DECEMBER 20, 2023

Good day!

In today’s edition: Bill reports on how Japan’s burgeoning VC industry is taking on climate, Amena charts the drop in venture capital investments on a global level and we have a Voices article on a novel climate visa program.

Listen up! I talked about COP28 takeaways on the podcast by Harvard University’s environmental economic program.

Cipher is taking a publishing break next week. We’ll be back in your inboxes on Jan. 3. Happy holidays!

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Illustration by Samson Awosan.

Japanese venture capital takes up climate finance

BY: BILL SPINDLE

TOKYO — On a recent Sunday afternoon at Japan’s top university, a building full of students and recent graduates was buzzing about climate tech.

A panel of executives and company founders debated funding mechanisms for startup companies in front of a full auditorium. In another space, participants filled rows of temporary chairs to watch presentations on sustainable investment. Between the two, a “networking zone” brimmed with dozens of students, corporate analysts, professors, even a local politician, furiously swapping business cards.

Rising concern about climate among Japan’s youth combined with a burgeoning enthusiasm in traditional corporate Japan for clean technologies has led to a new focus on venture capital and startups. The startup scene is a new element of potential change in Japan’s efforts to jump-start an energy transition.

“Young people are interested now. In just a few years it’s become a very hot topic,” said Akira Fujii, a 41-year-old elected councilman from Machida City, a suburban enclave on Tokyo’s fringes, as he mingled among hundreds of students and graduates at Tokyo University, an institution with a stature a little like Harvard, Princeton and Yale universities all rolled into one.

To those steeped in the venture capital culture of the United States or even Europe, a youthful crowd debating climate finance on a weekend might not seem so exceptional. But it reflects an astonishing shift within just one generation since the 1990s.

Japanese startup funding has grown rapidly over the past decade, reaching 877 billion yen (about $5.8 billion at current exchange rates) last year, according to government statistics. Though that tapered off in the first half of this year as the global VC industry stalled in the face of higher global interest rates, there’s still been a nearly ten-fold expansion of the industry in Japan in less than a decade.

While the industry is still tiny compared to the size of the venture capital industry in the United States or the European Union overall, it’s now on par with other major industrialized countries such as France or Germany. Cleantech startups were the third most active sector in the Japanese VC industry in the first half of this year, up from sixth last year, according to INITIAL, a consultancy that tracks the industry.

Back in the 90’s when I was living in Japan and working for The Wall Street Journal, I wrote a story about a young executive, Yoshito Hori, who left old-line trading company Sumitomo Corp. to launch his own startup company, a business school he called GLOBIS University. The school touted a unique curriculum focused on entrepreneurship.

In those days, voluntarily leaving the comfy confines of corporate Japan was heresy. Hori’s move stunned his colleagues, college classmates and even his parents. The Wall Street Journal considered Hori’s move — the sort of thing routinely celebrated in Silicon Valley by this time — so unusual in the context of Japan’s hidebound salaryman culture that my New York-based editors splashed the story on page one.

Flash forward a quarter century and not only is GLOBIS flourishing, but Hori is also running venture capital funds of his own.

“There is a lot more venture capital money around, including independent investment firms with real capabilities and numerous angel investors who have made money in startups,” Hori told me in a recent catch-up decades after we first met. “The best and the brightest are eagerly wanting to become entrepreneurs.”

Despite decades of economic stagnation, Japan remains among the largest industrialized economies in the world, as well as the world’s fifth largest greenhouse gas emitter. While the country has excelled in energy efficiency — a necessity for a nation that imports nearly all its energy — Japan is now turning its attention to innovative decarbonization strategies such as hydrogen and carbon capture.

Read the full article on Cipher’s website.

Lunchtime Reads and Hot Takes

Energy Crisis Grips Pakistan After LNG Traders Left Country in the Cold — Bloomberg
Bill’s take: Natural gas proponents often tout internationally traded natural gas as an inexpensive and secure source of energy for developing economies. Pakistan discovered it was anything but that.

EU warns countries are off track for 2030 climate goal — Reuters

Anca’s take: The EU is known internationally as a climate champion, but domestically it is struggling with similar issues as the rest of the world: continued fossil fuel subsidies and prolonged use of coal.

Two former Department of Energy staffers warn we’re doing carbon removal all wrong — MIT Technology Review

Amy’s take: I wonder if it can be both treated as a public sector good and driven by private-sector profits. Traditional waste management companies, for instance, must make a profit within the broader public sector construct.

UK to implement carbon levy on imported goods by 2027 — Reuters

Amena’s take: Britain's measure is clearly protectionist as it has the backing of its steel industry, which fears the diversion of high-emitting products from EU to its markets.

EU’s green funds are under the guillotine — POLITICO 

Anca’s take: The potential cuts are a foreboding signal of Europe’s mounting struggle to source the massive investments needed to hit its climate goals.

What abandoning fossil fuels could look like in the Arab world — Grist

Bill’s take: The Middle East’s importance is likely to grow, not shrink, as the energy transition proceeds, though the key players could prove to be in North Africa rather than the Persian Gulf.

