Towards that end, numerous governments have established financial instruments to stimulate innovation. In Europe, the EU has established the Innovation Fund, one of the largest such instruments in the world. In the decade between 2030 and 2040, the fund is expected to receive €40 billion from the EU ETS (based on an average carbon price of €75 per tonne).

The Innovation Fund finances innovative clean technologies and large projects of common interest to EU member states. These include the decarbonisation of energy-intensive industries, renewable energy, energy storage, sustainable mobility and buildings, hydrogen, and carbon capture, use and storage. As a major use of ETS revenue, the Innovation Fund has a responsibility to ensure investments deliver accelerated decarbonisation. Projects must be selected with an understanding of the impact of the funded technology at an economy wide scale, in terms of resource use and maximising emissions saving potential.

Although innovation is urgently needed to help address the climate challenges facing industry and society, there are numerous associated risks. One is an overreliance on future technologies that may not emerge or may not be sufficiently scalable. This can lead to an overemphasis on the potential of carbon removal technologies for climate action, deterring urgently needed mitigation efforts.