European Commission announces €4b funding call under the EU Innovation Fund for net-zero tech innovation projects

• The European Commission has announced the largest call to date (€4b available) for funding applications related to innovative decarbonization technologies as part of the European Union Innovation Fund.
  
  
• Notably, the budget allocated for clean tech manufacturing projects has doubled, creating greater opportunities for a larger number of businesses.
  
  
• Businesses in this space should carefully review the funding eligibility criteria and plan for a successful application.

Executive summary

On 23 November 2023, the European Commission (EC) announced its fourth call for funding under the EU Innovation Fund (EU IF) — €4b available for innovative decarbonization and clean-tech proposals. The EU IF is the EC's only fund that supports up to 60% of the additional capital and operational costs of large-scale projects and up to 60% of the capital costs of small-scale projects, both for a duration of 10 years of operation.

The European Green Deal (EGD) sets the path for Europe toward climate neutrality and has enshrined its climate ambitions in the European Climate Law committing to reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. One key pillar of the EGD is financing the transition; the EC is providing for significant levels of funding through various funding instruments. The EU IF is the world's largest funding program supporting innovative decarbonization technologies.

This Alert summarizes key aspects and considerations for businesses innovating in the decarbonization and clean-tech space.

Detailed discussion

The call aligns with the EGD's imperative to innovate and decarbonize industries, transportation and the energy sector. Funded by emissions trading revenues, the EU IF is a key enabler to enhance European industry competitiveness while also accelerating industry decarbonization.

Funding under the EU IF is available for certain projects located in the European Economic Area (EEA), namely small, medium and large scale decarbonization projects, clean-tech manufacturing and pilot projects focusing on deep decarbonization. It is worth noting the budget for clean-tech manufacturing projects has been doubled compared to the previous call, allocating €1.4b to drive advancements in components for renewable energy, energy storage, heat pumps and hydrogen production.

Following the recent revision of the EU Emissions Trading System, the EU IF also welcomes proposals from the maritime, road transport, and buildings sectors, in addition to technologies in energy-intensive industries (including aviation), renewable energy or energy storage.

Funding amounts available

The EU Innovation Fund can cover up to 60% of a project's relevant costs for up to 10 years of operations. The €4b worth of funding is split as follows:

• General decarbonization (large-scale): €1.7b available for projects with capital expenditures (CAPEX) exceeding €100m
  
  
• General decarbonization (medium-scale): €500m available for projects with CAPEX between €20m and €100m
  
  
• General decarbonization (small-scale): €200m available for projects with CAPEX between €2.5m and €20m
  
  
• Clean-tech manufacturing: €1.4b available for projects with CAPEX exceeding €2.5m focusing on the manufacturing of components for renewable energy, energy storage, heat pumps and hydrogen production
  
  
• Pilot projects: €200m available for projects with CAPEX exceeding €2.5m focusing on deep decarbonization

Eligibility and timeline

Each project application will be subject to a detailed eligibility criteria set out by the EC. Projects will be assessed based on greenhouse gas emission reduction potential, degree of innovation, maturity, replicability and cost efficiency.

Businesses looking to apply for funding must submit their applications by the 9 April 2024 deadline. The EC is holding an information call on 7 December 2023 for interested project promoters — more information is available here.

Successful applicants will be informed of results in Q4 2024 and grant agreements will be signed in Q1 2025.

European Hydrogen Bank pilot auction

In addition to the significant funding noted above, the EU IF announced on 23 November 2023 the first pilot auction under the European Hydrogen Bank. The €800m budget offers parallel opportunities for hydrogen producers in the EEA to bid for support in the form of a fixed premium per kilogram of renewable hydrogen produced.

Importantly, projects cannot combine support from both the EU IF funding call and the European Hydrogen Bank.

Business implications

With the climate crisis continuing to unfold, financing sustainable innovation and technology is a key priority for the EC. Businesses should consider seizing the strategic opportunity presented by the EC's €4b EU Innovation Fund call. In particular, businesses engaged in clean-tech manufacturing should explore the substantial funding available in this call (doubled from the previous call).

EY teams are well equipped to help businesses craft funding applications. Activities include assessing funding eligibility in line with EU or national frameworks, preparing application documents, evaluating feasibility studies and business cases, and considering project implementation plans.

Accessing available financing, funding and other incentives (tax and non-tax) is a critical element of any business's sustainability strategy. One important first step is to systematically map business plans to the funding and incentives landscape.

For additional information with respect to this Alert, please contact the following:

EY Tax Consultants BV
 

• Ingo Bunzeck
   

Ernst & Young AB
 

• Marcel Sikkema
   

Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft
 

• Khaled Elhodaiby
   

Published by NTD's Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.