Red states, green incentives: Unlocking government cash for climate tech

Grants and public funding may be harder to come by these days, but they’re far from gone, and still a critical element of the capital stack for climate tech startups. The scarcity only underscores what was always true: your climate startup will only survive with a diversified funding strategy.

Today, that means looking beyond well-trodden paths to sources of public funding that are often overlooked – such as red (or Republican-controlled) states. Most entrepreneurs incorrectly assume there’s no public funding for climate in these states, even though other conditions (e.g., cheap energy, sites, and workforce) often exist that allow climate tech companies to flourish.

In our ongoing series, in partnership with Climate Finance Solutions, we’re doing a deep dive into the State and Federal Agencies that offer transformative climate grants. Here, we’ll outline how to find, apply for, and win funding from red states.

The federal context

Federal grants haven’t disappeared entirely, but are significantly reduced relative to 12-18 months ago, particularly when it comes to climate-related projects. The energy and climate-related Federal funding that does exist is flowing toward nuclear, geothermal, grid tech, and critical minerals, as well as coal, natural gas, and other fossil fuels. Some high profile examples (like DOE’s half-billion-dollar grant program to recommission and extend the life of coal plants) actually run counter to climate progress.

The state context

Zoom in on the state level, and you’ll find that funding for climate projects has been relatively stable (and even slightly increasing) during this same time period, although support is quite uneven––some states offer more funding than others. In some cases, where states had strong climate funding priorities prior to the shortfall in federal funding, they have now doubled down to fill the gap (such as California, New York, Massachusetts, and to a certain extent Washington, Colorado, and other states that have smaller budgets but still care about climate). 

A different swath of states is openly hostile to climate, in both rhetoric and action, but they still offer public funding like grants and incentives that can be leveraged by climate tech companies that meet the program’s criteria, even if the programs are not technically designed to support climate.

What can funding be used for? 

1. Broader economic development
While red states typically have less overall grant funding available, tax credits are more common, most prominently economic development incentives. These vary in size, but tend to focus on sectors like manufacturing, digital tech, energy,  and logistics. Support often takes the form of incentives for establishing or expanding manufacturing or processing facilities, while job creation programs that may include grants are also widespread.  

2. R&D investment incentives 
Red states actively support several sectors relevant to climate tech through R&D incentives. Key areas include manufacturing and advanced manufacturing, aerospace, automotive, agribusiness, energy, logistics, AI, and quantum development. A number of states have “open” R&D incentives without sector restrictions.

3. Grid resilience and advanced grid tech
The need to upgrade grid infrastructure across the US is creating plenty of opportunity for climate startups working on technologies that improve transmission and distribution circuits, power electronics, energy storage, distributed energy resource integration, and other grid-related technologies. Individual states are also grappling with the reality of operating a climate-stressed grid and looking for options to improve reliability and resilience.

4. Agriculture, forestry management, and rural development 
Agriculture (including forestry) is one of the few areas of bipartisan agreement on funding, although there is not always alignment on the optimal solution set. Ag funding frequently includes federal formula funding that flows through state agencies. The same goes for other land use agencies like the Bureau of Land Management, which provides funding for fire management. Plus, states also provide significant funding for these technologies themselves. Fortunately, most AgTech companies have a multitude of benefits, including but not exclusively related to climate, so it’s easy to pitch with a different lens.

5. Waste management
Both state and municipal-level waste management and recycling programs, as well as other infrastructure like water treatment, can also act as an entry point for securing funding if your startup is in the circular economy space. There is still a sizeable amount of federal formula and passthrough funding for local governments in this area.

6. Other state tax incentives 
Businesses can often secure tax benefits from state governments, such as exemptions on equipment or reductions for building industrial facilities. In some cases, tax benefits can be secured from state or local governments on an individual basis, although this takes substantial engagement and negotiation, and usually a sizeable investment in physical infrastructure.

Key red state programs

There are programs across all red states that fall into the categories above. To provide some context and concrete examples, a few notable initiatives offering funding at the state level include: 

