When President Trump took office for the second time, rolling back climate rules and vowing to “unleash” oil and gas drilling, some said Europe’s clean energy moment had come. With its steadfast climate-friendly policy and its already strong ties with the U.S. market, the continent was in a good position to turn Trump’s hostility into opportunity. It could, the theory went, start attracting more climate tech investments, taking on a sector leadership role that had historically belonged to the U.S.
Over a year later, however, this hasn’t happened. In 2025, the U.S. saw nearly $21 billion in climate investment, a 27% increase compared to 2024, according to Sightline Climate data. That’s more than double the $10 billion recorded in Europe, which actually saw a 13% dip.
That said, the U.S. growth was bolstered by megadeals aligned with the Trumpian quest for energy and AI dominance, such as Crusoe’s $1.4 billion raise in October 2025, which seemed to offset any slowdown in other climate sectors. Europe outpaced the U.S. in terms of total deal volume, with 621 climate deals versus 574, reflecting an active ecosystem of smaller startups. And Sightline data shows that dry powder is accumulating, with 61 new climate tech European funds closed with a total value of $56 billion in 2025. By comparison, the U.S. saw only 31 new funds totaling $16 billion.
In 2026 especially, Europe as a market for fossil fuels is looking precarious, trapped as it is between wars in both Ukraine and Iran. Against that backdrop, these numbers suggest that we may still see a surge in climate investment — that is, if the continent can clear the structural hurdles that have hindered its progress so far.
Policy stability
Sebastian Heitmann is the co-founder of climate-focused venture capital firm Extantia, which is based in Europe. He says that, for an investor, Europe’s main advantage over the U.S. is policy stability.
“The U.S.’s biggest problem is the back and forth; it’s not a consistent policy,” he told Latitude Media. “That’s what investors don’t like….And being very consistent in their [policy] strategy is something that both Europe and China have done really well.”
Additionally, he added, Europe has focused on incentivizing demand rather than supply. “And that’s a good way to make sure that climate technologies come to maturity and stay there. Otherwise, once you kill the incentives on the supply side, it might just go away again, like we’re seeing in the U.S,” Heitmann said.
The benefits of this approach are particularly evident when it comes to clean hydrogen. In the U.S., the Inflation Reduction Act offered generous tax credits for clean hydrogen production through the 45V provision, spurring big investments; meanwhile, the Bipartisan Infrastructure Law funded seven regional clean hydrogen hubs across the country.
But that momentum fizzled once the GOP’s One Big Beautiful Bill stripped the credits in July of last year. In the months since, companies like Topsoe have abandoned U.S. projects and retrenched to Europe, while others like Monarch Energy have pivoted toward other opportunities, including AI power infrastructure.
The European Union, meanwhile, actively created policy-backed demand. The continent introduced legislation in 2023 requiring that, by 2030, at least 42% of the hydrogen consumed in industry come from renewable sources. Since then, European blue and green ammonia projects have grown from a cumulative capacity of zero to 8.5 megatons per year today. By 2030, Sightline expects that total to increase to 48 MT per year.
But Jules Besnainou, founder and executive director of policy advocate Cleantech for Europe, said that policy stability alone is far from enough for Europe to take the lead.
“Policy stability is good if the status quo is good, and the status quo for cleantech in Europe is certainly not where it needs to be, and Europe is certainly not as attractive of a market as the U.S. is,” Besnainou told Latitude Media. The regulatory framework, he added, is still “incredibly complex and convoluted,” and one consequence is that it’s hard for a company to scale from one country to another.
“There’s a lasagna between the EU level, the member state level, the regional level,” he said. “And if you’re a company looking to scale your technology… you’d maybe rather take a bit more political risk in the U.S., but have access to one market, with, in many cases, strong demand signals and willingness to pay.”
Money problems
This brings us to the next problem facing Europe — perhaps the most important one. In Heitmann’s words: “Europe is really good at turning euros into knowledge, but very poor at turning knowledge into euros.”
It’s what some call Europe’s innovation paradox: Europe excels at research and development, outpacing both the U.S. and China when it comes to research output, but the country has so far failed to meaningfully commercialize this potential, with the vast majority of its patents sitting inactive. That’s because for systemic reasons, in Europe, there’s not enough capital being invested in climate tech, both private and public.
On the public side, EU funding instruments are largely failing to deploy money at any meaningful scale. Take the Innovation Fund, which was established in 2020 and has a €40 billion budget to deploy in cleantech projects by 2030: Only 5% of companies that have applied have been successful, according to Besnainou. And for those that were successful, the money is not really flowing.
“It’s so complex to unlock the funding once you’ve been awarded a project that it’s been five, six years, and we’re still at below 5% total disbursement rate,” Besnainou said.
A report published last week by the European Court of Auditors puts the number even lower, at less than 1% of the fund having been deployed as of June 2025.
And when it comes to private capital, the European market has the issue that its deals are often too small and fragmented across different countries to attract the multi-billion-dollar tickets that pension plans, insurance, and infrastructure funds operate with. Additionally, different national regulations for pension funds and insurance companies make investments in innovative, higher-risk technologies more capital-intensive to hold.
Security concerns
As challenging as it is to overcome these problems, Heitmann thinks that the current energy crisis Europe is experiencing as a consequence of the war in Iran, coming so soon after the energy crisis created by Russia’s war in Ukraine, could push things along. It has the potential to force the bloc to reckon with the fact that energy resiliency, for a region with no meaningful oil and gas resources, comes from clean technologies.
“In climate tech, security concerns drive sustainability measures faster than environmental concerns,” Heitmann said. “France’s move to nuclear was based on the 1970s oil crisis, for example… It’s a good time right now for climate because sustainability can take on higher strategic relevance.”
That is, Besnainou added, it could be a good time if Europe focuses on the long-term rather than on short-term fixes.
“We tend to go for short-term fixes, like trying to buy LNG in the U.S. versus investing in our own system,” he said, noting that much of the political debate focuses on subsidizing oil and gas, rather than future-proofing the system with renewables and batteries, which highlights the issue. “Until we understand that we’re just creating new dependencies and get to the hard work of deploying the technologies we have, we’re just going to go from one crisis to the next.”
