(*) Key achievements in the table state which period they relate to.
Budget for 2020-2030
The revised EU emissions trading system directive defines the basic elements of the Innovation Fund, such as its size, scope, maximum funding rate (i.e. the maximum support that can be given to a project) and disbursement rules. It stipulates that the Innovation Fund will be endowed with the revenues from the auctioning of at least 450 million allowances from 2020 to 2030 and any unspent revenues from the second call of the predecessor programme, the NER 300, which translates into around EUR 38 billion (at a carbon price of EUR 75 per tonne of carbon dioxide). However, at the end of 2022, a political agreement was reached between the European Parliament and the Council on the revision of the EU emissions trading system, with an impact on the volume and coverage of the Innovation Fund, which is expected to be increased to around 530 million allowances.
Rationale and design of the programme
The Innovation Fund aims at catalysing funding for highly innovative technologies and flagship projects in all Member States that can yield significant emission reductions.
To meet the objective of a climate-neutral EU by 2050 and the EU target of a net domestic reduction in greenhouse gas emissions of at least 55% by 2030 compared to 1990, there is a need to support and incentivise innovative and low-carbon technologies. The challenge is to enable EU companies to take the lead in developing, deploying and commercialising low-carbon solutions. Low-carbon technology demonstration projects are inherently high-risk endeavours and struggle to attract the required capital. However, they have potentially vast positive beneficial effects, well beyond the individual company or Member State that finances them or carries them out, which warrants public support at the EU level.
The Innovation Fund aims at catalysing funding for highly innovative technologies and flagship projects in all Member States that can yield significant emission reductions by:
- creating the right financial incentives to invest now in the next generation of technologies needed for the EU’s low-carbon transition; and
- boosting growth and competitiveness by empowering EU companies with a first-mover advantage to become global technology leaders.
The ultimate goal is to help businesses and industry invest in clean technologies, thus boosting economic growth, creating local future-proof jobs and reinforcing the EU’s technological leadership on a global scale.
The Innovation Fund’s specific objectives are to:
- support projects with highly innovative technologies, processes or products, which are sufficiently mature and have a significant potential to reduce greenhouse gas emissions;
- offer financial support tailored to market needs and risk profiles of eligible projects, while attracting additional public and private resources;
- ensure that the Innovation Fund’s revenues are managed in accordance with the objectives of the EU emissions trading system.
The Innovation Fund supports highly innovative technologies by sharing their risk with project promoters via:
- grants through calls for large- and small-scale projects focusing on:
- innovative low-carbon technologies and processes in energy-intensive industries, including products substituting carbon-intensive ones,
- carbon capture and utilisation,
- construction and operation of carbon capture and storage,
- innovative renewable energy generation,
- energy storage;
- contributions to blending operations under the EU investment support instrument; and
- prizes and procurement.
The Innovation Fund resources may contribute to InvestEU financial instruments, to provide debt or equity financing to innovative clean-tech projects.
The EU emissions trading system, the world’s largest carbon pricing system, is providing the revenues for the Innovation Fund. The Innovation Fund was established by Article 10a(8) of Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a system for greenhouse gas emission allowance trading within the Union, and amending Council Directive 96/61/EC(1) (the ETS directive) to support innovation in low-carbon technologies and processes across all Member States. The actual implementation of the fund is detailed in Delegated Regulation (EU) 2019/856 of 26 February 2019, supplementing Directive 2003/87/EC on the operation of the Innovation Fund.
The Innovation Fund is a key funding instrument for delivering the EU’s economy-wide commitments under the Paris Agreement and its objective to be climate neutral by 2050, as recognised in the European Green Deal Investment Plan. It aims to support the demonstration of breakthrough low-carbon technologies that are key for achieving the EU’s climate and competitiveness objectives defined in the energy union and industrial policy strategy.
The Innovation Fund is implemented in direct management by the Commission (DG Climate Action) with the assistance of the European Climate, Infrastructure and Environment Executive Agency, to which the implementation of the grant component of the programme is delegated. Some activities are implemented in indirect management, through the European Investment Bank, for the management of the project development assistance support, and the channelling of Innovation Fund resources via financial instruments. The monetisation of the Innovation Fund allowances and the management of the Innovation Fund revenues have also been delegated to the European Investment Bank.
In December 2022, as part of the overall agreement on the revision of the ETS directive, the European Parliament and the Council agreed to amend the provisions on the Innovation Fund, notably to:
- extend the scope of the funding both in terms of sectors (maritime, aviation, buildings, road transport) and in terms of the level of innovation allowing support for upscaling innovative technologies; and
- introduce new financing mechanisms whereby projects are selected on the basis of an auction (competitive bidding) and are supported through fixed premium contracts, contracts for difference or carbon contracts for difference.
These changes will be reflected in the delegated regulation on the Innovation Fund (currently Regulation (EU) 2019/856) after the revised ETS directive enters into force later in 2023.
