Innovation: why Europe is far too slow to fund projects

Five years after its launch, the European Innovation Fund has only paid out 1% of the planned 40 billion euros. The European Court of Auditors is sounding the alarm.

The European Innovation Fund has not fulfilled all its promises. According to a recent report from the European Court of Auditors, only 1% of the 40 billion euros expected by 2030 had actually been paid out to projects by the end of 2025. But let’s be clear: the fact that not all innovation leads to success is inherent to research. Not all innovations necessarily result in a successful application.

The problem with the Innovation Fund lies elsewhere. It is in the mechanism of the system. A fund designed to finance innovation that conditions its payments on results is not a fund for innovation. It is a fund to reward successful innovation. This is very different and fundamentally contradictory to the stated objective.

– Context: European Innovation Fund has only paid out 1% of the planned 40 billion euros by 2025. – Fact Check: Innovation does not always lead to successful applications due to the nature of research.

Carbon money recycled into industrial hope

Returning to the genesis of the project, the Innovation Fund was born in 2020 with an exciting idea: to recycle revenues from the European carbon market into financing industrial decarbonization. Fueled by the auction of emission allowances within the ETS system, it was supposed to mobilize around 40 billion euros between 2020 and 2030. This amount was based on a carbon price of 75 euros per ton. The aim was to finance large-scale innovative technologies in energy-intensive industries, renewable energies, hydrogen, energy storage, and carbon capture.

– Context: The Fund aims to finance innovative technologies for decarbonization. – Fact Check: The Innovation Fund aims to support industrial decarbonization in various sectors.

The market doesn’t always follow

The Danish TopSOEC project illustrates what this fund can achieve when conditions are right: funding the world’s first industrial-scale production plant for solid oxide electrolysis modules, a promising technology. Their goal is to produce green hydrogen on a large scale, using renewable electricity and with less energy losses. The chain is coherent – from research to industrial demonstration, without financial disruption. This is exactly what the Innovation Fund was designed for.

In France, two projects were audited by the Court of Auditors on-site: one in solar energy, the other in metallurgy. The first had achieved 63% of its emission reduction targets, driven by the general rise in energy prices. The second was capped at 35%. This was the EB UV project, led by ArcelorMittal Construction France at their Contrisson site in Meuse. For a 2.4 million euro grant, ArcelorMittal had implemented an electron beam curing process on their steel coil coating lines – a first in Europe for this application, developed over thirteen years with the research center in Liège.

Their goal? To replace the gas incineration system, a CO2 emitter, with a solvent-free process. The technology works. But the market uptake for the treated products has not followed as expected. These two destinies tell the essence: the best clean technologies are still at the mercy of the very markets they aim to transform.

– Context: Danish TopSOEC project illustrates the positive results of the fund. – Fact Check: The projects audited in France met varying levels of success in achieving their objectives.

A stalled machine from the outset

The first problem is structural. The fund’s funding depends on the volatile carbon price. Between July 2020 and June 2025, the European carbon market auction price has fluctuated between 23 and 97 euros per tonne. No mechanism guarantees the Fund a minimum level of resources. The European Commission has to wait to know how much money it has actually collected before initiating calls for proposals.

Result: a massive accumulation of assets awaiting action. By the end of 2025, 12.3 billion euros were lying in the Fund’s coffers: 11.6 billion euros committed in grant agreements, yet to be paid, and 700 million euros remaining to allocate. As a result, actual payments to projects amounted to only 332 million euros – less than 1% of the total endowment. Five years after the launch. This raises serious questions.

– Context: The fund’s funding is subject to the volatile carbon price. – Fact Check: By the end of 2025, only 1% of the fund’s total endowment had been paid out to projects.

Commission stuck in a too rigid legislative framework

In the global race for clean technologies, where China heavily subsidizes its solar, wind, and battery industries, every year lost results in market share losses and technological dependencies. The second problem is more philosophical. The rigidity of the legal framework prevents the European Commission from adapting its requirements to the real complexity of the projects. The closure of the financial structuring – the stage at which payments can begin – must occur within four years, as stated in the ETS directive: neither more nor less, regardless of the project’s size or complexity.

However, the Commission “is not able to adjust requirements based on its own assessment of the complexity or scale of financially supported projects,” note the auditors. It lacks the necessary flexibility for industrial projects that deserve it. This legislative constraint partly explains why 40 out of 228 selected projects – nearly one in five – do not reach the operational phase.

– Context: The legislative framework limits the Commission’s ability to adapt to project complexities. – Fact Check: Not all projects funded by the Innovation Fund reach the operational phase due to legislative constraints.