Global coal use at all-time high in 2023 — Reuters

Amena’s take: Coming on the heels of COP28 where everyone agreed to "transition" from fossil fuels, this report illustrates the chasm between the EU and the U.S. and the Asian countries on use of coal.

Will the End of Fossil Fuels Spoil the Lucky Country’s Streak? — The Wall Street Journal

Amy’s take: Wow, the chart showing the country’s coal and natural gas exports is wild! I had no idea this boom had occurred, though it does make sense given the Russia-Ukraine war.

Key outcomes agreed at the UN climate talks in Dubai — CarbonBrief

Anca’s take: Love the comprehensive breakdown of every topic that was on the "menu." Useful read for anyone keen to dive into the details now that the dust is beginning to settle around the main fossil fuel news.

More of what we're reading:

• Coal Financing Is Still Booming—Led by China — Bloomberg

• COP 28 president says his firm will keep investing in oil — The Guardian

• Airlines are trying to curb the climate warming impact of contrails — The Washington Post

• Carbon price tumbles as investors fret over ‘weak’ impact of COP28 deal — Financial Times

A climate work visa to unlock global cleantech talent

A late nineteenth century depiction of an ocean steamer of European immigrants passing the Statue of Liberty in New York harbor after crossing the Atlantic. Image credit: Keith Lance via Getty Images.

BY: HARSHITA MIRA VENKATESH

Venkatesh is a mid-senior business development professional with extensive experience commercializing early-stage climate technologies, especially in hard-tech/deep tech. She recently graduated as a Business Fellow from the Breakthrough Energy Fellows program. You can reach her at harshita.mvenkatesh@outlook.com.

A shortage of skilled professionals entering the manufacturing space in the United States and Europe poses a significant challenge for startups and new companies in these countries trying to decarbonize key industries, like cement and steel production.

In contrast, countries such as India, China, Nigeria and others are experiencing a surge in industrial engineering and manufacturing graduates. India alone produces 1.5 million engineering graduates each year.

To bridge this talent gap and accelerate global efforts toward a greener future, the Global North, including the U.S. and Europe, should implement a climate-focused visa program.

Manufacturing employment in the U.S. has declined by about 7.5 million jobs since 1980, according to the U.S. Bureau of Labor Statistics. This skills gap in U.S. manufacturing could result in over two million unfilled jobs by 2030, according to a study from Deloitte and The Manufacturing Institute.

It’s not just the U.S. In the United Kingdom, 85% of businesses in the manufacturing and engineering industry are facing an acute shortage of skilled workers. And 43% of manufacturers in Germany also reported skilled worker shortages, according to a 2022 survey.

Meanwhile, the global demand for steel, cement and other manufactured goods is expected to increase significantly in the coming decades, likely resulting in a proportional increase in greenhouse gas emissions.

As we approach the climate tipping point, we must address emissions from these hard-to-abate sectors to prevent climate disaster. Today, cement and steel production are responsible for approximately 8% and 11% of global carbon dioxide emissions, respectively.

That’s where an immigration program comes in, one tailored to climate professionals in hard-to-abate manufacturing sectors.

Read the full article on Cipher’s website.

Editor’s note: Harshita Venkatesh was a participant in the Fellows Program at Breakthrough Energy, which also supports Cipher.

Climate tech venture capital spending set to drop 28% in 2023

Source: PitchBook • *Data through December 12.

BY: AMENA H. SAIYID

Climate and cleantech venture capital investments in 2023 are set to fall roughly 28% compared to 2022, according to new PitchBook data shared exclusively with Cipher.

Compared with last year’s venture investments in this sector totaling $58.8 billion, the above chart shows the amount dropping to $42.3 billion, with data updated until Dec. 12.

The drop persisted despite the increase in “mega deals,” which PitchBook defines as greater than $200 million, toward the second half of the year, compared to just four in all of last year.

These deals include the $918.6 million raised by battery manufacturer Verkor and the $380.7 million by Electric Hydrogen, which makes electrolyzers, the equipment used to split water using electricity.

The chart illustrates the long shadows high interest rates and inflation are casting over the economy this year, along with the acute impacts caused by the March collapse of Silicon Valley Bank, a bank popular with climate tech startups.

Editor’s note: Electric Hydrogen's investors include Breakthrough Energy Ventures, a program of Breakthrough Energy, which also supports Cipher.

AND FINALLY...
Play time

Cipher associate editor Jillian Mock spotted these wind and solar power kits in a toy store in Georgetown, Texas, recently. It could be the perfect gift for the kids in your life. Energy is fun AND educational!

Each week, we feature a photo that is somehow related to energy, the thing we all need but don’t notice until it’s expensive or gone. Email your ideas and photos to news@ciphernews.com.

Editor’s note: In addition to supporting Cipher, Breakthrough Energy also supports and partners with a range of entities working to tackle climate change, including nonprofits, corporations, startups and research firms. For more information on Cipher’s editorial policy, click here.