, this Trump term has been much harder, because there was an upswing in all the Inflation Reduction Act stuff, and then that money was yanked. We have seen that companies are having to adapt to this landscape in the US. And they are doing it in the way a crisis would unfold. Companies are doing layoffs. We’ve reported on green cement startup Sublime, green steel, Boston Metals, direct air capture: Climeworks, even battery metals recycling, which, you know, through all the climate tech seems to be one that people are interested in — even Redwood Materials has seen job cuts in the past 12, 24 months. Many have gone bankrupt. Sodium ion battery startup Natron, solar company Sunnova, battery maker 24M. If this is an opportunity for European investors, does that opportunity also mean going out and trying to get existing startups to maybe come to Europe or trying to invest in them? Or is it a warning for European startups that, look, this kind of thing will happen to you as well, because it is US capital that is starting to pull out, which is a major contributor in this space?

Aurore Belfrage

I think it’s an excellent question. However, it’s industry specific. I think from a transition point of view, I’d like us to acknowledge that we’ve moved into another phase. Between the pandemic and now, we saw a massive increase in innovation. The smart PhDs that I was talking about created a lot of technologies that allowed us to use energy in a more efficient way, industrial applications, actual renewables, etc., etc. And now we’re entering another phase, which is scaling that.

And that is where we understand that we need to use our time and efforts to create demand and maybe even subsidise that demand or think about that in a different way, allowing the tech that we have to scale. And here is where Europe has an opportunity because that technology exists. We have industrial players and we understand the transition timeline. So I would say, sure, this is an opportunity to lure startups to Europe. But from a transition point of view, I’d say the big opportunity is now for private equity, infrastructure, capital and public procurement to realise their time is now.

Akshat Rathi

No, that is a very good point. I mean, the list of companies that I mentioned, many of them have failed at that moment of going from having proven the technology, working at a demonstration scale to really wanting to build a factory to install or to manufacture the types of things that are needed. And that requires this different type of capital that needs to come in and different types of offtakes that need to come in.

So the European Industrial Accelerator Act, which was, you know, put in place in some way as a reaction to the Inflation Reduction Act, as a reaction to this big report on European competitiveness that was published by an Italian politician and former central banker Draghi. And that act is now at least in proposal form being published in Europe. And it promises a bunch of things that you talked about.

It says it’s going to have procurement requirements for things like cement and steel. It’s going to have at least €100 million worth of funds for non-European countries that are, you know, major players in the space outside, maybe electric vehicles, maybe batteries, maybe critical raw materials that Europe doesn’t have. It is looking to, and this phrase I always hate, but mobilise €100 billion worth of support for European made clean manufacturing. What have you made of the Industrial Accelerator Act? Is it good enough or is it coming too slow? What kind of impact will it have on European climate tech companies?

Aurore Belfrage

Well, I don’t want to spend an hour moaning about the speed, the glacial speed of us absorbing the Draghi report and then producing something. So I think my sentiment is clear and let’s move on to the actual content of it. And I find this procurement challenge slash opportunity fascinating because it’s an easy word to say. Let’s mobilise European procurement. And it sounds very reasonable. But if you break that down, where does procurement happen? By whom and how? What’s the culture? What’s the DNA of the people that publicly procure?

And still the procurement legislation environment was built for a different time. And that, the Northern Star was, we have to be prudent with taxpayers’ money. And when you say that sentence, please be prudent with taxpayers’ money. Yes, of course we should be prudent with taxpayers’ money. And the subtext to that is you buy robust and tested technology.

You don’t test, you don’t buy innovative things. You don’t buy things that are new off the shelf, you know. However, in this current climate, buying robust technology means that someone else has tested it. The market has created it. And you are by definition five, six years behind it being built. And you have openly said, I don’t want to be in the driving seat. Someone else is in the driving seat and I will buy it later. You’re too slow. But two, more importantly, you don’t get to impact the artificial intelligence that’s being built as a foundation of it.

The values that are important. You don’t get to have a say in how it fits your infrastructure, et cetera, et cetera. I mean, I can do a long list. You get the picture. And I think that’s where we need to have a public debate around how do we, as bureaucracies and policymakers and procurement institutions, adopt some sort of venture capital entrepreneurial spirit and iteratively build with them. And we have no experience of doing that. And I think that’s the challenge. It’s what’s stated in the document makes sense. But now implementing it requires a massive change in how we procure.

Akshat Rathi

I think it is a good point. I mean, we talk about numbers and we talk about trends, but there is an aspect of this that is so human in our world of artificial intelligence that we cannot quantify it, but we know it makes a difference, which is your attitude as an entrepreneurial, not just startup, but as an entrepreneurial state, your attitude towards risk taking and towards prudency.

Aurore Belfrage

Things break.

Akshat Rathi

Yeah. And you go to America and being a startup that goes bankrupt is sometimes seen as a badge of honour. You tried something really risky and you failed. Great. You go to Asia and you have this energy where there are huge amounts of challenges because the government doesn’t work. And yet there is this desire for people to want to make things and benefit from it. In Europe, that attitude change hasn’t come yet. And maybe these crises will force people to do that. But if we take an aspect of this, which you have invested in, which is geothermal, how do you think that attitude of risk and entrepreneurialism, prudency is playing out in that technology today?

