Part I: Genesis and Foundational Lessons - The NER300 Legacy

The European Union's Innovation Fund, operational since 2020, stands as one of the world's largest and most ambitious funding programmes dedicated to the commercial demonstration of innovative low-carbon technologies. However, its architecture and strategic orientation cannot be fully comprehended without a thorough examination of its predecessor, the NER300 programme. Launched in 2009, NER300 was the EU's first major attempt to use revenues from its Emissions Trading System (ETS) to co-finance large-scale climate innovation projects. Its mixed results, particularly its pronounced failures, provided a series of critical, hard-won lessons that directly informed and shaped the design, scope, and operational mechanics of the Innovation Fund. This section details the ambition, performance, and ultimate legacy of NER300, arguing that its shortcomings were a necessary, albeit costly, catalyst for creating the more robust and commercially astute instrument that exists today.

1.1. The Precursor's Ambition: A Bold First Step

The NER300 programme was established with the explicit goal of catalysing the demonstration of two key technology categories at a commercial scale within the EU: environmentally safe Carbon Capture and Storage (CCS) and innovative renewable energy (RES) technologies. Its name was derived from its novel funding mechanism: the sale, or 'monetisation', of 300 million emission allowances from the New Entrants' Reserve (NER) of the EU ETS, which was set up for the system's third phase (2013-2020). This mechanism was intended to raise significant capital, with initial estimates suggesting a potential of around €4.5 billion, though the final amount raised was €2.1 billion due to fluctuating carbon prices.

The programme's strategic purpose was to bridge the perilous gap between the research and development phase and full commercialisation, a critical stage where promising technologies often falter due to high capital costs and investment risks. By co-funding up to 50% of the 'relevant costs'—defined as the additional investment cost compared to a conventional technology—NER300 aimed to encourage private sector investors and Member States to commit to first-of-a-kind demonstration projects.

The scope of NER300 was ambitious, targeting a wide portfolio of technologies. In the CCS domain, it covered pre-combustion, post-combustion, and oxyfuel capture technologies, as well as industrial applications. For renewables, the programme was open to a broad spectrum including bioenergy, concentrated solar power (CSP), photovoltaics (PV), geothermal, wind, ocean energy, hydropower, and smart grids. The initial plan was to co-fund a balanced portfolio comprising at least eight CCS projects and 34 innovative RES projects, distributed across Member States to foster a pan-European demonstration programme. The European Investment Bank (EIB) was tasked with appraising project proposals and managing the revenues from the allowance sales, while Member States were responsible for liaising with project sponsors.

1.2. A Post-Mortem on Performance: A Tale of Two Technologies

Despite its bold ambitions, the performance of the NER300 programme was deeply problematic, ultimately failing to deliver on its central objectives, particularly in the realm of Carbon Capture and Storage.

The Comprehensive Failure of CCS Demonstration

The most significant failure of NER300 was its inability to bring a single CCS demonstration project to fruition. The programme was designed to be a cornerstone of the EU's strategy to prove CCS at a commercial scale, yet this objective was entirely unmet. Under the first call for proposals, no CCS projects were awarded funding. Under the second call in 2014, one CCS project in the United Kingdom was awarded a grant of €300 million. However, this sole project was withdrawn in 2015 after the UK government cancelled its parallel national CCS support scheme, which created an insurmountable funding gap for the project promoter.

The primary cause of this failure was the collapse of the business case for CCS, driven by a much lower-than-anticipated carbon price in the EU ETS after 2011. Projects had based their financial viability on assumptions of a high and rising carbon price, but market realities rendered the technology economically unviable without substantial and sustained public subsidy beyond what NER300 could offer alone. This exposed a critical flaw in relying on a volatile market signal to drive investment in technologies with extremely high upfront capital costs.

Limited and Curtailed Success in Renewables

While the programme had more tangible success in the renewable energy sector, its achievements were still significantly curtailed. Across its two funding calls in 2012 and 2014, NER300 ultimately awarded a total of €2.1 billion to 39 projects—38 in renewable energy and the one ill-fated CCS project. These projects were located in 20 different EU countries and were projected to leverage an additional €2.7 billion in private investment.

However, the portfolio suffered from a high rate of attrition. A challenging economic environment and difficulties in securing the necessary private co-financing and national support led to the withdrawal of numerous awarded projects. Even after the European Commission extended deadlines to account for these difficulties, seven projects from the first call and more from the second call were withdrawn. This resulted in a substantial volume of unspent funds. From the first call alone, approximately €623 million remained undisbursed, while unspent funds from the second call amounted to around €735 million.

These unspent funds were not lost but were eventually repurposed. The funds from the first call were reinvested through existing financial instruments managed by the EIB, namely the InnovFin Energy Demo Projects (EDP) and the Connecting Europe Facility (CEF) Debt Instrument, to support projects through loans and guarantees. The larger sum of unspent funds from the second call was channelled directly into the successor programme: the Innovation Fund. This outcome, while pragmatic, underscored the programme's inability to deploy its full budget as intended.

