EU wants €20 billion extra for the Horizon innovation fund, but will it happen?

The European Union is entering a new phase with the inauguration of the new European Commission, which was approved by the European Parliament yesterday after a long series of personal interviews. The new President, Ursula von der Leyen, has set a clear course for her commissioners. This is primarily aimed at making Europe climate-neutral. The other major pillar of its intended policy is to increase the competitiveness of the European Union.

President Ursula von der Leyen of the European Commission has set out a strict policy framework.

The key question, of course, is how she and her fellow commissioners want to achieve these objectives. In the main, that means: research into better production methods and innovating the existing ones. Consequently, funding is needed for this.

Dire necessity

Innovation and its investment is a dire necessity, according to the new European governance. In the first place, because the European Union must be completely CO2-neutral by 2050. This means that we will have to live, drive, fly and produce in a CO2 neutral way. So that’s quite a challenge. Secondly, because competing superpowers such as the US (2.8%), South Korea (4.2%) and Japan (3.3%) invest a much higher percentage of their GDP in innovation than the EU does. (2.1% while the target is set at a minimum of 3%). These countries subsequently also score better when it comes to innovating their businesses. Because of this, the EU is lagging behind them, so says Bulgarian Commissioner Mariya Gabriel, She is in charge of the innovation budget for the upcoming period.

As her predecessor Carlos Moedas had already announced last year, Gabriel wants to increase the budget of the research and innovation fund Horizon Europe from almost €100 billion to €120 billion. This amount is to be spread over the 2021 to 2027 budget period. This money should go towards basic research in universities as well as innovation by large companies, start-ups and SMEs.

Not a piece of cake

Which is a noble ambition that no member state should actually be opposed to. You’d think that it was a piece of cake. But it’s not. Life is complicated within the offices of the European institutions. They have to constantly do business with the governments of the 28 – and, if there is a Brexit, 27 – member states. Then those governments have to deal with their constituents in the cities and rural areas of their country. And the constituencies (especially those in the poorer EU regions) may threaten the innovation plans of this new European Commission.

Mariya Gabriel, European Commissioner for Innovation, wants more money for the Horizon Fund

The major battle is being waged via discussions by the heads of state or governments concerning the European Union’s long-term budget. This is something which they will have to hammer out in 2020. Von der Leyen wants more money from the member states to be able to implement her ambitious policy program. But the member states do not want to pay the EU a higher percentage of their GNP, says spokesman Roy Kenkel of The Permanent Representation of the Kingdom of the Netherlands (PV) in Brussels. (As an example, the European Commission wants The Netherlands to contribute 1.11% of their GNP).

“The Netherlands is in favor of a larger innovation budget. We think that’s an excellent idea! But we also believe that this money could come from the resources that the European Commission has at its disposal if we were to continue to contribute the same percentage as we do now. Our GNP is on the rise, so our contribution will in any event deliver more money to the EU with the current, unchanged percentage of our GNP.”

Not mentioned in the budget

It makes more sense for the EU to restructure its budget and adapt it to the demands of our time, says Kenkel. That is what Von der Leyen also said in her speech yesterday. In Von der Leyen’s opinion, the MFF (otherwise known as the EU’s Multiannual Financial Framework) should not be seen as a simple calculation of expenditure, but rather as a policy instrument that will modernize the European Union’s budget.

That might be the case, except up until now the problem has been that you cannot discern this in the document that the European Commission sent to the member states last May and which the member states are currently negotiating. It does not say, for example, that the Horizon Innovation Fund should be increased by €20 billion. Whereas the new European Commission does want to use this extra money to tie into specific industrial policy. Something that is new for the European Union, as the French EU Commissioner for the Internal Market and Industry, Thierry Breton, said to the European Parliament during his hearing last month.

European Commissioner Thierry Breton wants to tie industrial policy to innovation paid for with Horizon money.

Other expenditure areas

One way in which the extra €20 billion could still be included in the budget is for the European Commission to submit a separate additional proposal to the member states. That’s what Kenkel from the PV in Brussels says. Nevertheless, he thinks that this isn’t very likely as this is a cumbersome process and the negotiations are already underway. He believes that it would be more logical to discuss the matter during ongoing negotiations.

