Working Paper: CEPR ID: DP18174
Authors: Giulio Cornelli; Jon Frost; Leonardo Gambacorta; Ouarda Merrouche
Abstract: Billions of dollars in private and public capital have poured into climate tech in the United States since 2005. This raises questions around the social efficiency and financial performance of these investments. We find that more private capital is allocated to technologies with a higher emission reduction potential and that investors have prioritised more mature technologies. Moreover, more private capital is directed to innovative companies as the sector matures and grows and financial frictions abate. Higher allocative efficiency of investments is in turn associated with better financial performance, both at the company level and at the investor level. US government subsidies have been allocated more to technologies attracting less private capital. Their crowding-in effect is greater when allocated to nascent technologies that are not yet patented.
Keywords: climate change; climate tech; venture capital; innovation
JEL Codes: G11; G14; G24; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| maturity of a technology (O30) | amount of capital allocated (G31) |
| allocative efficiency (D61) | financial performance at company level (G32) |
| allocative efficiency (D61) | financial performance at investor level (G39) |
| maturity of climate tech sector (Q55) | allocation of capital towards innovative companies (O35) |
| allocation of capital towards innovative companies (O35) | financial returns (G12) |
| government subsidies (H20) | private capital allocation (G31) |
| government subsidies (H20) | nascent technologies (O30) |