€10bn EU low carbon fund, based on emissions trading revenues, edges closer to launch

Innovation Fund will use revenues from the EU Emissions Trading System

A European Commission grants programme for accelerating the low carbon transition is edging closer to launch with the EU’s climate action body putting out a tender for the €10bn structure’s design.

First announced in February, the Innovation Fund will use revenues from the EU Emissions Trading System (ETS) to finance low-carbon innovation, including in energy intensive industrial sectors, principally in the form of grants.

Now, the commission is calling for a contractor to design the essential elements and guidance for the fund’s “first call” – the first round of application-taking and grant-making – according to the €750,000 contract listed on the Commission’s tender portal by its Directorate-General for Climate Action (DG Clima).

The key elements of the “first call” involve application, evaluation, selection, award and reporting. The successful applicant will also propose risk sharing schemes and provide inputs for the knowledge-sharing framework of the fund.

The fund, which will be managed by the Commission alongside a public implementing body, will support economically viable, close-to-maturity innovations in renewable energy, energy storage, and carbon capture utilisation and storage (CCU and CCS) technology.

According to EU documents, eligible examples of decarbonisation among energy intensive sectors will include oil refineries that switch to sustainable feedstocks or low carbon hydrogen, and chemicals manufacturers that switch to renewable energy,

The Commission considers the fund to be one of the integral elements for delivering the EU’s commitments under the Paris Agreement, and for smoothing the path for innovation funding.

At launch, the Commissioner for Climate Action and Energy, Miguel Arias Cañete, said the fund was “unleashing technological solutions in all Member States and pressing the fast-forward button in our transition to a modern and climate-neutral society in Europe”.The fund replaces the earlier NER 300 programme, which saw €2.1bn awarded to 38 renewable energy and CCS projects.

By the Commission’s own admission, NER 300 had a low success rate, with only six out of 39 awarded projects entering into operation, and 14 having been withdrawn.

The new fund is expected to amount to around €10bn, with its revenues coming from the auctioning of 450m ETS “allowances” over the period 2020-2030, as well as any unspent funds coming from the NER 300.

Its total capacity will depend on the carbon price, which currently stands at just below €27 per tonne.

The Commission said the fund would have a “much higher” maximum grant than the NEF 300 – which awarded €300m at most and €54m on average – with small-scale projects with costs under €7.5m also eligible.

Grants will support up to 60% of the additional capital and operational costs linked to innovation, which the Commission says will improve the risk sharing for projects.

Up to 40% of this grant can be given based on pre-defined milestones, such as reaching financial close, and before the whole project is fully up and running.

The commission said the fund will complement other EU funding programmes. For example, grants can be complemented with repayable support in the form of debt, equity, or guarantees through blending with the InvestEU programme.

An expert group for the fund, which includes representatives from the European Investment Bank, is also advising the Commission on its implementation.

Following the design of essential elements of first class for proposals, the final preparations are scheduled to be made towards the end of 2019.

The Commission aims to launch the first call for proposals next year, with regular calls until 2030.