The climate tech landscape has undergone significant shifts in recent months, driven by the intersection of artificial intelligence's skyrocketing computing needs and the ongoing quest for sustainable energy sources. As 2025 dawns, several trends are emerging as key areas to watch, including advanced nuclear power, fusion energy, and hydrogen production.

The U.S. federal election results have cast uncertainty over the startup-friendly Inflation Reduction Act, which could impact many climate tech companies' business plans. However, the surge in demand for electricity to power data centers has created new opportunities for innovative power sources. Nuclear power, in particular, has seen a resurgence of interest, with tech giants like Microsoft and Google investing in startup Kairos' 500-megawatt project.

The appeal of nuclear power lies in its potential to provide a reliable, scalable source of electricity. Startups are proposing smaller, more easily mass-produced designs, which could help accelerate adoption. A streamlined regulatory process is also expected to support the growth of nuclear power. However, the sector still faces stiff competition from renewable energy sources, which are proven and quick to deploy.

Fusion power, another area of intense interest, has seen significant investment in recent years. The National Ignition Facility's 2022 breakthrough in achieving controlled, net-positive fusion reaction has spurred fundraising efforts among fusion startups. Companies like Acceleron Fusion, Marvel Fusion, and Zap Energy are making progress on prototypes, demos, and commercial reactors, with goals of connecting to the grid in the early 2030s.

Hydrogen production is another sector closely tied to the fate of the Inflation Reduction Act. Many startups are working towards delivering hydrogen at $1 per kilogram, but the loss of the $3 per kilogram subsidy for hydrogen produced by renewable electricity could be devastating. Geologic hydrogen, produced naturally within the Earth, may offer a lifeline for the industry, but the next 12 months will be critical in determining its viability.

Beyond these specific trends, the coming year is likely to bring further changes as politicians and regulators respond to growing power demand from AI. Potential shifts in the permitting process could drive investment in grid-related technologies, while companies may increasingly opt for direct connections to data centers to bypass grid limitations.

Investors are bracing for a challenging fundraising environment in 2025, particularly for startups heavily reliant on vulnerable subsidies. However, the climate tech sector has a history of adapting to changing circumstances, and surprises are likely to emerge in the coming year.

As the climate tech landscape continues to evolve, one thing is clear: the intersection of AI and sustainable energy will remain a critical area of innovation and investment in 2025 and beyond.