1.3. Forging a New Path: The Design Imperatives for the Innovation Fund

The shortcomings of NER300 prompted a period of intense policy reflection, culminating in a critical 2018 special report by the European Court of Auditors (ECA) that systematically dissected the programme's failures. This report did not merely document the poor performance; it provided a clear and actionable diagnosis that became the foundational blueprint for the Innovation Fund. The design of the Innovation Fund is, therefore, not an arbitrary evolution but a direct and deliberate response to the specific lessons learned from its predecessor's struggles.

Lesson 1: De-risking Capital Expenditure, Not Just Operational Performance

A fundamental flaw identified by the ECA was NER300's funding model, which disbursed grants after a project had entered into operation and was based on verified performance (i.e., energy produced or CO2 stored). This "pay-for-performance" model failed to address the primary barrier for first-of-a-kind projects: the immense upfront capital investment risk. Project promoters were left to bear the full financial risk during the costly construction phase, making it exceedingly difficult to reach financial close.

The Innovation Fund was explicitly designed to rectify this. It incorporates a flexible disbursement mechanism where up to 40% of the grant can be paid out based on the achievement of pre-defined milestones during the project's development and construction phase, such as reaching financial close. This provides crucial capital when it is most needed, directly de-risking the investment and making projects more attractive to private financiers.

Lesson 2: Embracing Simplicity and Flexibility

The NER300 application and management process was condemned as overly complex, lengthy, and rigid. Its use of pre-defined technology categories, established in 2009, meant it could not adapt to the rapid pace of technological change and market developments. Furthermore, its legal structure made it impossible to replace withdrawn projects with others from a reserve list, leading to the large amounts of unspent funds.

The Innovation Fund was conceived to be "bigger and better" in every respect, with simplicity and flexibility as core design principles. It abandoned rigid technology categories, opening the door to innovative projects from all sectors covered by the ETS, particularly energy-intensive industries which had been largely excluded from NER300. Its application process has been streamlined, and its governance structure is designed to be more agile, allowing call conditions to be adjusted annually to reflect evolving policy priorities and market needs.

Lesson 3: Broadening the Scope to Industrial Decarbonisation

NER300's focus was narrowly defined around CCS and a specific list of renewable energy technologies. This reflected the policy priorities of the late 2000s but failed to address the broader challenge of industrial decarbonisation. The Innovation Fund was established with a much wider mandate from the outset, explicitly targeting innovative low-carbon technologies and processes in energy-intensive industries like steel, cement, and chemicals, as well as Carbon Capture and Utilisation (CCU) and energy storage. This represents a crucial strategic shift from a focus on clean energy generation to a comprehensive approach aimed at decarbonising the entire industrial backbone of the European economy, in line with the ambitious goals of the European Green Deal.

Lesson 4: Enhancing Governance and Accountability

The ECA raised serious concerns about the governance of NER300, noting its off-balance-sheet nature, the inapplicability of the EU's standard Financial Regulation, and a lack of clear accountability and reporting requirements. This created a transparency deficit. In response, the Innovation Fund operates under a clearer tripartite governance framework, with distinct roles and responsibilities for the European Commission (policy and overall management), the European Climate, Infrastructure and Environment Executive Agency (CINEA) (implementation and grant management), and the European Investment Bank (EIB) (project development assistance). While still funded by ETS revenues outside the main EU budget, its operational structure is more formalized and integrated into the EU's executive agency system.

The failure of NER300 was not a total loss but rather an expensive and invaluable lesson in public financing for industrial innovation. It exposed the naivety of relying on a single, volatile market signal (the carbon price) and a back-ended funding model to drive multi-billion-euro investments in high-risk technologies. The political and policy fallout from this failure created the necessary momentum for a fundamental redesign. The Innovation Fund's core features—upfront risk-sharing, a broad industrial scope, a simplified and flexible process, and a clearer governance structure—are the direct products of this institutional learning cycle.

Feature	NER300 Programme (2009-2020)	Innovation Fund (2020-2030)	Rationale for Change (Lessons Learned from NER300)
Funding Disbursement	Grants paid after project operation began, based on performance (energy produced/CO2 stored).	Up to 60% of the grant can be disbursed during the project lifetime, with up to 40% based on pre-defined milestones before operation.	The NER300 model failed to de-risk the high upfront capital investment phase, which was the primary barrier for projects reaching financial close.
Project Scope	Narrowly focused on specific CCS and innovative renewable energy technologies listed in the legal basis.	Open to all innovative low-carbon technologies in sectors covered by the EU ETS, including energy-intensive industries (steel, cement, chemicals), CCU, energy storage, and mobility.	NER300's rigid categories became outdated and excluded key industrial sectors vital for decarbonisation. A broader, more flexible scope was needed to meet Green Deal objectives.
Application Process	Complex, lengthy, multi-stage process with different managing entities causing confusion.	Simplified, single-stage application process for main calls, managed centrally via the EU Funding & Tenders Portal.	The complexity and length of the NER300 process were significant barriers for applicants and led to inefficiencies.
Flexibility	Highly rigid. Pre-defined technology list and inability to replace withdrawn projects led to large unspent funds.	Highly flexible. No technology silos, and call priorities and conditions can be adjusted annually. Reserve lists and Project Development Assistance are used to maximize fund utilization.	The lack of flexibility in NER300 prevented it from adapting to market changes and resulted in significant under-spending.
Risk-Sharing Model	Placed most of the risk on project promoters, who had to secure full financing before receiving any EU funds.	Explicitly designed to share risk with project promoters by providing upfront capital and covering up to 60% of relevant innovation costs (CapEx and OpEx).	The NER300 model was ineffective at de-risking projects, which is the core purpose of such a fund. A true risk-sharing partnership was required.
Governance	Unclear accountability arrangements, off-balance sheet, and not subject to standard EU financial regulations or discharge.	Clearer tripartite governance structure involving the Commission (policy), CINEA (implementation), and the EIB (assistance).	The ECA heavily criticised NER300's lack of transparency and accountability, demanding a more robust and auditable structure for its successor.