• Texas Enterprise Fund (TEF)
  • Texas Enterprise Fund (TEF) is a performance-based grant for companies considering a new project, including a new facility, for which Texas is competing with other out-of-state sites to host the company's expansion. Companies with the potential to contribute significant capital and employment investment to the local economy are the likely awardees. Eligibility is based in part on the number of jobs created. Awards estimated up to $50M. 
• Texas Jobs, Energy, Technology, and Innovation (JETI) Incentive Program
  • The Texas Jobs, Energy, Technology, and Innovation (JETI) program has a goal of attracting large, capital-intensive economic development projects to Texas and driving high-wage job creation. Awards estimated up to $4M.
• Wyoming Energy Matching Funds
  • The Wyoming legislature has appropriated $155M for the Energy Matching Fund (EMF), which can be used as matching funds for private or federal funding for research, demonstration, pilot projects or commercial deployment projects related to Wyoming energy needs. Awards estimated up to $16M.
• JobsOhio Growth Fund Loans
  • JobsOhio Growth Fund Loans support business expansion projects throughout the state, with the goals of creating jobs and spurring economic growth. Eligible projects include land acquisition; purchase, construction, or renovation of facilities; machinery and equipment purchases; software development; and other capitalizable costs directly related to a fixed-asset purchase. Awards estimated up to $5M.
• Ohio Research and Development Investment Loan Fund
  • This loan program provides low-interest financing options, along with a loan repayment tax credit, to Ohio businesses seeking to expand research and development (R&D) capabilities and drive high-wage job creation in the state. Estimated loan amounts up to $5M.
• Florida Job Growth Grant Fund
  • SelectFlorida's Florida Job Growth Grant Fund provides grants for public infrastructure and workforce training across the state. Awards estimated up to $4.7M.
• Louisiana Industrial Tax Exemption Program (ITEP)
  • Louisiana's Industrial Tax Exemption Program (ITEP) is a state tax incentive for qualified industries providing an 80% property tax abatement for new and expanded manufacturing facilities. Louisiana manufacturers are eligible to apply for the industrial tax exemption for buildings and facilities used in the manufacturing process. Recent awards have included approvals of up to $127.5M.
• North Dakota Development Fund (NDDF)
  • The North Dakota Development Fund (NDDF) offers 'flexible gap financing' in the form of loans and equity investments to new and expanding North Dakota primary sector businesses. Funding of up to $3M per applicant.

Spotlight on Texas

Texas is a good example of a state that is rather famously politically hostile to climate, but has a number of programs that consistently fund what we might call climate tech companies. Beyond its substantial economic development support (see TEF and JETI above), Texas has a lot to offer climate tech startups, including: 

• Texas Clean Fleet Program (TCFP)
  • The Texas Clean Fleet Program (TCFP) supports the replacement of diesel-powered vehicle fleets with alternative fuel or hybrid vehicles. To be eligible for funding, applicants must have fleets of 75 or more vehicles that are registered in Texas and must propose a minimum of 10 vehicles for replacement. Vehicles eligible for replacement under this program include on-road heavy-duty and light-duty diesel-powered vehicles registered and operated in Texas. Qualifying alternative fuels include electricity, compressed natural gas (CNG), liquefied natural gas (LNG), hydrogen, propane, and methanol; new vehicles must produce at least 25% fewer NOx emissions than the certified federal emissions standard applicable to the vehicle being replaced in order to qualify for funding under this program. Maximum of $6M award size based on award history.
• Texas Hydrogen Infrastructure, Vehicle, and Equipment (THIVE) Grant Program
  • This program funds purchase of new hydrogen vehicles and equipment; expansion of hydrogen refueling infrastructure; and replacement, repower, and conversion of older heavy-duty on-road vehicles and non-road heavy duty equipment with hydrogen power, with a focus on Texas' nonattainment areas and affected counties. Eligible vehicles include trucks, buses, tractors, forklifts, and rubber tire loaders; maximum funding per vehicle varies based on vehicle type, ranging from $55k to $1.84M. Applicants may request up to 100% of incremental costs for new vehicle purchases and replacement, repower, and conversion projects, and up to 50% of incremental costs for hydrogen infrastructure projects.
• Emissions Reduction Incentive Grants (ERIG) Program
  • The Emissions Reduction Incentive Grants (ERIG) Program funds efforts to repower or replace older locomotive, marine, or select non-road and stationary equipment to reduce NOx emissions in nonattainment areas and affected counties in Texas. Entities purchasing a qualifying select non-road or stationary piece of equipment, marine vessel, or locomotive powered by an alternative fuel may request additional funding for onsite refueling infrastructure; eligible alternative fuels include compressed natural gas (CNG), liquefied natural gas (LNG), hydrogen, biodiesel, biodiesel blends, propane, electricity, and methanol. Project expenses covered through this program include equipment, such as natural gas and alternative fuel storage tanks, compressors, and electrical infrastructure; supplies and materials; construction, including costs of planning, designing, engineering, materials, labor, and facility improvement; installation costs; reengineering costs; and contract or subcontract services. Estimated maximum award is $10M.

Reframing your solution

At this point, you might be asking yourself how it’s possible for red states’ hostility to climate solutions to coexist with these funding programs and the willingness to fund climate tech companies. One reason is that there is a significant degree of political posturing with climate opposition and many officials and even some politicians in state government are tacitly acknowledging the reality that climate benefits are now just an inherent part of implementing the most cutting edge technologies and effectively upgrading public infrastructure.

