We’re pleased to announce that the Climate Innovation Funding Tracker has been updated and expanded. It now includes funding and estimated tax expenditures from the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA) for climate innovation, as well as data from FY22 and FY23 appropriations.
- Data from the IRA & IIJA
- FY22 & FY23 appropriations data
- Three new agencies: DOI, EPA, Treasury (IIJA/IRA data only)
- Two new data filters: Funding Source & Funding Type
- Tax credits
Why track federal funding for innovation?
It is widely known that climate innovation is a critical strategy to help us create the solutions necessary to address the climate crisis. But which technologies and strategies should be prioritized? Are we deploying solutions fast enough to meet our climate commitments? How should we invest in climate innovation? And how much is the federal government currently investing in different areas today?
These questions are surprisingly hard to answer. This is due, in part, to the natural complexity of the federal budgeting process, which includes enormous amounts of information presented at varying times and with evolving values over the course of the appropriations cycle. Additionally, different agencies tend to report data using different categories, definitions, and levels of detail. The Climate Innovation Funding Tracker is a tool that allows users to explore federal climate innovation funding in an intuitive format that captures a variety of information — funding levels at six different agencies, multiple funding types, in addition to sectors, solution types, and innovation stages — in one field of view.
As in the first version from 2022, the updated Tracker focuses exclusively on climate innovation funding for mitigation: activities dedicated to the research, development, demonstration, and deployment of technologies and processes to reduce, reuse, or sequester greenhouse gas emissions. (See our Methodology page for full definitions and details. And, if you want a refresher on how to use the Tracker, check out this “how to” blog).
What changed in 2023? Read on for 4 key insights from the new update.
1. The FY23 data reveal a “whole-of-government” approach to climate innovation.
The Biden Administration has emphasized the importance of a “whole-of-government” approach to solving the climate crisis, and the updated Tracker backs up this commitment. It highlights important climate innovation investments in mitigation across the Department of Energy (DOE), Department of Transportation (DOT), U.S. Department of Agriculture (USDA), and (new!) the Environmental Protection Agency (EPA), Department of the Interior (DOI), and Department of the Treasury.
The IIJA/IRA investments at new agencies (EPA, DOI, Treasury) are significant. These agencies collectively received half (53%) of total climate funding for FY23, even before accounting for their annual appropriations. EPA alone received well over half (62%) of FY23 climate innovation funding from the IRA, in large part due to the Greenhouse Gas Reduction Fund, which will provide funding through three grant competitions to deploy clean energy projects.
The IRA also increased the Treasury Department’s relevance to climate innovation with new and expanded tax credits. Estimated clean energy tax credit expenditures make up over a quarter (27%) of the IRA’s overall FY23 investment. Tax credits are available for a wide range of deployment-ready solutions, from renewable energy to electric vehicles and clean fuels.
DOI received the smallest share of mitigation-related climate innovation funding, coming in just above 3%. We note that DOI is expected to play a much more expansive role in climate innovation for adaptation, a topic of interest for future iterations of the Tracker.
2. Funding for climate innovation grew dramatically from FY21 to FY23, driven by the IIJA and IRA.
After decades of stagnant innovation funding, the federal government has taken a major step forward in investing at the levels needed to achieve our national climate goals. Rhodium Group’s analysis finds that the IRA will drive greenhouse gas emissions 32 to 42% below 2005 levels by 2030—a sizeable contribution to the U.S. goal of 50 to 52% below 2005 levels by 2030.
Climate innovation investment is an important part of this story. For the three agencies that were tracked across both appropriations and IIJA/IRA funding in 2021-2023, climate innovation mitigation spending nearly tripled from FY21 levels:
- DOE’s budget for climate innovation in FY23 is 2.8x higher than in FY21.
- DOT’s budget for climate innovation in FY23 is 3x higher than in FY21.
- USDA’s budget for climate innovation in FY23 is 2.2x higher than in FY21.
The IIJA and IRA accounted for 86% of this overall funding, underscoring the tremendous impact of these programs. It is worth noting, however, that the IIJA and IRA funds are limited to 5 to 10-year programs. Innovation relies on consistency in funding and market demand, policymakers should ensure that climate innovation remains a consistently funded priority in future fiscal years. This includes robust year-on-year appropriations, and the continued filling of remaining gaps.
