The Innovation Economy: the EU prepares to join the funding frenzy

Encouraging innovation in manufacturing, construction and the automobile sector forms the research and development cornerstone of the EU’s response to the economic crisis. All three sectors have seen demand plummet as consumers tightened their belts; all three must face up to the challenges of restructuring and moving forward to a greener and cleaner future.

The EU has drawn up a €3.2 billion plan for public–private partnerships in each of these industries, dubbed the “Factories of the Future”, “Energy-efficient Buildings” and “Green Cars” initiatives. The Commission launched the first calls for research proposals on July 30, with the aim of getting the first of these projects up and running by the spring of 2010.

“In times of crisis, such as now, it helps support industry not to reduce its investment in research,” said European Commissioner for R&D Janez Potočnik’s spokesperson Catherine Ray.

These three public–private partnerships are just one element of the EU’s strategy, announced by the Commission last November and endorsed by the European Council in December, to help the 27-nation bloc emerge from the current economic crisis.

Working together

Overall, the European Economic Recovery Plan amounts to a fiscal stimulus of around €200 billion, or 1.5 per cent of the EU’s GDP. Around €30 billion of this will come from the EU budget and the European Investment Bank; the rest will be from the member states’ national budgets. The hope is that the coordinated action, rather than a piecemeal approach, will increase the impact of this stimulus.

The European Economic Recovery Plan also calls for energy-related investments, and the Commission expects to sign the first grant agreements before the end of the year, in the areas of gas and electricity interconnection, offshore wind energy and carbon capture and storage.

Money has also been put aside for developing high-speed and broadband Internet networks. Another part of the EU’s efforts to spur an economic upturn was announced in March with a call to double funding by 2020 for information and communication technologies (ICT) research and innovation, in areas such as Web-based services and nanoelectronics. In April the Commission also proposed doubling investment for its Future and Emerging Technologies programme into areas of high-risk research.

Clean and green

The EU is striving to attain a knowledge-based and low-carbon economy, and investing in research and innovation will help the EU reach that goal. Strategic and ‘smart’ investments are “crucial for the EU to come out stronger from the crisis, more sustainable and more competitive,” the Commission said in a statement.

In identifying the three industrial sectors that would be the focus of the public–private partnerships, the EU wanted to focus on “clean technologies” that would also be in the interest of the general public, Catherine Ray explained.

In fact it is the EU’s decision as to where the stimulus should be applied that is the new element of this package. The money itself – €1.2 billion to support manufacturing, €1 billion for energy-efficient buildings and €1 billion for research into green cars – comes from existing programmes, with half coming from the EU’s Seventh Framework Programme.

In other words, the money was already going to be spent on research, it was just a matter of deciding what exactly to earmark it for. The three public–private partnerships reflect the EU’s focus and priorities. The other half of the budget is coming from industry and will be in kind, that is, in the form of resources, knowledge, machines and the like.

The “Factories of the Future” initiative will concentrate in particular on increasing the technological base of Europe’s manufacturing, which covers more than 25 different industrial sectors and is largely dominated by small and medium-sized enterprises (SMEs). Manufacturing remains “the driving force” of the European economy, supplying more than 30 million jobs and contributing more than €6,500 billion in GDP, according to the Commission.

However, it needs to be more demand-driven, generate less waste, consume less energy and be more innovative, in the Commission’s eyes. “New ideas have to be transformed into new products and processes,” to help Europe compete more effectively against the high-tech sectors from other developed economies such as the US, Japan and Korea.

The initiative aims to deliver:

• sustainable manufacturing: quiet, clean and safe green production machines;

• intelligent manufacturing: intelligent machines capable of interacting with operators, self-monitoring and self-correcting smart production lines;

• high-quality and high-performance manufacturing: towards zero defects, lean and adaptive manufacturing processes;

• manufacturing processes for new materials: lightweight/high-performing materials and micro/nanomanufacturing, so-called “portable factories”.

The “Energy-efficient Buildings” partnership will promote green technologies and develope energy efficient systems and materials in new and renovated buildings, to reduce energy consumption and CO2 emissions. The aim is to speed up research and help reach the climate change policy targets for 2020 and 2050.

Energy consumption of houses and buildings, taking into account the whole life cycle, is responsible for 40 per cent of the EU’s total energy use and is the main contributor to greenhouse gas emissions.

The initiative’s main focus will be on reducing energy use by existing buildings. Otherwise it will take more than a century to have what the Commission terms “a truly energy-efficient built environment” given the present rate of construction of new buildings is less than 2 per cent a year. Updating public buildings will be the priority.
Priorities for such research projects could include:

• making buildings and districts energy efficient while improving citizens’ quality of life;

• integrating renewable energy systems (for example solar panels) into buildings and districts;

• using and integrating nanotechnologies, materials, components, systems, construction processes into energy-efficient buildings;

• commercialising relevant products and components such as insulation materials, smart windows and façades.

