The Funding Gap in Green Technology: A Barrier to Progress

Sustainable technology, also known as green or clean technology, addresses some of the most pressing environmental challenges. The history of green technology can be traced back to ancient civilizations where terrace farming and solar energy were used long before the advent of coal-fueled electricity. While not considered “green” back then, awareness about environmental impacts and growing efforts to reduce pollution began around the same time industrialization exploded.

Green technology, or the modern concept of sustainability, took concrete shape with the establishment of the Environmental Protection Agency (EPA) in 1970. As growing research extrapolated on the negative impacts of pollution, resource depletion, and climate change, environmental awareness pushed for developing sustainable practices and studies of renewable energy sources.  

The 1970s oil crisis can be attributed to a flurry of interest and development within green technology. After the crisis, “solar panels became more efficient, wind turbines saw widespread installation, and geothermal energy potential was explored more than ever before.”

Collaboration between countries, such as the Montreal Protocol in 1987 and the Kyoto Protocol in 1997, has helped push sustainability efforts to the forefront of government concerns. The more recent international Paris Agreement, signed in 2016, has been adopted by 196 parties in the United Nations Climate Change Conference. The Agreement aims to “increase in the global average temperature to well below 2°C above pre-industrial levels” and pursue efforts “to limit the temperature increase to 1.5°C above pre-industrial levels.”

This international hyperfocus on green energy over the last several decades should have propelled progress in sustainability efforts. However, the green sector has often been fraught with challenges that have hindered progress and effective scalability, primarily due to financial trouble. This funding gap is reminiscent of the lack of government backing in the semiconductor sector before recent incentives and investment programs pushed the industry to new heights.

Financial Turbulence: A Major Roadblock to Sustainability

The green tech sector is rife with innovative technology. Renewable energy solutions have progressed immensely over the last several years with new developments in wind, solar, and bioenergy that have resulted in greater energy efficiency, improved energy access, better energy security, optimized land use, reduced resource utilization, and economic benefits. One such technology, electric vehicles (EVs), have helped meet environmental goals while boosting the economy through job generation, low energy costs, and advances in smart automotive tech.

Despite widespread recognition of its potential, this market has faced an uphill battle securing the capital necessary to support its efforts. Pablo Valerio writes in his article Lack of Fresh Money Threatens Green Tech Sector that “the number of renewable energy companies filing for bankruptcy with debts exceeding $50 million has reached its highest level since 2014,” as seen in Bloomberg Data research.

Unfortunately, lack of funding is not uncommon in the history of sustainable technology. Green technology requires a lot of money; investors and consumers alike face sizeable initial costs before savings start to roll in. Current economic challenges and long development times have contributed to a reluctance to invest in such companies and products.

Unlike other technology sectors, like software startups, which can scale quickly with minimal costs, green technology companies require extensive investments while facing unpredictable market forces. With fluctuating energy prices and dependence on regulatory bodies prone to political shifts, investors, such as venture capitalists, aren’t keen on making significant upfront investments without a promised return.

Likewise, renewable energy companies and other green tech organizations heavily depend on government policies, subsidies, and incentives to remain profitable during their long development times. However, delays in federal support, such as tax credits, have left many businesses without a sufficient financial buffer during times of economic stress, leaving them vulnerable to bankruptcy.  

Valerio states, “The “missing middle” problem in private fundraising has also contributed to this crisis. While start-ups often receive initial funding rounds, many green tech companies struggle to secure the capital needed to scale their operations to commercial viability. This gap leaves companies vulnerable, especially those with high burn rates and no clear path to profitability.”

Impact on Companies and Countries

The need for sustainable technologies could not be greater. Since the passage of the Paris Agreement, countries and companies have been pushing for greater adoption of renewable energy and sustainable practices. However, lacking investment support has impacted research and development, commercial viability, and the prioritization of short-term profits over long-term sustainability goals.  

Looking at EVs, one can see this struggle in real-time. Despite efforts to push for greater adoption of EVs worldwide at federal and corporate levels through legislative measures and automakers attempting to go all-electric, many are pulling back on their EV ambitions.

Many of the challenges impacting the adoption of EVs over gas-powered vehicles relate to the broader problems affecting the entire green energy sector. Without the funding required to power sustainable tech endeavors, major industries can fall behind, ranging from poor competitive pricing to stifled innovation.  

For EVs, the high initial cost on consumers, long charging times combined with an overtaxed power grid, and unwinding government subsidies scare consumers off these purchases. Furthermore, in Valerio’s article, Rob Picken, Senior Vice President of Digital Transformation at Sourceability, shared that the proliferation of electronics via digitalization and increased interest in artificial intelligence is exacerbating the energy crisis, making renewable energy and sustainable technology an even greater need.

