Decoding Federal Climate Funding in 2025: Delays, Shifts, and Strategic Moves for Founders

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As we enter the second quarter of 2025, federal funding for energy innovation is in a state of profound flux. For founders navigating the grant landscape, the past few months have felt like a masterclass in policy whiplash. Once-promising pathways are stalled, key programs are under review, and new legislative priorities have redefined what technologies and companies are seen as "strategic."

At a recent SF Climate Week session hosted by DLA Piper, experts across public policy, venture capital, legal infrastructure, and hardtech startups gathered to map out the realities of securing and deploying federal dollars in today’s climate. Their perspectives—grounded in firsthand experience—offer both a cautionary tale and a roadmap for the next generation of deeptech entrepreneurs.

The Policy Environment: Realigning Priorities, Redefining Risk

Recent executive orders have signaled a marked shift in the federal government’s priorities around energy and industrial policy. While the Inflation Reduction Act (IRA) laid out an expansive vision for a decarbonized economy, the political momentum in 2025 is increasingly tilted toward energy “independence” rooted in fossil fuels, biofuels, and critical mineral security—not necessarily clean tech acceleration.

Key themes:

• Permitting reform and reduced oversight for coal, oil, and gas extraction signal a temporary walk-back from ambitious renewable targets.
  
  
• Biofuels have re-entered the spotlight, particularly as a politically neutral path for domestic energy supply expansion.
  
  
• The administration’s focus on critical minerals—nickel, cobalt, lithium, and iron—is not new. What’s changed is a growing interest in onshoring processing, rather than extraction. In other words, the U.S. is not looking to dig more lithium domestically; it wants to process what Chile, Canada, and the DRC are already producing.
  
  

Despite this, little capital has been deployed to make these ambitions real. From permitting delays to long project gestation periods (20–30 years is not uncommon from mineral discovery to operational mine), the market is left in a waiting game.

DOE’s Loan Programs Office (LPO): More Bark, Less Bite

The Department of Energy’s Loan Programs Office, long heralded as a powerful lever for scaling climate infrastructure, remains stuck in an extended holding pattern. Since the start of the new administration, no capital has been deployed from newly approved loans. While $110 billion in deals have been conditionally announced, conditionality is not contractually binding—especially without final signatures or NEPA approvals.

Additional barriers:

• 60-week due diligence timelines are now standard, often extending beyond two years when NEPA reviews are included.
  
  
• Each LPO deal carries an estimated $3 million in legal fees, limiting feasibility to large-scale projects of $200M+.
  
  
• Some disbursed loans have paused additional capital drawdowns, while others remain under review for up to 90 days or more.
  
  

The message to startups is clear: LPO is no longer a viable mechanism for early-stage funding. It is simply too costly, too slow, and too uncertain under current political conditions.

A Startup-Friendly Federal Funding Sequence

Given the volatility of federal loans and the murkiness surrounding current grant cycles, a new playbook is emerging for startup founders in climate and hardtech:

1. SBIR grants – still among the most accessible sources of non-dilutive capital for early-stage R&D.
   
   
2. TCF (Technology Commercialization Fund) – DOE match funding at 50%, combined with in-kind or equity support.
   
   
3. Venture capital – needed earlier than before to unlock matched federal opportunities.
   
   
4. DOE pilot grants – useful at mid-TRL levels when equity-backed commercialization milestones are in sight.
   
   

This framework avoids the bureaucracy of LPO and aligns more closely with today’s market realities. It also reinforces a core message repeated across the panel: customers matter more than contracts. Investors and agencies alike are more likely to back a solution with real traction than one that relies solely on regulatory tailwinds.

Grants in Limbo: Legal Risks, DEI Scrutiny, and Political Messaging

The grants space is currently fraught with uncertainty. Numerous awards under the IRA and BIL are being reviewed, paused, or litigated. Subawardees are not immune—legal exposure and clawback risks apply throughout the chain.

Important considerations for founders:

• DEI certification is being closely scrutinized. Misrepresentation—intentional or otherwise—can result in disqualification or legal exposure. Be truthful and transparent.
  
  
• Narrative alignment is critical. Applications that do not clearly align with administration messaging around job creation, national security, or domestic supply chain resilience are unlikely to succeed.
  
  
• Entrepreneurialism survey data shows a chilling effect on founders’ confidence in grants. Some awards are being rescinded mid-process, creating a challenging environment for long-term planning.
  
  

To mitigate risk, the panel emphasized building relationships directly with congressional offices. Legislators can advocate for your proposal during appropriations and help resolve funding bottlenecks—especially when jobs in their district are at stake.

Congress and Appropriations: The True Power Center

Contrary to popular belief, most federal dollars don’t flow because of White House priorities. They move because Congress says so. The appropriations process—and the bill language that comes with it—is where real decisions are made.

Details matter:

• Line items and report language determine how funds are interpreted and disbursed.
  
  
• Lobbying coalitions can influence agency mandates even without new legislation.
  
  
• The margin for flipping climate-related votes in Congress is razor thin: 3 Senators or 2 Representatives can dramatically shift outcomes, especially around contentious issues like the IRA or 48C/45X tax credits.
  
  

Job growth, workforce development, and local economic benefits are more compelling than decarbonization narratives alone. Tailor your outreach accordingly.

The State and Local Landscape: More Nimble, Still Vital

In contrast to the federal bottleneck, state programs remain active and aligned with startup timelines. The California Energy Commission continues to deploy matching funds for pilot and scale-up projects. State-based job creation initiatives and workforce development grants offer critical support, often with fewer bureaucratic hurdles.

Tax credits tied to domestic content are also a key incentive mechanism. Programs like 45X PTC and 48C ITC are still evolving, but founders should be tracking them closely—especially for hardware and manufacturing plays.

Final Thought: Customers Are Still King

If there’s one enduring lesson from this evolving landscape, it’s this: government support is fickle—customers are not.

While grants and public funding can accelerate progress, they are no substitute for demand. Founders must remain laser-focused on building value in the market. Branding, go-to-market execution, and customer validation matter more than ever—not just to attract funding, but to ensure survival when programs stall or priorities shift.

For startups in climate tech, that means staying grounded in fundamentals while keeping one eye on the policy horizon. The money is there—but it will only flow to those who align technical vision with political strategy, economic value, and real-world traction.

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