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Part II: The Innovation Fund's Architecture and Operational Framework

Building on the lessons of its predecessor, the Innovation Fund was engineered with a sophisticated and robust architecture designed to function as a primary engine for the European Union's green industrial transformation. Its operational framework is defined by a clear strategic mandate, a unique and powerful funding mechanism, a multi-layered governance structure, and a rigorous application and evaluation process. This section provides a detailed analysis of these components, serving as a comprehensive guide to the fund's present-day structure.

2.1. Mandate and Strategic Alignment: A Key Tool for the Green Deal

The Innovation Fund's legal foundation is Article 10a(8) of the EU Emissions Trading System (ETS) Directive (2003/87/EC), which establishes its purpose to support innovation in low-carbon technologies and processes across all Member States. However, its significance extends far beyond this legal anchor. The fund is explicitly and repeatedly positioned as a key implementation tool for the EU's most critical strategic initiatives of the current decade.

It is a central pillar of the European Green Deal, the EU's overarching strategy to achieve climate neutrality by 2050. It directly contributes to the REPowerEU Plan by financing technologies that reduce dependence on fossil fuels, to the Green Deal Industrial Plan by fostering clean tech manufacturing, and to the Net-Zero Industry Act (NZIA) by supporting the scale-up of strategic net-zero technologies within Europe. This deep integration into the EU's core policy agenda elevates the Innovation Fund from a mere financial instrument to a strategic lever of industrial and climate policy. Its stated goals reflect this ambition: to help businesses invest in clean energy and industry, to boost economic growth and create future-proof jobs, and to reinforce Europe's technological leadership on a global scale.

2.2. The Engine Room: Funding from the EU Emissions Trading System (ETS)

The financial power of the Innovation Fund stems from a unique and self-sustaining mechanism: its revenues are generated exclusively from the auctioning of allowances within the EU ETS, the world's largest carbon pricing system. This design creates a powerful "polluter pays" principle in action, where the costs imposed on greenhouse gas emissions are directly reinvested into the technologies and processes needed to eliminate those emissions.

The fund's financial endowment has grown over time. It was initially resourced with the revenues from 450 million ETS allowances for the 2020-2030 period. The comprehensive revision of the EU ETS Directive in 2023, as part of the "Fit for 55" package, increased this allocation to approximately 530 million allowances. In addition to this, the fund absorbed the substantial unspent funds from the NER300 programme.

Crucially, the total budget of the Innovation Fund is not a fixed sum but is directly dependent on the carbon price. The European Commission projects that the fund could amount to approximately €40 billion between 2020 and 2030, an estimate calculated using a reference carbon price of €75 per tonne of CO2 (/tCO2​). This direct link to the carbon market is both a major strength and a potential vulnerability. It creates a virtuous cycle where a higher carbon price—which strengthens the business case for decarbonisation—simultaneously increases the financial firepower of the fund to support those investments. This provides a powerful, market-aligned policy signal. However, it also introduces inherent budget volatility. A significant economic downturn could lead to reduced industrial output, lower demand for allowances, and a subsequent fall in the carbon price. This would shrink the Innovation Fund's budget at the very moment when private capital for high-risk clean tech projects is likely to be most constrained, creating a pro-cyclical risk that contrasts with the predictability of traditional EU budget lines fixed within the Multiannual Financial Framework (MFF).

2.3. Governance and Key Actors: A Tripartite Structure

The implementation of the Innovation Fund is managed through a clear division of labour among three key European bodies, ensuring a separation of policy, execution, and technical assistance functions.

1. European Commission (DG CLIMA): The Directorate-General for Climate Action is responsible for the overall strategic management and policy direction of the fund. It defines the priorities for the calls for proposals, develops the legal framework, and makes the final award decisions based on the evaluation rankings. The Commission is assisted in this role by the Innovation Fund Expert Group, which provides input on policy developments and call design.
2. European Climate, Infrastructure and Environment Executive Agency (CINEA): CINEA serves as the fund's primary implementing body. It is responsible for the entire operational lifecycle of the calls for proposals. This includes publishing the calls, managing the submission portal, organizing the evaluation of proposals by independent experts, preparing and signing grant agreements with successful projects, disbursing the funds, and conducting the technical and financial monitoring of the project portfolio throughout its lifetime.
3. European Investment Bank (EIB): The EIB plays a crucial supporting role by providing Project Development Assistance (PDA). This service is offered to promising project proposals that, while not selected for a grant due to budget limitations or insufficient maturity, are deemed to have the potential for improvement. The EIB provides tailored technical and financial advisory support to help these project promoters strengthen their business plans, financial structures, and technical readiness, thereby increasing their chances of success in future Innovation Fund calls or in securing alternative financing. This PDA mechanism is a direct institutional response to the widespread project maturity and bankability issues that plagued the NER300 portfolio.

