The EU Should Step Up Spending on Clean Energy Innovation

The European Commission has rightly emphasized the importance of clean energy innovation within the European Green Deal as a key component of the EU’s decarbonization agenda. Without more affordable and reliable clean energy technologies, the world will not meet its climate goals, regardless of the level of ambition of international commitments under the Paris agreement—even if Europe achieves its ambition of climate neutrality by 2050.

Yet the Commission has failed to allocate anywhere near the level of financial support that will be necessary to meaningfully accelerate clean energy innovation.

Even with the most optimistic assumptions, clean energy innovation will account for less than 1.5 percent of the EU’s budget for the coming years. This proportion is surprisingly low given the emphasis being placed on innovation within the European Green Deal.

EU lawmakers are negotiating a €1.8 trillion financial package with two components. The Multi-Annual Financial Framework (MFF) is a seven-year budget that runs through 2027, which at the current stage of negotiations stands at just under €1.1 trillion over this period. Another €750 billion is planned for a two-year COVID-19 recovery fund (NextGenerationEU).

Within this package, there are instruments and programs that will undoubtedly contribute to clean energy innovation. Horizon Europe offers the largest scope for such support. The Commission is proposing €94.1 billion over seven years for this program. But, as the EU’s main research and innovation program, its investments are far broader than energy, including health, culture, civil security, space, and more. Of this, €15 billion is earmarked for the cluster “Climate, Energy and Mobility” and only a fraction of the funding for this cluster is likely to be dedicated to clean energy innovation.

An additional boost could come from NextGenerationEU. It was a positive signal that during her State of the Union speech in September, Commission President von der Leyen announced that 37 percent of this fund, approximately €275 billion, will be spent on European Green Deal objectives, such as clean hydrogen, green buildings, and electric vehicle charging points. But the risk is that relatively little of this would actually be invested on clean energy research, development, and demonstration (RD&D) to drive forward new technologies.

For example, the Commission’s recent “renovation wave proposals” encourage Member States to commit significant funding to the renovation of public buildings. These projects would improve building energy performance, and so contribute to greenhouse gas emissions reduction. That is a worthy cause, but not a driver of clean energy innovation, as it will be dominated by installation of well-established thermal insulation solutions. Some fraction of this effort ought to support further innovation in building energy technologies so that these solutions become better and cheaper more quickly and can be applied not just in the EU but around the world.

Interestingly, of all the various instruments and programs under discussion the only tool that is really earmarked for supporting clean energy technology lies outside the €1.8 trillion package altogether. This is the proposed Innovation Fund, which could provide “up to” €10 billion over 10 years to co-finance demonstration of innovative low-carbon technologies. It would be funded by auctioning European Trading System allowances. But this is focused on demonstration of technologies, not on their development.

These limited commitments raise the question of whether innovation truly is a central pillar of the European Green Deal as claimed. At each turn, European leaders face a strategic choice about how much to subsidize the deployment of the technology of today and how much to invest in developing the technology of tomorrow. Moreover, the Green Deal cannot solely be about Europe. Climate change is a global challenge that requires global solutions. Without better, cheaper clean energy technologies across the board, the world will not meet its climate goals, even if Europe were to cut its emissions to zero. As long as clean energy is less accessible than existing dirty technologies, global decarbonization will simply not happen, regardless of how bold international commitments under the Paris agreement might be.

The European Commission should be commended for the Green Deal’s ambitions. But the EU should broaden its ambition even more, seeking to develop low-cost clean energy technologies that have compelling economics. This is the only way to ensure that the rest of the world will be able and willing to adopt them. To achieve this ambition, the EU will have to rebalance its funding priorities in favor of R&D and innovation.