(1) OJ L 275, 25.10.2003, p. 32. Consolidated version available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02003L0087-20210101.
The Innovation Fund builds on its predecessor, the NER 300 programme (which was an off-budget fund, thus not part of the 2014-2020 multiannual financial framework), but it is open also to projects from energy-intensive industries, has a larger grant coverage, provides support in more flexible ways, and – following recommendations from the European Court of Auditors – has a streamlined governance and simplified decision-making.
Programme website:
- Innovation Fund website
- European Climate, Infrastructure and Environment Executive Agency website related to the Innovation Fund
- Funding and tender portal
Impact assessment:
- The impact assessment of the Innovation Fund was carried out in 2019.
Relevant regulation:
Evaluations:
- First expected programme evaluation in 2025.
Budget
Budget programming (million EUR):
| 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | Total | |
|---|---|---|---|---|---|---|---|---|
| Revenues from auctions | 3 816.2 | 2 897.4 | 6 713.6 |
Budget performance – implementation
Multiannual cumulative implementation rate at the end of 2022 (million EUR):
| Implementation | 2021-2027 Budget | Implementation rate | |
|---|---|---|---|
| Commitments | 3 099.5 | 6 713.6 | 46.2% |
| Payments | 31.8 | 0.5% |
- First calls for projects
Following the first calls for proposals launched in 2020, seven large-scale projects requesting in total more than EUR 1 100 million in grants signed their grant agreements place in the first quarter of 2022. In terms of small-scale projects, 30 signed grant agreements with the European Climate, Infrastructure and Environment Executive Agency, representing an assigned budget of more than EUR 109 million.
- Second call for large-scale projects
A second call for large-scale proposals was launched on 26 October 2021 as a one-step application process with a budget of EUR 1 500 million and the deadline 3 March 2022. Out of the 139 applications received, 17 were pre-selected for grant agreement preparation following the evaluation of their degree of innovation, GHG emission avoidance potential, maturity, scalability and cost efficiency. By the end of 2022, grant agreements were signed with 15 projects that were successful in the grant agreement preparation, whereas this process was initiated with one proposal initially placed on the reserve list. This was necessary following the unsuccessful completion of the grant preparations by two of the initially pre-selected proposals. In total, the grant agreements signed amounted to EUR 1 690 million.
- Second call for small-scale projects
Launched on 31 March 2022 with a budget of EUR 100 million, this call attracted 66 applications within the deadline of 31 August 2022. Following the evaluation, 17 projects were selected for grant agreement preparation. The total grants allocated amount to EUR 62 million. These projects have started grant agreement preparations with the European Climate, Infrastructure and Environment Executive Agency to be able to sign the grant agreements in the second quarter of 2023.
- Project development assistance
Project development assistance under the Innovation Fund aims to accelerate the bankability and general maturity of projects, so that they are ready to reapply to the fund. The implementation of the contribution agreement on project development assistance signed with the European Investment Bank in April 2021 continued in 2022. From those proposals rejected in the second call for large-scale proposals, 15 large-scale projects were awarded project development assistance by the European Investment Bank worth EUR 4.06 million. These are added to the 25 proposals awarded this type of assistance in 2021.
- InvestEU financial instruments
In 2021, EUR 100 million from the Innovation Fund was allocated to InvestEU through Commission Decision C(2021) 7404 of 19.10.2021 and its Annex on the activities related to the Innovation Fund, serving as the financing decision for 2021 and as a decision launching the second calls for proposals. The guarantee agreement with the European Investment Bank was signed in 2022.
On the revenue side, the implementation is progressing well. A contribution agreement was signed in January 2021 between the EU and the European Investment Bank, ensuring that the monetisation of the allowances set aside for the Innovation Fund is carried out in accordance with the auctioning regulation and the revenues of the Innovation Fund are managed in accordance with the objectives of the EU emissions trading system directive.
Contribution to horizontal priorities
Green budgeting
Contribution to green budgeting priorities (million EUR):
| Implementation | Estimates | Total contribution | % of the 2021–2027 budget | ||||||
|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | |||
| Climate mainstreaming | 146.6 | 2 953.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 3 099.5 | 100% |
| Biodiversity mainstreaming | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0% |
| Clean air | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0% |
The entire Innovation Fund contributes to green budgeting priorities, with a specific focus on climate-mitigation investment.
Gender
Contribution to gender equality (million EUR) (*):
| Gender score | 2021 | 2022 | Total |
|---|---|---|---|
| 0* | 146.6 | 2 953.0 (**) | 3 099.5 |
(*) Based on the applied gender contribution methodology, the following scores are attributed at the most granular level of intervention possible:
- 2: interventions the principal objective of which is to improve gender equality;
- 1: interventions that have gender equality as an important and deliberate objective but not as the main reason for the intervention;
- 0: non-targeted interventions (interventions that are expected to have no significant bearing on gender equality);
- 0*: score to be assigned to interventions with a likely but not yet clear positive impact on gender equality.