2.4. The Application Gauntlet: From Proposal to Grant

Securing a grant from the Innovation Fund is a highly competitive and demanding process, designed to select only the most impactful, innovative, and mature projects.

The Process and Documentation

For its main grant calls, the fund has largely adopted a single-stage application process, a simplification from the two-stage procedure used in its very first large-scale call. All applications must be submitted electronically through the EU's central Funding & Tenders portal.

The application itself is a formidable undertaking, described by consultants as a lengthy and intensive process that can result in documentation packs of 200 to 300 pages. The core of the application is a proposal that must demonstrate the project is essentially "investment-ready"—something that could be presented to a company's board or external investors for a final investment decision. Key mandatory annexes that must be prepared in detail include:

• A comprehensive GHG emission avoidance calculation, detailing both absolute and relative savings against a defined baseline.
• A detailed feasibility study outlining the technical viability of the project.
• A robust business plan and financial model, demonstrating the project's economic sustainability.
• A credible project implementation plan, including timelines, risk management, and permitting strategies.

The Five Award Criteria

All proposals are assessed and scored by a panel of independent external experts against five equally weighted award criteria. A project must pass a minimum threshold on each criterion to be considered for funding, and projects are then ranked based on their total score. The five criteria are:

1. Effectiveness of Greenhouse Gas (GHG) Emissions Avoidance: This is the primary climate-related criterion. It evaluates the project's potential to deliver significant GHG emission reductions over its first ten years of operation. The assessment considers both absolute avoidance (in tonnes of CO2 equivalent) and relative avoidance (the percentage reduction compared to a conventional reference technology).
2. Degree of Innovation: This criterion assesses how much the project's technology goes beyond the current state-of-the-art. It is not limited to breakthrough inventions; significant improvements on existing technologies can also score well. The evaluation considers the potential to deliver on multiple climate objectives, such as energy efficiency, circularity, and net carbon removals.
3. Project Maturity: This is often the most challenging criterion and acts as a critical gatekeeper. It is evaluated across three distinct sub-criteria:
   • Technical Maturity: Assesses the technology's readiness level (TRL) and the technical feasibility of the project plan.
   • Financial Maturity: Scrutinizes the credibility of the business model, the financing plan, and the level of commitment from investors and offtakers.
   • Operational Maturity: Examines the implementation plan, the project team's capacity, the status of required permits, and the strategy for public acceptance and securing supply chains.
4. Scalability and Replicability: This criterion looks beyond the individual project to its wider potential impact. It assesses the potential to scale up the technology at the project site, to replicate it at other locations, and for the innovation to be applied more broadly across its sector and the wider economy. A credible knowledge-sharing plan is a key component of this assessment.
5. Cost Efficiency: This is a quantitative measure that evaluates how efficiently the requested grant is used to achieve the project's objectives. It is typically calculated as the amount of the grant requested divided by the total expected GHG emissions avoidance (e.g., € per tonne of CO2 avoided), creating a "cost-per-unit-performance" metric.

The fund's dual requirements for "high innovation" and "high maturity" create a structural tension. Truly breakthrough technologies are inherently riskier and may struggle to present the fully secured offtake agreements, permits, and bankable financial models needed to score highly on the maturity criterion. This can create a "second valley of death," where a technology is too advanced for traditional R&D funding (like Horizon Europe) but not yet de-risked enough to meet the Innovation Fund's stringent investment-readiness threshold. The very existence of the EIB's Project Development Assistance—a service offered to promising projects that fail to secure a grant—is an implicit acknowledgement of this gap. The PDA functions as a reactive mechanism to help projects navigate this challenging phase, but the fund's own rigorous criteria contribute to its existence.

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Part III: The Fund in Motion - Evolution, Performance, and Portfolio Analysis

Since its launch in 2020, the Innovation Fund has not remained a static instrument. True to its mandate, it has demonstrated a capacity for dynamic evolution, adapting its scope, priorities, and tools to meet the escalating demands of the EU's climate and industrial ambitions. This section analyzes the fund's operational track record, tracking its key evolutionary changes, examining the introduction of novel mechanisms like auctions, and providing a comprehensive overview of its burgeoning project portfolio.

3.1. A Dynamic Instrument: Tracking the Fund's Evolution Since 2020

A core design principle that sets the Innovation Fund apart from the rigidity of its predecessor, NER300, is its built-in adaptability. The conditions and priorities of its calls for proposals are adjusted on an annual basis, allowing the fund to respond swiftly to new policy imperatives and market signals. This evolution is evident across several key dimensions.