Many of them also privately understand that red states are, on average, more vulnerable to climate impacts. Climate funding through the IRA, IIJA, and other programs that came out of the last administration went overwhelmingly to red states, and they are now facing the loss of these high-paying jobs and high tech economic development. Plus, in many cases, the market––not public policy––is dictating where climate solutions are deployed: Texas has the most deployed wind energy of any state and the five states with the largest share of wind power are Republican.

Climate tech companies can successfully navigate these complexities and secure red state funding by reframing their narratives to de-emphasize or entirely omit mention of their climate benefits. The excellent advice in a recent Insights piece with Susan Perri, Climate Finance Solutions’ Director of Grants, about reframing federal grant narratives holds true here, whether it’s shifting narrative focus, considering new project designs and partners, avoiding polarizing language, or adopting the terms that funding agencies expect to see.

Red state funding requirements 

Common funding structures
The majority of red state funding comes in two forms:

• Incentives, where you’ll bring all the capital upfront in order to receive a benefit (usually tax consideration) down the line.
• Matching funds. Here, you’ll first need to secure significant private investment, which will then be matched by the state.

Programs that will fully fund a project without requiring you to bring capital to the table (e.g., grants for demonstration projects) do exist, but are much rarer in the red state ecosystem. 

The “but-for” requirement
Generally, red states’ number one priority with putting out funding and incentives is to attract investment and jobs. As a result, many funding programs often include a requirement to prove that other states are in the running to host your proposed project. These are known as “but for” requirements – in other words, but for this funding, I would locate somewhere else.” This means you’ll need to identify, assess, and even go through the initial stages of funder engagement before you select a site for your project, plant, or facility in order to demonstrate competing interest.

Jobs and investment requirements
Economic development and R&D incentives usually come with conditions around investing a certain amount of dollars in the state and/or creating a certain number of jobs. These jobs may specifically need to be generated in rural or otherwise underserved areas. The size of the incentive will often scale with the level of your investment or the number of new jobs you create.

How to start pursuing red state funding

Map the ecosystem
Your first move should be to map out and monitor the entire funding ecosystem to get a full overview of where funding flows from. This will allow you to analyze trends and identify the agencies and offices that are most likely to write you a check. With a huge number of prospective funders out there, a strategic approach is both far more efficient and more likely to enable you to secure funding than a more opportunistic, scattershot approach.

To automate this task, Climate Finance Solutions offers a new software platform that monitors funding opportunities in real time, including at the state level, so you won’t miss an opportunity.

Align and engage with funders
In the red state funding landscape, some opportunities have a formal application process, while others are allocated behind the scenes. For the latter, your only way in is by engaging early and building relationships with the decision-makers. Even for programs that do have a competitive process, engaging is still required in order to secure funding with a high success rate. This engagement helps understand what funders are looking for, whether you fit the bill, and decide whether the program is even right for you. If it is relevant, it can also help you ensure that you design and frame your project in the way that is most likely to receive funding not intended for climate.

When and how to target state agencies

Finding the right contact
If you’re interested in a specific opportunity, your first port of call will be the primary program page or the solicitation, which will typically list a contact. If you’re reaching out to a program or an office/agency more broadly, you’ll need to do some research to find the right stakeholder first. Look for the person who’s responsible for both your type of tech and the type of program (grants, incentives, subsidies) you’re interested in. Once you have an internal champion at the agency, your job is halfway done.

Preparing for outreach
Before you start reaching out to different offices or agencies, write up a 1-2 page summary of your technology and what you hope to accomplish with the funding. Sending this will help the program managers understand what you’re building and why it’s a fit, piquing their attention and incentivizing them to respond to and meet with you. It also allows the conversation to quickly move to the next stage and makes your first meeting (which is sometimes all you get) far more productive.

Negotiating for tax incentives
If your project involves building significant infrastructure, creating a large number of jobs, and delivering substantial economic activity, you can negotiate for special tax considerations from the government at the state or local (county/municipal) level. You can most effectively leverage this during the site selection process, where governments will put their best offers on the table in an attempt to win your project. Having knowledgeable guidance for this process is essential. 

Final thoughts

By diversifying your search for funding to red states, you’ll achieve the same essential result you’d hope for anywhere else – securing financing. The only real difference is the motivations these actors have compared to those that are focused on climate impact and how that affects your approach. In many cases, these opportunities go under the radar, have fewer applicants, and are consequently far less competitive than federal grants or high-profile climate-focused programs in blue states. So, as long as you understand the nuances of navigating this ecosystem and can position your business to align with their goals, your chance of success will be higher than you expect.