Then there is also the question of how important the member states regard the growth of the innovation fund compared to that of other expenditure. Such as for the common agricultural policy and the cohesion fund. Funding for the development of poor regions must be paid from this. The European Commission actually wants to cut 5% off both of these expenditure areas. And that is definitely something that the countries that benefit most from these funds do not want to happen.

Read also: Aviation industry to European Commission: ‘money is needed to develop zero-emission aircraft’

€88 billion on offer

The signs are not very favorable in this respect, says Guillaume Gillet, He is the director of InnoEnergy in Brussels, an investment company that invests money from private investors and the Horizon Fund in promising, innovative start-ups in the energy field. “It is said that the Finnish chairmanship wants to reduce the budget for Horizon to €88 billion. It will only be possible to raise it to €120 billion if the European Parliament fights very hard for that.”

The question is how bad would that be? After all, European Commission Vice-President Frans Timmermans has already announced that part of the funds for cohesion and agriculture can be used for innovation in the agricultural sector and for the development of rural areas. The intention is that these funds will thereby contribute to making Europe environmentally sustainable.

Read also: European Commissioner Timmermans wants CO2 tax at the EU’s outer border

The difference with financing innovation via these funds, however, is that the funds are distributed by the governments of the member states. Who in turn allocate these to their national constituencies. It now remains to be seen as to what extent this will benefit both European cooperation and European coordination in terms of industrial policy.

Not enough money for scale-ups

According to investor Gillet, the European Commission is also investing directly via Horizon in innovative start-ups who would otherwise be unable to raise money as their profitability is uncertain. That’s going well for now. Although a larger Horizon Fund would make this support more robust, Gillet states. So far, the problem has been that there is not enough money to invest in the further growth of start-ups. This makes it difficult for them to become fully-fledged companies that are able to grow and flourish in Europe. It is precisely these scale-ups that provide employment as well as develop knowledge and bring prosperity. “American and Asian investors are investing money in them. That’s because of their more aggressive culture when it comes to high-risk capital investment. Consequently, Europe is losing a number of successful start-ups.”

Read also: ‘Europe must invest in a hub for collaborative robots in SMEs’

Whereas these are in fact what you would prefer to hold on to. Which is also what Von der Leyen said in her speech yesterday. Whether she will be successful in this respect over the coming period will become clear when the new MFF is mapped out next year.

European Commissioner Timmermans wants CO2 tax at the EU’s outer border

CO2 uitstoot schoorstenen

Dutch European Commissioner Frans Timmermans (who will be responsible for climate issues) wants to introduce a CO2 tax at the outer border of the European Union. This is in order to avoid products that have not been manufactured in a climate-neutral way. He announced this measure during his approval hearing at the European Parliament. There they are appointing the new European Commission which will take up office next month. According to Timmermans, this is the only way to get the European climate law passed which he is to present this spring. The exact date on which this border tax is to come into effect should be revealed in this climate law. It will apply to all Member States.

A 55% reduction by 2030

This climate law ought to include information on how the Member States will make their economies climate-neutral. CO2 emissions must be reduced by 55% by 2030, Timmermans announced. That is 10% more than what was originally agreed to. By 2050, CO2 emissions need to zero out on balance. With that commitment, in two weeks’ time he will start his mandate as European Commissioner for Climate Change. His most important task will be to deliver a so-called ‘Green Deal’. The new climate law is an important part of this. Along with that, he wants to overhaul legislation on greenhouse gas emissions and energy.

European Commissioner Frans Timmermans announces the CO2 border tax in the European Parliament Image: still live streaming

The problem is not that achieving CO2-neutral production is not technically possible, says Erik Klooster. He is managing director of VNPI, a Dutch association which brings together the major petrochemical companies (together with the chemical and metal industries, who are the main producers of CO2), such as Shell and Esso. “It is,” he states. The problem is that making the industry CO2-neutral makes manufacturing much more expensive. This makes the industry less competitive compared to industry in countries that are not implementing any climate measures. If there is no such border tax, European industry will be forced out of business. “Esso has been calling for this kind of carbon adjustment or carbon border tax for years,” says Klooster. “It is the only way to make Europe climate-neutral.”