• Expansion of Sectoral Scope: The 2023 revision of the EU ETS Directive formally broadened the fund's remit, extending eligibility to previously uncovered sectors. This included dedicated support for decarbonisation in maritime, aviation, road transport, and buildings, reflecting a more holistic approach to the net-zero transition beyond heavy industry and power generation.
• Stratification of Project Sizes: The initial, simple bifurcation between "large-scale" projects (with capital expenditure above €7.5 million) and "small-scale" projects (below €7.5 million) proved too coarse. To foster a more diverse project pipeline and prevent smaller, highly innovative proposals from being overshadowed by industrial behemoths, the Commission introduced a more sophisticated stratification. Recent calls now feature multiple, distinct categories with their own budgets and evaluation considerations, typically including:
  • Large-scale projects: CAPEX above €100 million.
  • Medium-scale projects: CAPEX between €20 million and €100 million.
  • Small-scale projects: CAPEX between €2.5 million and €20 million.
  • Pilot projects: Focused on deep decarbonisation and breakthrough technologies.
  • Cleantech manufacturing: A dedicated topic for projects manufacturing components for strategic net-zero technologies.
• Shift Towards Strategic Industrial Policy: The fund has visibly evolved from a purely technology-neutral climate instrument into a proactive tool of European industrial strategy. The creation of the dedicated "Cleantech manufacturing" topic is a prime example, designed to directly support the objectives of the Net-Zero Industry Act by onshoring the production of critical components like electrolysers, heat pumps, and solar and wind parts. This strategic turn was further emphasized by the IF24 Battery call, which ring-fenced a €1 billion budget specifically for projects manufacturing electric vehicle battery cells, aiming to bolster Europe's industrial resilience and reduce dependency on foreign suppliers for this strategic technology.

Call / Year	Total Budget	Key Priorities & Topics	Project Size Categories	Key Changes & Notes
1st Small-scale (2020)	€100 million	General decarbonisation, RES, energy storage, CCUS. Encouraged net carbon removal & DAC.	Small-scale: CAPEX €2.5M - €7.5M.	First call launched. Single-stage application process.
1st Large-scale (2020)	€1.1 billion	General decarbonisation, RES, energy storage, CCUS.	Large-scale: CAPEX > €7.5M.	Two-stage application process (Expression of Interest, then Full Application).
2nd Small-scale (2022)	€100 million	General clean tech projects.	Small-scale: CAPEX €2.5M - €7.5M.	Continued focus on smaller projects with a simplified single-stage process.
2nd Large-scale (2021)	€1.8 billion	Breakthrough technologies for RES, energy-intensive industries, energy storage, CCUS.	Large-scale: CAPEX > €7.5M.	Budget increased by 50% from the first call. Shifted to a single-stage application process.
3rd Small-scale (2023)	~€65 million	Wide variety of sectors, with a focus on manufacturing of components for RES and construction materials.	Small-scale: CAPEX €2.5M - €20M.	CAPEX range for "small-scale" expanded to €20M.
3rd Large-scale (2022)	€3.6 billion	Divided into four topics: General decarbonisation, Cleantech manufacturing, Industry electrification & H2, Mid-sized pilots.	Large, Medium, Small, Pilot categories introduced with new CAPEX thresholds.	First time call was divided into specific thematic topics. Massive budget increase.
IF23 Call & Auction (2023)	€4.8 billion	Net-Zero Technologies (General, Manufacturing, Pilots).	Large (>€100M), Medium (€20-100M), Small (€2.5-20M), Pilots, Cleantech Manufacturing.	Introduction of the first-ever competitive bidding auction (€800M for renewable hydrogen) alongside the grant call.
IF24 Calls & Auction (2024)	€4.6 billion	Net-Zero Technologies (€2.4B), dedicated Battery Manufacturing call (€1B), and a second Hydrogen Auction (€1.2B).	Same stratified categories as IF23.	Launch of a highly specialized call for battery manufacturing. Significant increase in the auction budget.

3.2. Introducing New Tools: The Advent of Competitive Bidding

Recognizing that grants covering capital costs are not always the most efficient way to support the market entry of clean commodities, the 2023 ETS revision empowered the Innovation Fund to deploy a new financial instrument: competitive bidding, more commonly known as auctions. This mechanism is designed to bridge the "green premium"—the price difference between a clean product (like renewable hydrogen) and its fossil-fuel-based equivalent—by providing predictable revenue support over a long period.

The first pilot auction, part of the European Hydrogen Bank initiative, was launched in November 2023 with a budget of €800 million. It targeted the production of Renewable Fuels of Non-Biological Origin (RFNBO), primarily renewable hydrogen. Unlike the grant calls, projects in the auction are not ranked on a multi-criteria basis. After passing eligibility checks, they are ranked solely on their bid price: the amount of fixed premium, in euros per kilogram of hydrogen produced (€/kg), they require to be commercially viable. The lowest bidders win, receiving a contract that guarantees this premium for up to 10 years of operation.

This first auction was a success, selecting seven renewable hydrogen projects to receive a total of €720 million in support. The mechanism is widely seen as the EU's answer to the production-based tax credits offered under the US Inflation Reduction Act (IRA), providing the crucial operational expenditure (OpEx) support that project developers need to secure offtake agreements and investment. Following this successful pilot, the IF24 round included a second, larger hydrogen auction with a budget of €1.2 billion, and the Commission has signalled its intent to expand the auction model to other strategic clean products, such as sustainable aviation fuels (SAFs) and low-carbon methanol, in the future.