(**) The Innovation Fund is not part of the Multiannual Financial framework and its expenditures do not count for the achievement of the 30% climate target.
Digital
Contribution to digital transition (million EUR):
| 2021 | 2022 | Total | % of the total 2021-2027 implementation | |
|---|---|---|---|---|
| Digital contribution | 0.0 | 0.0 | 0.0 | 0% |
Budget performance – outcomes
| Baseline | Progress (*) | Target | Results | Assessment | |
|---|---|---|---|---|---|
| Absolute greenhouse gas emissions avoidance planned | 0 | N/A | N/A | 213 | N/A |
| Absolute greenhouse gas emissions avoidance achieved | 0 | N/A | N/A | 0 | / |
| Participants in knowledge events on clean-tech solutions | 0 | 46% | 2 000 | 920 compared to a target of 2 000 | On track |
| Number of projects supported through grants | 0 | N/A | N/A | 52 | N/A |
| Investments mobilised by the Innovation Fund grants | 0 | N/A | N/A | EUR 13.1 billion | N/A |
| Investments mobilised via Financial Instruments | 0 | N/A | N/A | No results | N/A |
| Technology sectors covered | 0 | 89% | 18 | 16 compared to a target of 18 | On track |
| Geographically balanced locations | 0 | 55% | 29 | 16 compared to a target of 29 | On track |
(*) % of target achieved by the end of 2022.
Link to file with complete set of EU core performance indicators
- The second round of Innovation Fund calls contributed significantly to increasing the planned volumes of greenhouse gas emissions to be avoided and to diversifying the Innovation Fund beneficiaries in terms of sectors and Member States covered. The calls continue to be oversubscribed, especially in terms of large-scale projects, and the quality of applications was relatively higher than in the first two calls. The evaluation results still showed a very good project pipeline for large-scale projects, which were rejected due to insufficient budget being available.
- In terms of its specific objectives, the Innovation Fund has performed well in terms of supporting projects with highly innovative technologies, processes or products that are sufficiently mature and have significant potential to reduce greenhouse gas emissions. In addition, the public funds invested in these grants have a positive effect on attracting additional resources – public or private – as many of the successful projects are benefiting from other types of support. The overall amount of investment mobilised by projects given the go-ahead in 2022 is around EUR 12.9 billion, compared to EUR 2.835 billion worth of grants provided. Lastly, through the Innovation Fund design and eligibility criteria, it can also be stated that the fund’s revenues are managed in accordance with the objectives of the EU emissions trading system of cost-effectively reducing greenhouse gases emissions and combating climate change.
- Through the repowerEU plan in May 2022, the Commission had already announced that the third Innovation Fund call for large-scale projects would have an even greater budget, practically doubling to EUR 3 billion, and had established thematic priority windows for electrification and hydrogen in industry, clean tech manufacturing and mid-sized pilot schemes. This call was launched on 3 November 2022 with a dedicated budget for the topics announced. The deadline for applications is 16 March 2023, and grant agreements are expected to be signed by the end of 2023.
- In 2023, Delegated Regulation (EU) 2019/856 (the legal basis of the Innovation Fund) is expected to be amended to accommodate the modifications made necessary by the revision of the EU emissions trading system. This would allow the fund to adapt even better to market needs on the basis of the experience gained so far.
Sustainable development goals
Contribution to the sustainable development goals
| SDGs the programme contributes to | Example |
|---|---|
| SDG7 Ensure access to affordable, reliable, sustainable and modern energy for all |
The Innovation Fund contributes to ensuring access to affordable, reliable, sustainable and modern energy for all through funding renewable energy or energy storage projects, such as the N2OWF – Nordsee 2 offshore windfarm innovation project, which aims to build and operate a first-of-its-kind offshore wind farm, with a capacity of 450 megawatts (MW), combined with on-site production, storage and offtake of green hydrogen. |
| SDG9 Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation |
The Innovation Fund supports energy intensive industries to foster innovation, such as this project in the chemicals sector: PULSE – pre-treatment and upgrading of liquefied waste plastic to scale up circular economy. The project consists in the chemical recycling of waste plastic and gradually integrating it into the company’s refinery operations in Porvoo, Finland. |
| SDG13 Take urgent action to combat climate change and its impacts |
The entire Innovation Fund is designed to answer this goal and take urgent action to combat climate change and its impacts. All the projects funded contribute to this. Some of the best examples of supported projects include the following. Ecoplanta – reduction of carbon dioxide emissions from municipal non-recyclable waste to produce methanol. HySkies – a partnership to develop sustainable aviation fuel. SUN2HY – first small-scale deployment of a pre-commercial plant based on photoelectrocatalytic technology for hydrogen production. TANGO – Italian PV giga factory. |