“At the moment, there is massive proliferation of electronics and, more importantly, high power, high capability electronics into multiple industries, not least of which are power grid and infrastructure, but also infotainment,” said Picken. “This isn’t just a consumer issue. It’s also a government policy issue. [New fabs funded under CHIPS acts are] are coming very quickly, but at the same time, you’re layering in other aspects which are also going to be extremely hungry for power generation and for other resources like water, for example, for cooling.”

If nothing is done now, the lack of support in the green tech sector will have far-reaching effects that go beyond meeting climate goals.

Parallels with the Semiconductor Industry

The funding struggles of green technology echo the challenges seen in the semiconductor industry. Over its long history, electronic components have experienced funding issues that green tech is still grappling with. For example, in the United States and the European Union, domestic semiconductor manufacturing slowed down as it was outsourced to East Asia due to cheaper labor and material costs.  

This caused a steep drop in geopolitical diversity in manufacturing locations, with East Asia becoming the dominant location. As semiconductors began to grow in use, thanks to increased interest in digitalization and smart technology, they rose in importance to play an essential role in a country’s national security and economic success.

When the global pandemic occurred, and the semiconductor shortage followed, countries quickly realized how a lack of support and funding had contributed to a lack of manufacturing diversity. Governments quickly started formulating plans to provide direct funding, subsidies, and other incentives to encourage the development of domestic semiconductor manufacturing. This shift was pronounced in the U.S., EU, India, and China, which have collectively seen billions invested in programs dedicated to promoting semiconductor manufacturing and research and development.

Sustainable technology promises to be just as influential and essential to the future just as domestic semiconductor manufacturing is. However, the future of the green tech sector cannot be left to marketing forces alone, as sometimes prioritizing what is cheap now does not ensure success in the future.  

Corporate and Government Intervention

The semiconductor sector’s current success demonstrates that government intervention can catalyze exponential growth if done correctly. There have been stumbling blocks, of course, as delayed CHIPS Act funding did derail some efforts, but the overall success in reinvigorating the semiconductor industry has been tremendous. The same can be true for sustainable technology, especially since governments have long recognized the importance of sustainability.  

The same model could and should be applied to green technology. A coordinated effort by governments worldwide to invest in developing and scaling green technologies could unlock the industry’s potential. Likewise, collaboration between green tech companies, instead of only letting the large survive, will allow for greater exploration of new ideas without risking reduced competition.  

Tax incentives for companies and consumers have always been an important steppingstone for green technology adoption. They helped draw initial interest in EVs, which often have a higher price tag than conventional gas vehicles. Unwinding these efforts will likely scare off companies and customers who shy away from the significant initial cost, as it takes time for the cost savings to become visible.  

Similarly, long-term policies can give interested venture capital investors more confidence in supporting green start-ups. They also offer stability for new green companies to develop, as uncertainty over quickly changing politics will be mitigated.  

Lastly, climate change is a global issue, which means it requires global cooperation. International treaties like the Paris Agreement are a great first step, but it can be difficult for countries to keep up if they lack the wealth others possess. Fortunately, steps are being taken to resolve this issue. The upcoming COP29 climate summit plans to address this problem, with developing nations demanding more substantial commitments from developed countries to help.  

Promoting public-private partnerships through public research institutions and private companies, with shared financial and technical resources, can help fill the gap. This can also be seen in the semiconductor industry, where manufacturers partner with state governments and universities to train the next generation of technicians and explore new technologies for more sustainable chip designs.  

Working Together to Overcome Issues

Achieving sustainability goals will only be possible if the green technology sector overcomes its current financial challenges. Government and corporations must support efforts to fund sustainable technology endeavors as early proponents and adopters of change.  

Just as governments recognized the importance of semiconductors and provided aid, the same level of commitment is required for sustainable technology. If countries worldwide want to meet the goals set forth by the Paris Agreement and, in turn, explore new avenues of innovation that can benefit numerous market sectors, steps must be taken now.  

Using the latest semiconductor investment programs as a guide, governments and companies can avoid problems that hindered progress in the CHIPS Act while strengthening its advantages. Cooperation will be necessary at all levels to overcome the issues that have been plaguing the green tech sector for decades.  

To get started, companies should look for ways to streamline the entry of green technology. One problem area that will need fixing for renewable energy to flourish is the current struggles around power grid infrastructure. As dependence on renewable energy grows, power grid infrastructure must change.  

Sourceability can help organizations move toward more sustainable practices by assisting them in obtaining the components necessary to update old systems in readiness for the integration of green tech. Sourcengine, Sourceability’s global e-commerce platform, and its sales and procurement experts worldwide can help any organization source the products for its next sustainable solution.

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