Assessing innovation in the nascent value chains of climate-mitigating technologies

TL;DR

This paper analyzes the early-stage investment patterns in 14 climate-tech sectors to understand how nascent value chains develop, revealing insights into innovation patterns, commercialization, and policy implications for scaling climate technologies.

Contribution

It provides a detailed analysis of investment flows and innovation patterns in early-stage climate-tech sectors, highlighting the importance of supporting full value chains for effective scaling.

Findings

Commercialization occurs in five product clusters across the value chain.

Three innovation patterns identified: emerging, ongoing, and maturing.

Investment dynamics reveal drivers like spillovers, dominant design, and flexible regulation.

Abstract

Accelerating climate-tech innovation in the formative stage of the technology life cycle is crucial to meeting climate policy goals. During this period, competing technologies are often undergoing major technical improvements within a nascent value chain. We analyze this formative stage for 14 climate-tech sectors using a dataset of 4,172 North American firms receiving 12,929 early-stage private investments between 2006 and 2021. Investments in these firms reveal that commercialization occurs in five distinct product clusters across the value chain. Only 15% of firms develop end products (i.e., downstream products bought by consumers), while 59% support these end products through components, manufacturing processes, or optimization products, and 26% develop business services. Detailed analysis of the temporal evolution of investments reveals the driving forces behind the technologies that commercialize, such as innovation spillovers, coalescence around a dominant design, and flexible regulatory frameworks. We identify three patterns of innovation: emerging innovation (e.g., agriculture), characterized by recent growth in private investments across most product clusters and spillover from other sectors; ongoing innovation (e.g., energy storage), characterized by multiple waves of investments in evolving products; and maturing innovation (e.g., energy efficiency), characterized by a dominant end product with a significant share of investments in optimization and services. Understanding the development of nascent value chains can inform policy design to best support scaling of climate-tech by identifying underfunded elements in the value chain and supporting development of a full value chain rather than only end products.