A leading role

That is also what Commissioner Timmermans told the European Parliament, who will have to approve his new climate legislation next year. “We shouldn’t want to bring in products that are cheaper because they have not taken the environment into account. I think that such a CO2 border tax will be subject to an assessment from the WTO. If, for example, a country such as China or India also starts to produce in a CO2-neutral way, we will drop that tax on their products.”

Also read: Former Secretary of State of the United States: Quadruple the CO2 price and let the polluter pay

Empty gas fields

That’s also the purpose of such a levy, says Klooster. “The EU’s share in global CO2 emissions is relatively small. So we don’t have to do it for that sake.” The EU, and the Netherlands in particular, can play an important pioneering role by involving other countries in the world such (as India and China) in the production of clean energy. “Industry in the Netherlands is geographically close to each other. There are enough empty gas fields available in the next few decades for storing CO2 that has been emitted and captured. It is therefore cheaper to build a pipeline for CO2 transport to an empty gas field than it is in England, for example. Industry is scattered all over the country there.

Extracting CO2 from air

Another method of achieving CO2-neutral production is to capture the greenhouse gas and bind it to hydrogen via a chemical process. This creates a synthetic fuel that can be reused. This is also a way to ensure that aircraft that don’t fly electrically and therefore continue to emit CO2 will still be able to operate in a climate-neutral way, says Klooster. “You can extract the amount of CO2 that an aircraft produces out of the air, and then store or process it.”

Also read: Aviation industry to European Commission: ‘money is needed to develop zero-emission aircraft’

National Parliaments

The question is whether national parliaments are prepared to sign the climate legislation that Timmermans will be proposing. For example, the Polish Member of the European Parliament Anna Zalewska ( from the Conservatives and Reformists faction) said at the Timmermans hearing prior to his appointment as European Commissioner for Climate last month, that she feared it would destroy Polish industry. Much of it runs on coal. “Hundreds of billions of euros are needed to make the transition possible. We just don’t have that.”

Euro-parliamentarian Anna Zalewska, from the Conservatives and Reformists faction, says that Poland does not have enough money to abandon coal.

Money for Poland en Greece

Timmermans replied that money had to be sent to countries such as Poland and Greece because they are unable to pay for the energy transition themselves. “My grandparents were miners in Heerlen. When the mines were still open, Heerlen was the second richest city in the Netherlands. After the closure of the mines, Heerlen changed into one of the poorest municipalities in the Netherlands. We must make sure that we prevent this from happening in the European regions that are currently dependent on coal.”

Also read: BMW Director: ‘Make recharging electric cars as easy as recharging smartphones’

Timmermans stressed that there is absolutely no future for the coal industry. He wants to work together with national and local authorities, the European Investment Bank and make use of existing EU funds for this transition by diverting them towards making the EU climate-neutral.

Cost: 200 billion euros per year

An important part of the money needed to make poor, coal-dependent regions climate-neutral should come from richer EU countries such as The Netherlands and Germany. Their national parliaments must approve the new climate law, including the redistribution of financial resources. Commissioner Timmermans predicted that it would take in total €200 billion a year over the next five years to make the EU climate-neutral. “But the Member States are almost as stingy as the Dutch,” he said. “They have to open their wallets.”

Climate Ambassador Mary Robinson: ‘Without an ambitious Green Deal, society will break down.’

The former President of Ireland and High Commissioner for Human Rights, Mary Robinson, believes that the European Commission should speed up the transition process of making energy generation more sustainable within the Member States. As a matter of urgency, we should get rid of fossil fuels. Otherwise, we will not be able to produce in a CO2 neutral way by 2050. She founded her own climate foundation, Climate Justice, in 2010, which stands up for the victims of climate change.

Robinson spoke with entrepreneurs who have start-ups in sustainable energy during the congress of the European investor InnoEnergy held last week in Paris.

Afterwards, we asked her three questions which we also submitted to Diego Pavía, the CEO of InnoEnergy. In contrast to investor Pavía, Robinson foresees resistance on the part of a number of member states because they appear to be persisting with coal-burning energy generation for now.