3.3. Portfolio Deep Dive: A Snapshot of Europe's Clean Tech Transition

In its first few years of operation, the Innovation Fund has already committed a substantial amount of capital and cultivated a large and diverse portfolio of projects, offering a unique window into the landscape of industrial decarbonisation across Europe.

Overall Performance and Demand: As of mid-2025, the fund has committed approximately €12 billion to over 200 innovative projects across the European Economic Area (EEA). The portfolio awarded by the end of 2023, comprising 104 projects, was projected to avoid a cumulative 442 million tonnes of CO2-equivalent emissions in their first decade of operation.

However, the most striking feature of the fund's performance is the staggering level of demand it attracts. It is consistently and massively oversubscribed, signalling anormous pipeline of investment-ready projects and a significant financing gap that public funds alone cannot fill. The IF24 Net-zero technologies call provides a stark illustration: it received 359 applications collectively seeking €21.7 billion in support against an available budget of just €2.4 billion—an oversubscription rate of more than nine times.

Sectoral and Geographical Distribution: The fund's portfolio reflects its broad mandate, with significant investment flowing into several key areas. An analysis of the portfolio as of the end of 2023 reveals distinct trends:

• Energy-Intensive Industries represent the largest category by value, with 59 projects receiving €3.45 billion.
• Hydrogen has been a major focus, with 16 projects awarded €715 million.
• Cleantech Manufacturing is a rapidly growing area, with 11 projects focused on components for renewables and energy storage securing €709 million.
• Carbon Capture and Storage (CCS) projects received €1.08 billion across six projects, indicating a renewed focus after the failures of NER300.

Geographically, projects are distributed across all eligible countries. While a comprehensive, up-to-the-minute breakdown requires consulting the official interactive dashboard, some trends have emerged. For instance, one report noted that Spain had become the country with the most beneficiary projects, with 29 projects awarded over €1.28 billion in aid. The fund's design ensures projects are selected on merit alone, without geographical quotas, leading to clusters of innovation in Member States with strong industrial bases and supportive national policies.

Sector	Number of Projects (end 2023)	Grant Awarded (end 2023)	Key Member States Involved (Examples)
Energy-Intensive Industries	59	€3.45 billion	Germany, Belgium, France, Croatia, Greece
of which Cement & Lime	-	-	Germany (GeZero), Belgium (GO4ZERO), Croatia (KOdeCO)
of which Steel	-	-	Sweden (H2GS)
Hydrogen	16	€715 million	Portugal, Netherlands, Spain, Germany, Austria, Norway
Cleantech Manufacturing	11	€709 million	Denmark, Finland, Norway, Germany, Belgium, Sweden
of which Batteries	-	-	Norway (ELAN, Giga Arctic), Spain (BBRT)
of which PV/Solar	-	-	Norway (SunRISE), Germany/Spain (HOPE)
Carbon Capture & Storage (CCS)	6	€1.08 billion	Germany, Greece, Croatia, Spain, Netherlands
Renewable Energy	11	€360 million	Denmark (HIPPOW), France (NEXTFLOAT), Spain (SEAWORTHY)
Energy Storage	6	€91 million	-
Biofuels & Biorefineries	4	€177 million	Sweden (BioOstrand)
(Note: Data synthesized from multiple calls and reports. The number of projects and grant amounts are indicative of the portfolio at the end of 2023 and have grown since. Some projects are cross-sectoral.)

3.4. Case Studies in Innovation

To move beyond aggregate numbers, it is instructive to examine specific examples of projects funded, which illustrate the fund's ambition and technological reach. The following examples are drawn from the portfolio of selected projects:

• Hydrogen & Green Steel - H2 Green Steel (H2GS) (Sweden): A landmark project aiming to build the world's first industrial-scale green steel plant. It will use hydrogen produced from renewable electricity to directly reduce iron ore, replacing the traditional coal-fired blast furnace and eliminating the vast majority of the steelmaking process's CO2 emissions.
• Carbon Capture & Storage - GeZero (Germany): This project at a Heidelberg Materials cement plant aims to achieve net-negative emissions by implementing a full-chain CCS solution. It will deploy an innovative second-generation Oxyfuel kiln to produce a highly concentrated CO2 stream, which will then be captured, liquefied, and transported by rail for permanent storage under the North Sea, pioneering a new logistics chain for CO2 in Germany.
• Cleantech Manufacturing - Giga Arctic (Norway): Freyr Battery's project to construct a gigafactory for clean battery cell production. The project is notable for its innovative manufacturing process, which eliminates the use of toxic solvents and simplifies production steps, and for its commitment to using 100% renewable electricity, resulting in a very low-carbon-footprint battery.
• Renewable Energy - HIPPOW (Denmark): This project involves the installation and testing of one of the world's most powerful offshore wind turbine prototypes. By supporting the demonstration and certification of this next-generation technology, the fund helps accelerate its commercial deployment, which is crucial for reducing the cost and increasing the output of offshore wind energy.

