BAKGRUNN (fra Kommisjonens rapport 24.11.2023)

Context and objectives of the Innovation Fund

The Innovation Fund is one of the world’s largest funding programmes for the demonstration of innovative low-carbon technologies. It is funded by the European Union’s Emissions Trading System and supports the European Union’s objective to reach climate neutrality by 2050.

The European Union (EU) is committed to reducing greenhouse gas (GHG) emissions and mitigating the effects of climate change. In 2021, the European Climate Law 1 was approved as one of the core initiatives for the delivery of the European Green Deal, setting ambitious targets for 2030 in areas such as reductions in GHG emissions, the deployment of renewable energy technologies, and energy efficiency. The Regulation aims to achieve climate neutrality by 2050 in the EU. This aim will require considerable efforts, including regulatory and public sector support, to promote innovation and hasten the path to market of zero-carbon and low-carbon solutions.

The European Union Emissions Trading System (EU ETS) is a cornerstone of the EU’s policy to combat climate change and is a key tool for reducing GHG emissions in a cost-effective manner. Established in 2005 2 , it is the world’s first – and now the world’s largest – carbon market, covering around 40% of the EU’s GHG emissions. In 2018, the revised ETS Directive created the Innovation Fund (IF) using revenues from auctioning 450 million emission allowances to support innovation in low-carbon technologies and processes in the sectors covered by the EU ETS. In 2019, with the adoption of its Delegated Regulation 3 , the IF officially started its activities to provide grants and contributions to blending operations to support the relevant costs of eligible projects.

The IF is now one of the world’s largest funding programmes for the commercial demonstration of innovative zero-carbon and low-carbon technologies aimed at bringing to market industrial solutions to decarbonise Europe and support its transition to climate neutrality. The IF provides funding in five key areas: (i) energy intensive industries (EII), (ii) renewable-energy technologies, (iii) carbon capture and geological storage (CCS), (iv) energy storage, and (v) net-zero mobility and buildings.

In July 2021, the European Commission adopted a revision of the EU ETS Directive 4  as part of the ‘Fit-for-55’ package of legislative measures to implement the EU’s increased climate ambition for 2030. The package of measures included an amendment to the provisions governing the IF and it had three main aspects set out in the bullet points below.

I)More ETS allowances allocated to the IF: an increase from 450 million to about 530 million. This means that the IF will make available an estimated EUR 40 billion for investment between 2020 and 2030 5 .

II)An expanded scope for funding both in terms of sectors (which now also include maritime, aviation, buildings, and road transport) and in terms of the level of innovation, with technologies at greater levels of maturity now eligible.

III)A new support mechanism, through which projects are selected on the basis
of a competitive bidding procedure (i.e. auction). This makes it possible to implement supporting schemes such as fixed premium contracts, contracts for difference or carbon contracts for difference, covering up to 100% of their relevant costs.

Figure 1: Key aspects of the Innovation Fund after the EU ETS revision

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The Commission is working on amending the IF’s legal framework 6 to ensure that it: (i) is fully aligned with the most recent amendments of the ETS Directive; and (ii) draws on the lessons learnt from the first years of implementation. A final version of the Delegated Regulation is planned for adoption by the end of 2023.

According to the EU ETS Directive 7 , by 31 December 2023 and every year thereafter, the Commission shall report on the implementation of the IF to the Climate Change Committee.