Here's how climate tech will benefit from the Inflation Reduction Act

Over the weekend, the Senate passed the Inflation Reduction Act. The legislation is the largest investment in addressing climate change ever made at the federal level.

The package authorizes about $370 billion toward slashing carbon pollution. Modeling indicates that the initiatives it funds could cut emissions 40% below 2005 levels by the end of this decade. That scale of investment could change the climate tech landscape (assuming it clears the House, of course).

That's because the legislation isn't just a large chunk of money. It's also significant for its breadth and diversity. Traditional climate solutions like solar panels and wind turbines are certainly part of the package. But Kim Zou, co-founder of the Climate Tech VC newsletter, said the IRA really makes an effort to include historically overlooked areas of climate innovation.

"There are benefits across the climate capital landscape, and that in and of itself is beneficial because of the intersectional nature of climate tech,” Zou, who recently broke down some of the IRA's big winners, said.

To be sure, clean energy will still be the focus of the IRA. There are more than $127 billion in clean electricity tax incentives alone in the bill, along with investments in nuclear, carbon capture and other clean energy investments. That means traditional climate tech could be deployed at a more rapid pace and will account for some of the greatest carbon cuts by 2030.

The built environment is set to get about a $9 billion influx of cash for everything from consumer home energy rebate programs (for home electrification and energy-efficient retrofitting) to tax credits for heat pumps. Zou and co-founder Sophie Purdom point to startups like BlocPower, Sealed and Dandelion Energy as potential winners in that space given their focus on home electrification and weatherization.

Agtech is another industry that could see a real boost post-IRA, with about $20 billion allocated toward incentivizing smart agricultural practices and reforestation. Carbon offset schemes could see a boost as a result, even if they sometimes yield questionable emissions reductions.

The bill also includes historic investments in environmental justice. Startups that could stand to gain support include air-pollution monitor Aclima, as well as Greenwork, which helps upskill workers for climate jobs. That said, many advocates have argued the bill doesn't go far enough and also makes trade-offs that will allow fossil fuel infrastructure to propagate in communities of color.

With electrification a key part of the bill, specifically boosting the domestic battery supply chain as well as electric vehicle manufacturing, expect to see a positive boost to EV companies like Rivian as well as GM and LG Chem's joint venture Ultium, which just nabbed $2.5 billion in conditional approval from the Department of Energy’s Loan Programs Office. That said, automakers aren't overly thrilled with the legislation because the EV tax credits in it have stipulations on income levels and vehicle prices that will make a number of makes and models ineligible.