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Part IV: Critical Assessment and Future Trajectory

The Innovation Fund has successfully established itself as the EU's primary financial instrument for driving the commercialisation of clean technologies. Its evolution from the lessons of NER300 marks a significant step forward in European climate policy. However, the fund is not without its challenges and is subject to ongoing scrutiny from stakeholders and policymakers. As the EU looks towards its post-2027 budget and faces an increasingly competitive global clean tech landscape, the fund's future trajectory is a subject of critical importance.

4.1. External Scrutiny and Recommendations for Enhancement

A range of external actors, from think tanks and industry associations to the general public, actively monitor the Innovation Fund's performance. Their analyses provide a balanced perspective on its strengths and weaknesses, offering valuable recommendations for its continued improvement.

Analysis from the Clean Air Task Force (CATF)

The Clean Air Task Force (CATF), a prominent environmental NGO, has provided extensive analysis of the fund. While welcoming its flexible approach and increased size, CATF identifies several areas for enhancement:

• Scale and Funding Gap: The most significant challenge is the sheer scale of the investment required. CATF highlights the European Commission's own estimate of an annual investment shortfall of €700 billion to meet the EU's 2030 climate and energy targets. Against this backdrop, the Innovation Fund's projected €40 billion over a decade, while substantial, is insufficient.
• Expanding Scope: CATF advocates for the fund's scope to be strategically expanded. This includes establishing dedicated funding streams for critical enabling infrastructure, such as standalone CO2 transport and storage projects, which are essential for the viability of industrial carbon capture. It also recommends a dedicated stream for nascent but crucial Carbon Dioxide Removal (CDR) technologies like Bioenergy with Carbon Capture and Storage (BECCS) and Direct Air Capture with Storage (DACCS), which are currently evaluated under the general CCS category and may not be assessed appropriately.
• Refining Evaluation Criteria: CATF suggests refinements to the award criteria to enhance strategic impact. For 'scalability', it recommends a stronger focus on the economy-wide implications to avoid funding projects that are locally scalable but rely on scarce resources (e.g., biomass, clean electricity) in a way that is unsustainable at a macro level. For 'cost efficiency', it argues that the evaluation should consider the total public support a project receives (including national aid and other EU funds), not just the Innovation Fund grant, to get a true picture of its value for the European taxpayer.

Feedback from Public and Industry Stakeholders

Public consultations on the fund's operation have revealed recurring concerns from project applicants and industry players:

• Excessive Administrative Burden: A near-universal critique is the complexity and administrative weight of the application process. Applicants report that preparing a proposal is a highly demanding exercise, with documentation often exceeding 60-80 pages and requiring significant time and resources. This high barrier to entry disproportionately affects smaller companies and startups that may lack dedicated grant-writing teams.
• Lengthy Timelines: Another common complaint is the long duration of the process. The time from the opening of a call to the final signing of a grant agreement can be well over a year, with further time required to reach financial close. This lengthy and uncertain timeline is challenging for businesses operating in fast-moving markets and can make it difficult to forecast business plans as required by the application. Stakeholders have called for more streamlined, user-friendly processes and faster, continuous evaluation tracks, particularly for smaller-scale projects.

Scrutiny from the European Court of Auditors (ECA)

While the ECA has not yet published a full performance audit of the Innovation Fund itself, it has announced that such a report is planned as part of its 2025+ work programme. The Court's past work provides strong indicators of its likely areas of focus. Its damning 2018 report on NER300 laid the groundwork for the Innovation Fund's design, and the ECA will undoubtedly assess whether the new fund has successfully addressed the old failures. Furthermore, its recent special reports on related topics, such as the EU's hydrogen strategy, touch upon the fund's role. The hydrogen report, for instance, identifies a lack of funding sources as a key bottleneck for project implementation—a challenge the Innovation Fund directly addresses but cannot solve on its own, highlighting the need for coordination with other public and private capital.

Area of Concern	Key Finding / Critique	Recommendation	Source
Fund Size & Scale	The fund's €40B budget is insufficient to bridge the EU's estimated €700B annual climate investment gap.	Substantially increase the fund's size and flexibility.	CATF
Application Process	The process is excessively complex, administratively burdensome (60-80+ pages), and has a timeline of over a year from application to grant.	Streamline the process, reduce paperwork, and introduce faster evaluation tracks, especially for smaller projects.	Public Consultation
Evaluation Criteria	'Scalability' can reward unsustainable resource use. 'Cost efficiency' does not account for total public funding received by a project.	Refine 'Scalability' to prioritize economy-wide sustainability. Revise 'Cost Efficiency' to encompass all public support.	CATF
Programme Scope	Lack of dedicated support for critical enablers like CO2 transport/storage infrastructure and emerging Carbon Dioxide Removal (CDR) technologies.	Create dedicated funding streams for standalone CO2 infrastructure and for CDR technologies like BECCS and DACCS.	CATF
Funding Mechanisms	Grant-based support is not always optimal; auctions for production support are a welcome but new addition.	Expand the use of competitive bidding (auctions) to other key net-zero strategies and commodities beyond hydrogen.	CATF

4.2. The Horizon Beyond 2027: The European Competitiveness Fund (ECF)

Perhaps the most significant question looming over the Innovation Fund's future is its place within the EU's next long-term budget, the Multiannual Financial Framework (MFF) for the period after 2027. The European Commission has signaled its intention to undertake a major consolidation of its myriad funding programmes into a new, streamlined European Competitiveness Fund (ECF). The stated goal is to reduce the fragmentation, complexity, and overlapping priorities that currently mark the EU funding landscape, creating a more coherent "one-stop shop" for projects that boost innovation and competitiveness.