The final of the three public–private partnerships, “Green Cars”, is broader than the other two. As well as the €1 billion support for research, €4 billion will be made available through European Investment Bank loans. In addition to financial support, there will also be demand-side measures, for example lowering car registration taxes on low CO2 cars to encourage people to buy them.

The research side of this initiative will focus on making all road transport – not only cars – greener. Projects to be funded in 2010 will focused on the electrification of road transport and research into hybrid technologies. The plan for the year after is to expand the research projects into trucks, internal combustion engines, logistics and intelligent transport systems.

José Manuel Barroso, speaking on 26 June at the end of Green Week in Brussels, summed up his aims for these sectors by saying, “Smart investment in infrastructure, energy efficiency, and clean car technology will all support vulnerable industries in intelligent ways: by preparing them to thrive in the markets of the future, instead of artificially propping them up for markets that are fading into the past.”

Energy and broadband infrastructure

Energy and Internet broadband networks are crucial to the future of the EU economy. As such, the EU plans to direct €5 billion from the EU budget into these types of infrastructure projects.

Around €4 billion will go on energy investments in 2009 and 2010, to be split as follows:

• gas and electricity infrastructure projects (€2,365 million)

• offshore wind energy projects (€565 million)

• carbon capture and storage projects (€1,050 million)

“The financing that has been made available will […..] secure and speed up investments in the energy sector,” Energy Commissioner Andris Piebalgs said. The funding will go towards investments that are already relatively advanced and that, in the current economic crisis, need extra support to get back on track.

The Commission launched its first call for proposals in May with proposals due by 15 July 2009. The emphasis is on cross-border needs and developing new technologies essential for Europe’s future energy requirements. The Commission has not ruled out future calls, but this will depend on the outcome of this first one, said Piebalgs’s spokesperson, Ferran Tarradellas Espuny.

Approximately €1 billion will be channelled into broadband Internet infrastructure to help meet the goal of achieving 100 per cent broadband coverage in the EU between 2010 and 2013. This will be concentrated on rural areas.

Three types of measures for boosting broadband coverage can be financed under this proposal:

• creation of, and enabling access to, broadband infrastructure including backhaul facilities and ground equipment, for example, fixed, terrestrial wireless, satellite-based or combination of technologies;

• upgrade of existing broadband infrastructure;

• laying down the infrastructure necessary for broadband networks (for example, engineering work such as ducts, and other network elements such as dark fibre), together with other infrastructure (energy, transport, water, sewerage networks).

The money for the broadband stimulus comes from the EU’s Rural Development Fund. Member states and regions will choose projects that adhere to the eligibility and selection criteria of their rural development programmes. The national authorities need to amend their programmes and submit them to the European Commission, which will ensure they are compatible with state aid rules. Final approval is expected in December 2009.

ICT goals

Europe’s investment in ICT research lags behind other parts of the world and is a key to spurring economic recovery, prompting the Commission to call for private and public investments in ICT research to be doubled by 2020.

Business sector investments and public funding in Europe total €36 billion a year at present and the aim is to increase this to €72 billion a year by 2020, to bring the EU into line with its main competitors.

As a part of this, the Commission will increase the annual funding available under the ICT element of its research programme to Euro 1.7 billion in 2013, from Euro 1.1 billion in 2010.

Another element is to increase investment in Future and Emerging Technologies, as announced by the Commission in April this year.

The Commission asked member states to increase national budgets to help Europe catch up with investment levels in the United States, China, and Japan, and for its own part announced a rise in spending on research for future IT from €100 million to €170 million by 2013.

“The aim of the strategy is to attract the best researchers from around the world to Europe, to increase investment by industry and to fuel innovation,” the Commission said announcing the increase in ‘Moving the ICT frontiers – a strategy for research on future and emerging technologies in Europe’. “Investment in research that underpins future ICT will pay back by boosting Europe’s long-term competitiveness.”

The EU acknowledges that the private sector plays an important role in the strategy because it finances more than 85 per cent of ICT research in Europe. Incentives for the private sector’s involvement include, “a more strategic use” of pre-commercial public procurement, public-private partnerships in R&D to pool resources and build critical mass, and pilots to test ICT innovations at a scalable level.

Less admin, more education

The European Economic Recovery Plan also sought to reduce the administrative burdens for business. As part of this, the EU called for the fees for patent applications and maintenance to be cut by up to 75 per cent and the cost for an EU trademark to be halved.

The recovery package also emphasised the need for member states and the private sector to increase investment in education and R&D and not allow the economic downturn to lead to delays or cuts. The EU highlighted fiscal incentives, grants and/or subsidies as possibilities to encourage such investments.