EU in danger of cleantech divide, says European Climate Neutrality Observatory

• MEPs vote on critical Net Zero Industry Act on 20 November, determining future of cleantech sector. 
• Risk of unequal cleantech development within Europe if public funding for green innovation is not shared across EU, says new briefing. Funding could “supercharge” EU share of $650bn market.
• Plentiful research into green technologies across the continent not matched by patent applications. European Climate Neutrality Observatory’s (ECNO) flagship report, found pace of progress in cleantech too slow to meet EU net zero targets. 

The EU should urgently invest in clean technology like battery manufacturing, heat pumps and low-carbon steel if it is to successfully deploy the solutions needed to reach its net zero climate targets and build a globally competitive green industry, according to a new briefing by the European Climate Neutrality Observatory (ECNO). 

The new briefing by ECNO suggests that public financing can “supercharge EU cleantech ambition” by both filling the funding gaps cleantech innovators face through the technology development cycle, and in “de-risking investments to crowd-in more private capital.” 

But while countries including France and Germany have been able to introduce tax credits for cleantech innovation, less wealthy countries within the bloc lack the flexibility and resources in government spending to be able to do so, and risk being left behind. 

With MEPs set to vote on the Net Zero Industry Act (NZIA) on 20 November, ECNO points to the need for a European investment response to avoid a cleantech divide. In a new ECNO briefing, Is European Cleantech On Track For Net Zero?, the observatory notes that: “This is where European-level support is vital. The EU already has some powerful tools at its disposal, from the EU Innovation Fund to EIB mechanisms such as venture debt.

ECNO experts argue the EU Innovation Fund and the European Investment Bank should play a central role in scaling up pan-European funding of the cleantech sector to the level required for the EU as a bloc to remain internationally competitive and meet its net zero targets. 

Globally, the cleantech market is estimated to be worth $650bn by 2030. But ECNO has identified a shortfall between research into new technologies in the EU and actual patent applications. This highlights the need for a targeted pan-European strategy to ensure that the foundations are being laid for future innovations that can be brought to market to unlock further net zero progress in the decades to come.

The Net Zero Industry Act is expected to set ambitious targets for increasing Europe’s cleantech manufacturing capacity. But the Strategic Technologies for Europe Platform (STEP), which has emerged as the proposed financing pillar intended to boost investments in the cleantech sector, lacks muscle. If passed, it would see just €10 billion of public funds invested across cleantech, deeptech and biotech. 

Comparatively, the USA’s 2022 Inflation Reduction Act, has unlocked a potential $1.2 trillion dollars in climate investments, including generous tax credits for the cleantech sector. This makes it one of the most ambitious climate investment policies to date. 

Briefing author and cleantech expert at ECNO, Ciarán Humphreys said: “It’s essential that the EU ensures that sufficient public funding for cleantech is available across the EU. The US has set a benchmark for the level of ambition we should aim to achieve. If we do not, EU cleantech competitiveness will suffer. As we enter a new era of net zero industrialisation, we risk missing out on the opportunities it presents and falling short of our climate neutrality targets.” 

Aneta Stefańczyk, co-author of ECNO’s flagship report, said “We need to see a faster pace of progress in cleantech innovation and manufacturing capacity within Europe in order to meet climate neutrality by 2050 at the latest. Scaling up EU-level public investment in this area will be crucial for achieving this, and ensuring no Member States are left behind.” 

ECNO’s flagship report, State of EU Progress to Climate Neutrality, released earlier this year, tracks the EU’s measurable progress towards climate neutrality across society. It shows positive movement in most sectors and cross-cutting areas, but the pace is too slow. It highlights that cleantech is moving too slowly on progress to climate neutrality.