Leaked Commission documents and official statements suggest the ECF would be structured around several thematic pillars, such as "Digitalisation," "Health and Biotechnology," and "Clean Transition and Decarbonisation". Under this proposed architecture, the Innovation Fund would likely be subsumed into the "Clean Transition and Decarbonisation" pillar, alongside other relevant programmes like the LIFE fund and the climate and energy-focused clusters of the Horizon Europe research programme.

This consolidation presents both a potential opportunity and a significant risk. On one hand, it could create a more seamless and integrated funding pathway for clean technologies, supporting projects along the entire innovation journey—from basic research (funded by a Horizon-like component) through to industrial deployment (funded by an Innovation Fund-like component) and infrastructure build-out (funded by a CEF-like component), all within a single, coordinated strategic framework.

On the other hand, this move poses a fundamental, even existential, threat to the Innovation Fund's most unique and powerful feature: its dedicated, ring-fenced funding stream derived directly from ETS auction revenues. The current model gives the fund a degree of financial autonomy and predictability (tied to the carbon price) that insulates it from the highly political negotiations of the annual EU budget and the seven-year MFF. Folding it into a larger ECF pillar risks breaking this direct link. The fund's budget would no longer be determined by the "polluter pays" principle of the carbon market but would instead be subject to political allocation within the broader "Clean Transition" pillar, where it would have to compete for resources with other priorities. This re-politicisation of the fund's budget could undermine its scale, predictability, and singular focus, potentially trading its proven effectiveness for a place in a more complex and politically negotiated super-fund.

4.3. Concluding Analysis and Strategic Outlook

The EU Innovation Fund has successfully evolved from the ashes of the NER300 programme to become the Union's premier instrument for catalysing industrial-scale decarbonisation. By learning directly from the failures of its predecessor, it has established a more robust, flexible, and commercially aware model for sharing risk with the private sector and bringing pivotal clean technologies to market. Its dynamic nature, demonstrated by the annual evolution of its calls and the introduction of novel tools like competitive bidding, has allowed it to adapt to the EU's escalating climate ambitions and the realities of a competitive global landscape.

Despite these successes, the fund faces persistent challenges. Its financial scale, while significant, remains a fraction of the total investment needed to achieve the EU's 2030 goals. Its application process is widely seen as overly burdensome, creating a barrier for the very innovators it seeks to support. And its stringent maturity requirements can inadvertently create a "second valley of death" for technologies that are too advanced for R&D grants but not yet de-risked enough for a full investment decision.

As the European Union navigates the transition to a net-zero economy amidst growing geopolitical and economic competition, the strategic importance of the Innovation Fund will only increase. The path forward should be guided by a principle of scaling and streamlining what works, rather than diluting it through excessive consolidation. Based on the analysis presented in this report, the following strategic recommendations emerge for policymakers considering the fund's future:

1. Protect the Funding Model: The fund's direct revenue stream from the EU ETS is its greatest strength, ensuring its scale and insulating it from political budget negotiations. Any integration into a future European Competitiveness Fund must preserve this direct link. The "polluter pays" revenues should remain ring-fenced for the fund's industrial decarbonisation mission to maintain its financial firepower and predictability.
2. Radically Address the Administrative Burden: The consistent feedback on the complexity of the application process must be addressed. A radical simplification is needed, particularly for small and medium-scale projects, to lower the barrier to entry and broaden participation. This could involve simplified application forms, more targeted guidance, and faster, more continuous evaluation tracks.
3. Systematically Bridge the Maturity Gap: The tension between innovation and maturity must be addressed more systematically. The Project Development Assistance provided by the EIB should be scaled up and formalized, moving it from a post-rejection consolation prize to a strategic, integrated preparatory stage. A dedicated "pre-funding" or "maturation" track could be established to help promising but not-yet-bankable projects develop the robust plans needed to succeed in the main grant calls.
4. Embrace and Expand its Strategic Industrial Policy Role: The fund's recent pivot towards supporting domestic clean tech manufacturing is a positive development that aligns with the EU's goals for strategic autonomy. This role should be embraced and expanded. The continued development of targeted calls (e.g., for batteries, solar manufacturing) and new auction mechanisms (e.g., for SAFs, CDR, low-carbon materials) will be essential for building resilient European value chains and ensuring the EU can compete and lead in the global clean tech race.

In conclusion, the Innovation Fund has proven to be an effective and indispensable tool in the EU's climate and industrial policy arsenal. Its future success hinges on the willingness of policymakers to reinforce its core strengths while decisively addressing its operational weaknesses, ensuring it has the scale, simplicity, and strategic focus to drive Europe's transition to a competitive, climate-neutral economy.