How do you see the roadmap towards 2030 for Europe? With the emission of the greenhouse gases having to be halved by then and completely carbon-free by 2050. What is the least that needs to be done in order to meet these targets?

“The first thing that needs to happen is that countries as well as large industrial companies commit themselves to the target of carbon neutrality by 2050. And that’s where they have to start operating from. We have a coalition of countries that are committed to carbon neutrality. There are about 20 countries and cities around the world that are working towards this. Hopefully this goal will be achieved by 2030. Then we will have to work on specific issues. Which, in the words of the UN Secretary-General, means ‘no new coal from 2020 onward.’ We must phase out the existing coal-fired power stations. We need innovation instead. Scientists told us in their report that limiting the temperature rise to 1.5 degrees can be done if we have the political will.

I am particularly interested in how we can mobilize that political will from the grass roots level to urge governments to act. I see it happening: I see school children, young people, Extinction Rebellion members and female leaders standing up like never before. There are companies that are not based on fossil fuels, investors that no longer want to have anything to do with stranded assets [companies or shares in companies that can quickly decline in value because of the environmental damage they cause, ed.], philanthropic organizations, new trade unions, etc. All these parties together form a loose, wide-ranging movement. Which should now focus on various regions and countries and perhaps approach these from different perspectives. You see a very unusual alliance emerging. You see business leaders and investors joining civil society. You see women leaders standing up and trying to encourage governments and companies to take certain steps.”

What do you expect from the Green Deal from Commissioner Frans Timmermans, the paper on how the EU will achieve its 2030 and 2050 targets?

“I’m not sure if I’m well-informed enough to know about that. I am aware that there is a problem with abandoning coal. I think that the EU Member States have different levels of ambition in this area. So it is very important that the European Commission tries to encourage all countries to be more ambitious about leaving coal behind. On that point, for example, I am impressed by Denmark. At the climate summit, that country promised to emit 77% fewer greenhouse gases by 2030 [instead of the agreed 45%, ed.]. I think this is the most ambitious target so far.”

Do you see any obstacles to the adoption of the Green Deal by the Member States?

“It is very important at the moment for Europe to manifest itself as a leader and to demonstrate ambition. Europe used to be like that in the past. However, they have lost that leadership a little bit. They really need to step up their efforts. I think that requires major momentum within the various countries of the EU. One that will encourage leaders to understand that we are talking about a safe future for our children and grandchildren. Europe must take the lead. We have a historical responsibility for that. We are also in a position to take the lead. We have economies that can lead this energy transition and, in my opinion, should lead it. Otherwise, we will increasingly have to deal with the breakdown of society. People no longer tolerate ‘business as usual’. This breakdown can take many forms. It can manifest itself in an increasing number of lawsuits against companies, pressure from shareholders on companies, movements that rise up like Extinction Rebellion. They can be profit warnings from investors in companies that point out exposure to certain risks. If we don’t get an ambitious Green Deal, we’ll see more destabilization.”

But within the different EU Member States there are also movements and political parties that do not believe that climate change exists and who will oppose such an ambitious Green Deal.

“That’s right. Populism is on the rise. There is a backlash. But young people mainly look at the science. And the science is very clear. So I think this will be decisive. I’ve been asked to be the patroness of the International Science Council. This is a council that was created last year as the result of a merger between the International Council for Science (ICSU) and the International Social Science Council (ISSC). The importance of this is to bring the hard natural sciences and the social sciences together. This is crucial because this council is a body that wants to be the voice of science on a global level. I feel very strongly that we must continue to believe in science. That we have to keep science in mind under all circumstances. Science is the answer to the question of how we should tackle climate change. More and more the reports tell us that the climate problem is more urgent than previously thought and that the climate is changing faster. We must be vigilant in dealing with this situation.”

