Policy Note 51: Challenges in financing the energy transition and the role of venture capital

Climate change is one of the biggest challenges facing the Austrian and European economy. Although Austria already has above-average energy efficiency, there is still a need to further reduce CO2 emissions through investment and innovation in particular. In a recent policy note, EcoAustria therefore addressed the question of the extent to which venture capital can make a contribution to this in Europe and Austria.

Given a clearly defined legal framework and the possibility of open technology development, venture capital is ideally suited to driving competition around innovative ideas. In general, however, the availability of venture capital in Europe is limited. Data from Dealroom, for example, shows that in 2021, almost all European countries provided less than 1 percent of GDP in the form of venture capital investments. In addition, the financing of capital-intensive and risky projects, such as those often found within the cleantech sector, is usually a particular challenge.

According to EcoAustria, these particular challenges in the cleantech sector require cooperation between the private and public sectors when it comes to financing green projects.

The economic research institute therefore advises the following measures:

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EcoAustria POLICY NOTE 51: Challenges in financing the energy transition and the role of venture capital

Press release: Cooperation between the private and public sectors is needed to finance green projects

1. securing demand for green technologies to ensure higher returns and lower risks for investors.

2. improving the framework conditions for venture capitalists, for example by reforming employee participation or the taxation of carried interest.

3. development of spin-off strategies based on best practices within Europe.

4. indirect (hybrid) public venture capital financing through fund of funds models.

5. public co-financing of venture capital investments while maintaining private risk profiles and standard market conditions in order to prevent distortions on the market.

6. expansion of funded pension provision in order to encourage pension funds to invest larger sums in risk capital in the future.