The new progress report identifies the Innovation Fund’s achievements since its establishment in 2020, discusses the challenges and outlines future changes.
The European Innovation Fund (Innovation Fund) is one of the European Commission’s (EC) instruments to achieve the top priority of “Building a climate-neutral, green, fair and social Europe”. The newly published Innovation Fund progress report provides an overview of the Innovation Fund’s development during 2020 and 2021 by summarising the results of the first two calls. The report focuses on the lessons learnt and policy-relevant conclusions. Based on them, and in response to the ongoing energy crisis, the EC decided to double the budget for the next call for large-scale projects from €1.5 billion to €3 billion. This decision was in line with the REPowerEU plan but will be financed through the Innovation Fund’s global budget, which strongly depends on the carbon price.
The Innovation Fund supports highly innovative technologies and big flagship projects within Europe aiming for significant emission reductions. The calls are divided into one for large-scale proposals (total capital expenditure above €7.5 million) and one for small-scale proposals (total capital expenditure below €7.5 million). The Commission’s Directorate-General for Climate Action (DG CLIMA), responsible for the Innovation Fund, launched the first call in 2020.
The 2020 calls attracted 543 applications (311 for the large-scale and 232 for the small-scale), which underlines the private interest and the necessity of such an Innovation Fund. The overall quality of applications was high, although the limited budget led to a low success rate in both calls: 41 large-scale and 7 small-scale projects that would have passed the minimum threshold on all award criteria were rejected due to the lack of funding. Up to 20 rejected proposals will be offered technical project development assistance in each call as a countermeasure. This approach will be applied more frequently in future calls to increase participation from Eastern European companies and prepare them for possible reapplications. Aside from the regional imbalance, the report positively identifies many cross-sectoral and cross-border projects with significant potential to decarbonise whole regions and sectors beyond national and sectoral borders.
All awarded projects are expected to enter operation by 2026 at the latest, as a high level of operational maturity was a precondition. While the earliest projects will already be operational in 2023, 29 out of 37 plan to start operating in early 2025. The portfolio of signed projects is digitally available and provides a nice interactive overview of the different achievements. All projects together should reduce 77.4 Mt CO2eq over their first 10 years of operation, roughly equivalent to Austria’s emissions in one year.
The EC maximised the call’s budgets already in the first year by using the 20% flexibility in line with the Financing Decision and allowed a total amount of €1’145’586’747 for large-scale proposals and €109’163’733 for small-scale proposals. The European Union Emissions Trading System (EU ETS), the world’s largest carbon pricing system, provides most of the Innovation Fund’s revenues and covers the auctioning of 450 million EU ETS allowances from 2020 to 2030. The report assumes a price of €75 / tCO2, which is much higher than the originally estimated price (ca. €20 / tCO2) and would lead to a total budget of €38 billion of support from 2020 to 2030. The Innovation Fund also crowds in additional funding from the private sector. The total expected capital expenditures of all awarded projects in 2020 calls amount to €4’783’136’117 (91% under the large-scale call and 9% under the small-scale call), which is 4 times bigger than the investment of the Innovation Fund itself.
Like many other EU programmes (see SwissCore article), the Innovation Fund wants to improve synergies between the different EU funding instruments. Hence, the combination of InvestEU and Innovation Fund financing for a specific project is possible, and several of the awarded projects have already demonstrated the existing synergies as they received previous funding (e.g. Horizon 2020). In addition to the programme synergies, the grant beneficiaries are required by the Delegated Regulation to collaborate and share their knowledge to ensure cost reductions and accelerated commercialisation of clean technologies across Europe. The first reports on knowledge-sharing are expected to be submitted by the awarded projects in 2022-23.
Even though Switzerland cannot participate in the European Investment Fund, since 2020, the ETS of Switzerland and the EU are linked, which allows EU ETS participants to use allowances from the Swiss system for compliance, and vice versa. The agreement is the first international treaty linking emissions trading schemes worldwide.