CEO InnoEnergy Pavía: ‘Timmermans, show some vision and don’t let lobbyists dictate the Green Deal’

Diego Pavía, the CEO of InnoEnergy, (which is a European investor in innovative start-ups), is firmly convinced that we will no longer emit CO2 in 2050 and will all be using green energy. Innovation Origins asked him why and how he views the Green Deal that European Commissioner Frans Timmermans is due to deliver at the end of this year. This outlines how Europe will become CO2-free by 2050. “The most important thing is that Timmermans should have his own vision for the energy transition. He should not be influenced by lobbyists,” Pavía states.

How do you feel about the European member states’ roadmap to 2030. That’s when they should have reduced their greenhouse gas emissions by half. And what about 2050, when they will no longer be allowed to emit any greenhouse gases at all?

“This energy transition will become reality. Why? Nowadays, you can choose between generating energy from windmills or from burning fossil fuels. Generating energy from a wind farm is cheaper. This means that technologies that can meet the targets for the energy transition already exist. And they are ‘in the money, as we like to call it. They are competitive. If this wasn’t the case, the consumer would go for what would yield them the most profit. What is most competitive in this day and age is already based on green technology.

Is that due to subsidies?

“No. That was the case during the early stages of sustainable energy generation. But now the business is able to stand on its own two feet. The innovations and inventors of new technologies have demonstrated that they have what it takes to do this. These innovations are feasible from a business perspective. But there are always two sides to a transition. That of the business to business, and that of the business to consumer, or citizen. The business-to-business side is at the forefront. Companies involved will meet the targets for reducing greenhouse gas emissions sooner than agreed. Just because it makes good business sense to use the most competitive technology. As far as the business-to-consumer side of things are concerned, the use of innovative technology and the mindset of consumers will have to change. A lot needs to be done before consumers make the switch and buy a new type of car, or a heat pump for household heating, for example. This transition will be much more difficult.”

Is it because people’s ingrained behaviour has to change?

“Yes, the way they deal with the products they use is in their heads. That’s why we organized a conference [last week, ed.] on humanizing the energy transition. We have to take this transition to the citizens so that they don’t become spectators or sufferers, but instead become actors. This is a problem that you simply can’t solve overnight. We all come from diverse cultures in Europe. There are Germans, Spaniards, French, etc. We all behave in different ways and we all react differently to the stimuli that comes from the energy transition. We have to work together as participants in the system in order for that to happen.”

What do you expect from the Green Deal’s European Commissioner Frans Timmermans? If you could contribute something, what would that be?

“I definitely don’t have the answer to that question. But I would say: hey, Mr. Timmermans, you need a vision! Then he needs to provide the tools for implementing his vision. Since Timmermans has the money he received from the European Commission’s President Ursula von der Leyen for the transition, he has been pulled in all directions by practically every lobbyist conceivable. The danger that this presents, is that if Timmermans does not have his own vision and the accompanying tools, he will allow himself to be influenced by these lobbyists and he will make a hotchpotch of all these influences. That’s a mistake.”

The Member States must approve the Green Deal

“No. The Member States must submit their own national climate plans. Already there are concepts of how they will contribute to the climate targets for 2030. But they still need to be streamlined, of course.”

Is it conceivable that there are obstacles that stand in the way of getting this Green Deal approved?

“The Green Deal is the political strategy for accelerating the process of energy transition within the EU. Yet the way in which we are supposed to achieve these targets has already been determined. The groundwork for the legal regulatory system that is needed for this is already in place, so I don’t see any obstacles there.”

You also don’t see any difficulties that might prevent this process from being sped up?

“No. The [requisite sustainable, ed.] technology is there and is valuable. If we stop using fossil fuels for industrial production processes right now, the companies involved would lose money. So we have to help them. Not only the industry and the companies, but also citizens who have to go through the transition.”

So there has to be enough money to help existing companies.

“Yes. There must be clear incentives, though not necessarily in terms of subsidies. But it does need to be like this:  If I have a factory which is currently using coal, I should be able to easily invest in a much cleaner wind farm. Right now, as in today. And then be able to write off that coal factory.

But as an entrepreneur you have to be able to afford that

“Yes, but there is plenty of money available. That’s not the problem.”

There is no obstacle in your view

“Yes, there is. The obstacle is us: we citizens. For example, think about locations where wind farms will be built. We have to accept these changes.”