3. The IIJA and IRA broadened the focus to include deployment of innovative climate solutions, from clean energy to electrified transportation.
As the climate crisis has shifted over the years from an abstract threat to an immediate one, federal funding is increasingly prioritizing deployments in addition to strong R&D. Funding for deployment increased from 51% of total climate innovation funding in FY21 to 71% in FY23. In fact, three-quarters of FY23 funding for areas where clear climate solutions are available – namely, energy efficiency, electrification, and clean electricity, and two-thirds of funding for low-carbon fuels – went to deployment rather than R&D or piloting and demos.
This trend is particularly noticeable in the power sector. In FY21, more than two-thirds (69%) of funding for this sector went toward research and development. In contrast, in FY23, about two-thirds (66%) went instead toward the deployment of solutions. The main programs contributing to this overall trend are EPA’s deployment-focused Greenhouse Gas Reduction Fund, as well as climate-relevant tax credits. Overall, it suggests growing recognition that federal support is needed not just in developing new technologies, but also in ensuring their widespread adoption.
4. While the industrial sector received increased levels of investment from FY21 to FY23, it continues to be underfunded relative to the sector’s emissions.
In 2021, the industrial sector was responsible for 23% of U.S. emissions. That contribution rises to 30% when accounting for the sector’s emissions from electricity use. Climate innovation funding for industrial innovation rose from approximately $1.5 billion in FY21 to over $10 billion in FY23 – a move in the right direction. Nevertheless, the sector received less than 12% of all climate innovation funding in FY23.
So where does this industrial decarbonization funding come from, and what is it for? In FY23, most of the climate innovation funding for the industrial sector came from IIJA (57%) and IRA (29%), with a smaller fraction (14%) from annual appropriations. More than half of industrial innovation funding lives at DOE, with smaller amounts allocated to DOI, DOT, EPA, and Treasury.
Notably, the percentage of overall funding dedicated to industry-related piloting and demonstrations approximately doubled from FY21 to FY23. Prominent programs include the new 5-year demonstration programs, including $6 billion for industrial demonstrations and $7 billion and $1.2 billion for hydrogen and direct air capture hubs, respectively, announced earlier this year by the Biden administration.
Of the industry-specific funding, carbon management received nearly one-third (32%) – a step change from FY21, when it received about 8% of this total industry funding. The remaining funding was divided among other solutions relevant to the industrial sector, including efficiency, clean electricity, electrification, low-carbon fuels, non-CO2 reductions, and other solutions.
Industry continues to be considered one of the “harder to decarbonize” sectors, for which cost-effective and market-ready technologies to decarbonize are not fully available. As a result, industry is also experiencing slower emissions reductions relative to the other highest-emitting sectors, like power and transportation, and is likely to surpass them as the top emitter in the coming years. This suggests that industry should be a primary candidate for strong innovation funding, and one of the clearest gaps that policymakers should address.
Users may also notice that funding for the agriculture sector appears to have stagnated. Despite a modest increase in overall funding from FY21 to FY23, the share of total climate innovation funding dedicated to agriculture decreased from 8% to less than 2% over that same time. This is a reflection of two key factors: 1) that other agencies received even larger funding increases over the same period, and 2) that the Farm Bill is not (yet) included in our tracker, and this legislative vehicles represent a critical source of funding for the agriculture sector.
Putting it in perspective
The 2023 Climate Innovation Funding Tracker highlights the historic nature of the recent uptick in investment toward building a prosperous clean energy economy. But it is also worth putting these numbers in perspective.
The total climate innovation funding identified by the Tracker ($88.79 billion) is about half of what the federal government spent responding to weather and climate disasters in 2022, roughly one-tenth of U.S. Defense spending in 2023, and approximately 0.3% of U.S. GDP. Meanwhile, Swiss Re Institute estimates that by 2050, 10% of U.S. GDP could be wiped out by climate disasters every year, and the Fourth National Climate Assessment estimates that they will cost the U.S. $500 billion every year by the end of the century. Investing in the development and deployment of innovative solutions to the climate crisis is a necessary and responsible approach to securing a safe climate future.
If you have any comments about the tool, the programs included, or the methodology used, we welcome you to contact us. Stay tuned for more insights from the Climate Innovation Funding Tracker!