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Innovation

Innovation is a vital component of the decarbonisation process. It helps develop and implement new zero-emissions or low-carbon technologies and techniques.

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.

What is CMW doing about it?

When it comes to innovation, Carbon Market Watch focuses on:

  • Observing policy developments and negotiations related to the two policy instruments and the Innovation Fund
  • Researching and presenting recommendations for making the Innovation Fund and other relevant instruments more effective
  • Investigating and reporting on funding allocation under the Innovation Fund.

“The Innovation Fund is a useful test case for how carbon pricing can generate revenue to fund decarbonisation efforts in sectors covered by the ETS. Unfortunately, despite the vast climate investment needed, 5 billion allowances from the ETS will not be auctioned between 2021-2030. These free allowances, which act as a pollution subsidy of roughly €400 billion for heavy industry, are a missed opportunity to mobilise auctioning revenues for urgent climate action.”

Eleanor Scott 

Expert on EU Carbon Market

“The Innovation Fund is a useful test case for how carbon pricing can generate revenue to fund decarbonisation efforts in sectors covered by the ETS. Unfortunately, despite the vast climate investment needed, 5 billion allowances from the ETS will not be auctioned between 2021-2030. These free allowances, which act as a pollution subsidy of roughly €400 billion for heavy industry, are a missed opportunity to mobilise auctioning revenues for urgent climate action.”

Eleanor Scott 

Expert on EU Carbon Market

What changes is CMW demanding?

Eliminating free pollution permits from the EU ETS

Ensuring the Innovation Fund invests in technologies with significant emissions reduction potential at economy wide scale

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EU ETS key policy and advocacy milestones

This timeline of future EU Emissions Trading System (EU ETS) policy milestones is useful for civil society organisations and activists to identify moments for advocacy activities.

Highlighted

Free ETS allowances, which act as a pollution subsidy of roughly €400 billion for heavy industry, are a missed opportunity fund climate innovation.

Contact our experts

Sam Van den plas
Policy Director

sam.vandenplas[at]carbonmarketwatch.org

Lidia Tamellini
Expert on EU Industrial Decarbonisation

lidia.tamellini[at]carbonmarketwatch.org

Eleanor Scott
Expert on EU Carbon Markets

eleanor.scott[at]carbonmarketwatch.org

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