Forging a low carbon economy

The huge R&D effort won’t come cheap. The Commission’s Strategic Energy Technologies (SET) Plan aims to raise public and private spending on low-carbon and renewable energy technologies to €8 billion a year over the next 10 years, up from €3 billion today – an increase of €50 billion.

Marshalling those funds is one of the key challenges facing the new Commission. “The SET Plan is not worth the paper it is written on until it has money, but my guess is that battle will be won,” says Jesse Scott, Brussels-based programme leader for E3G, a London-based non-governmental organisation working for sustainable development.

The SET Plan is a detailed cleantech roadmap, with targets and milestones in six key sectors: Solar, wind, smart electricity grids, bio-energy, carbon capture and storage and nuclear fission. Behind closed doors in Brussels, European research officials say the plan is the foundation for “an industrial revolution” – that will power Europe’s transition to a low-carbon economy.

One key policy goal under the SET Plan is to make 50 per cent of Europe’s electricity grids “smart” by 2020, so they can accept a dramatic increase in renewable energies. A parallel goal in wind energy is to reduce the manufacturing cost of wind turbines by 20 per cent and boost wind energy to 20 per cent of EU electricity by 2020.

Overall, the SET Plan introduces a more targeted, market-driven approach to energy R&D. The bulk of energy research spending over the next 10 years will go toward industry-led projects, officials say. That’s because many renewable energy technologies must be scaled up and validated for commercial launch in costly demonstration projects. Twelve carbon capture and storage demos included in the SET Plan, for example, will cost €1billion each. The EU has offered to pay half the tab, but as one EC official says, “We want industrial leadership.”

Europe’s existing energy R&D programmes suffer from the EU’s urge to sprinkle R&D money evenly across all member states, resulting in a lack of critical mass for key breakthroughs. Discouraged over time by that fractured effort, many companies have abandoned EU collaborative research. Only 24 per cent of Framework Programme 7 funding in 2009 was awarded to industry. In 2009, however, the first SET call started to reverse the trend with 63 per cent of energy R&D Framework funds going to industry.

Designed to entice industry, the SET Plan calls will involve larger pots of money and be distributed among fewer players than with traditional framework programme calls. The Commission also will allow companies to operate with smaller, more nimble consortia, a key break with EU research tradition.

EU officials say companies should “make an argument that would convince a corporate board” and that the consortia “should reflect industrial logic and avoid European window dressing.”

While the EU fell far short of its 2010 Lisbon R&D goals, crafted a decade earlier, officials insist the technologies for a low-carbon economy are now one of Europe’s top priorities, and SET Plan documents call for a major increase in EU energy R&D spending.

“The only way to reach their goals is by revising the budget for 2014 – 2020,” says one Brussels-based executive whose company participated in the first SET call.

To kickstart the SET plan this year, the commission is cobbling together funds from existing programmes. In December, the EU gave a green light to the first SET projects, funding six carbon capture and storage demonstration plants with €1.05 billion in funds from the European Crisis and Recovery Plan.

The next calls in wind, solar and bio-energy will be launched this summer, financed by remaining Framework 7 research funds. And six more demos in carbon capture and storage may be funded by Europe’s Emissions Trading Scheme (ETS).

The commission is counting on as much as €9 billion in funds for SET from ETS, starting in 2013. It may also tap the EU’s structural and cohesion funds for SET projects. And it is lobbying member states to target energy R&D funds to SET goals.

Commission officials say all remaining Framework 7 energy funds, or €1 billion in total, will be channelled to SET Plan priorities. Those priorities will guide and steer all energy spending across an array of European clean energy programmes up to 2020. The European Institute for Technology and Innovation, for example, will focus the research efforts of two new Knowledge and Innovation Communities on climate change and clean energy.

To coordinate spending better, the Commission aims to launch six new European Industrial Initiatives in 2010 – 2011, one for each green technology. These are large-scale alliances between industry, research and academic to align the efforts of the Commission and member states. “This is new. Until now member states invested in an uncoordinated way on energy research,” says on commission official.

The Industrial Initiatives will be formed by June and will help organise the first round of calls in July.

To speed the take-up of green technologies, the SET Plan includes an initiative to build Smart Cities. The goal is to encourage cities to become first-movers, switching to zero-emission buildings and green transport systems.

The Smart Cities initiative, to be launched in 2011 – 2012, aims to create 30 European cities that are global low-carbon trend-setters, with emissions 40 per cent lower than in 2010.

While scouring for funds, the Commission also is working to overhaul its unsuccessful approach to public-private partnerships. A first generation of such alliances, the Joint Technology Initiatives, was launched around 2005, but has been plagued by red tape, repeated audits and bureaucracy. Just setting up the legal partnership took between 3-5 years for each initiative.

However, the sheer amount of spending SET envisions is prompting many corporate R&D executives to sit up and take notice – even critics of European collaborative research. “This is a new era,” says the Brussels-based executive of an energy company chosen in the first SET call on carbon capture and storage. “In the past the research funds were small. It’s important to be here and be part of the game.”

No question, the European Commission has a penchant for grandiose 10-year visions – like the Lisbon Strategy, which aimed at building the world’s most competitive economy by 2010. Europe failed to reach that goal.

This time, the ambitions are nearly as grand – laying the foundation for a low carbon economy – and industrial revolution. But the Commission has started by looking at what doesn’t work well, and trying to change it. SET will alter the way Europe’s huge R&D machine works – to get more impact for the billions of euros invested. If the EU can address past weaknesses in its research programmes and devise a better way to partner with industry, its clean energy plan will stand a better chance of greening Europe’s economy.