Aurore Belfrage

Well, everyone loves to quote Churchill, ‘never waste a good crisis’, and I’ll do the same. And I think this is an opportunity here because there is a sense of urgency, costs are increasing. There is a green arms race, so to speak, in terms of energy. And as we were saying, we’re now into the contingency plan. Europe needs to build its own energy. And geothermal is a massive opportunity. We’re literally standing on a battery.

Akshat Rathi

But apart from Iceland, where we know there is just really attractive geology that allows you to deploy geothermal at scale and really make it very cheap and actually turn Iceland from a developing country into a developed country. Where else in Europe is that opportunity there? Does the geology not matter? Is the technology advanced? And are we taking the risk to actually deploy it in Europe?

Aurore Belfrage

So Turkey is another market that’s come quite far when it comes to geothermal. But I think more importantly, the last 10 years, quietly in labs in Europe and the US, we’ve seen innovation. And I think it’s important to break down the different aspects of geothermal. Iceland knows how to transform heat into electricity. So everything that’s above ground is a commodity, so to speak. We don’t need any innovation there. We also know how to drill. We’ve been drilling for ages and we have all the infrastructure there, not least the oil and gas industry, the rigs, the hardhats, the geologists, etc.

The missing piece has been cost-efficiently drilling through the hard rock. And there we’re seeing some really interesting companies, both in the US and in Europe. And I have an invested interest in some of them. And this allows us to use conventional drilling and a whole industry and just adding a few elements that will decrease cost.

But your question wasn’t necessarily about the technology, which I would say is here now. It’s about are we willing to take risk? And here, I think the current crisis will force us to take risk. And we will come out on the other end happier and more sovereign and energy rich for it. Because we’re seeing energy intensive industries in Europe going to their local policymakers, requiring a certain amount of energy that their local grids can’t provide. And they’re also saying, I want to know that it’s green renewable energy. And the local grids become even more stressed, realising that they cannot provide this. There’s a supply issue. And my prediction, hot take for the next 10 years, is we’ll see industries create their own off-grid solutions with geothermal.

Akshat Rathi

Yeah, and we’re starting to see that, at least in the AI data centre space, where just given how much capital they have and how much desire they want for electricity, they are starting to deploy their own off-grid solutions, which tend to be right now gas heavy, but maybe it also becomes renewables because that is easier to build, if not in the US and other places.

Aurore Belfrage

And Europe can’t afford that many of these companies saying, ‘adios, we will build somewhere else.’ We will see that the lack of supply will need to meet the current demand, both in terms of, we need to keep the jobs in Europe, we need to keep the sovereignty, we need to keep the data centres, etc. So I foresee the next five or six years, we will see a massive deployment of geothermal in Europe. And I’m not the only one saying it. We’re seeing it in many other markets and the international energy agencies also rejigged their analysis and predicted this would be 15% of the energy mix by 2050.

Akshat Rathi

Asian countries have been relying on Qatari liquefied natural gas. So is Europe now, given it’s getting, or at least wanting to get more Qatari LNG in a gas crisis. We know that fuel switching happens for countries that can fuel switch, which is going back to coal and coal emissions do go up. We see that happening in Asia. We might even see it in Europe, because there are still huge amounts of coal power plants in Germany and in Poland. What can be done to try to stop coal from coming back and increasing European emissions in this gas crisis?

Aurore Belfrage

We talked originally about the need to have a return on investment on every aspect of climate investment versus defence, which is simply life and death. And I don’t mean to be flippant. But if we look at the market at play, when it comes to climate technologies, there is a case for a return on investment of all of these things that we’ve talked about. As an investor, I’m not that worried. I’m very excited about the opportunity of how we’re building back and building a fossil free economy. However, there are market failures that we also could correct to catalyse. So to answer your question, if we speed up putting a price on carbon and greenhouse gas emissions that will allow us to make the calculation quicker, forcing innovation, forcing scale up and adoption, because as long as we don’t do that and we have this gaping hole in the equation, it makes sense to switch to coal.

Akshat Rathi

Yeah, and that is something that the European Union is now under force to try and revise, to try and add more permits in the European emissions trading system so that the price can be lower, which might actually allow more coal to come through the system. This is the moment where politicians have to stand up for principles and for longer term thinking, despite the crisis in front of us.

Aurore Belfrage

But it’s also a market correction. I think we have to see it as that. If we are very strict and prudent about applying market rules to the climate transition and we want a return on investment, we can’t have an externality like greenhouse gas emissions, and also we can’t have massive subsidies to the fossil industry. Both these things need to be corrected.

Akshat Rathi

Thank you, Aurore.

Aurore Belfrage

Thank you very much for having me.

Akshat Rathi

And thank you for listening to Zero. Now for the sound of the week. That is the sound of the white-tailed eagle, once extinct in the UK, but now growing in number, thanks to successful reintroduction campaigns across the country. If you liked this episode, please take a moment to rate and review the show on Apple Podcasts, YouTube, and Spotify. This episode was produced by Oscar Boyd. Our theme music is composed by Wonder Lee. Special thanks to Sommer Saadi, Laura Millan, and Sharon Chen. I’m Akshat Rathi, back soon.