The European Union’s Innovation Fund, a €40 billion investment vehicle aimed at reshaping Europe’s economy for a zero-carbon future, is facing hurdles in its initial projects. While some endeavors, such as the world’s first major green steel plant, have shown promise, others in manufacturing and hydrogen sectors have encountered difficulties.
According to Marcus Ferdinand, an expert at Oslo-based research firm Veyt, the success of the Innovation Fund is crucial for the EU to meet its 2040 climate targets. However, if the challenges seen in early projects persist, it could pose a significant obstacle to achieving these goals.
Since its launch four years ago, the fund has allocated over €6 billion to scale up clean technologies, including initiatives by major energy producers and manufacturing plants for renewable energy equipment. However, manufacturing projects, in particular, have struggled, with a significant portion facing closure or layoffs.
Kurt Vandenberghe, director general for climate at the European Commission, acknowledges that not all projects will succeed, given the inherent risks involved. While unsuccessful projects may result in some wasted funds, the EU’s phased funding approach allows for reallocation to more promising endeavors.
However, the delays caused by unsuccessful projects impede decarbonization efforts and could erode Europe’s competitive edge if companies relocate elsewhere. The Innovation Fund is financed by polluting industries through Europe’s emissions trading system, with the aim of reinvesting in technologies that reduce emissions.
Despite significant investments, challenges persist, such as competition from US subsidies and cheap Chinese products for European manufacturers. Projects like Freyr Battery Inc.’s Giga Arctic initiative and Meyer Burger Technology AG’s manufacturing facilities have faced setbacks, with some shifting focus to the US market.
Green hydrogen, seen as a key technology for decarbonization, also faces economic feasibility challenges. Projects like Uniper SE’s green hydrogen plan in Rotterdam and others linking cheap hydrogen production to industrial demand have struggled due to rising costs and financing challenges.
While projects in regions with abundant green electricity, like Scandinavia, show promise, continental Europe faces hurdles due to a lack of renewable power and high costs. Lessons from these early projects will inform future initiatives, such as the Hydrogen Bank, aimed at supporting green hydrogen development.
Ultimately, the success of Europe’s green investment endeavors hinges on overcoming early setbacks and fostering innovation to drive the transition to a zero-carbon economy.
