THE BRUSSELS LETTER. Five years after its launch, the European Innovation Fund has paid out only 1% of the 40 billion euros planned. The European Court of Auditors is sounding the alarm.
The European Innovation Fund has not kept all its promises. According to a recent report from the European Court of Auditors, only 1% of the 40 billion euros expected by 2030 had actually been paid to projects at the end of 2025. But let us be clear: that innovation does not always succeed, that is the nature of research. Not all innovations necessarily result in a high-performance application.
The problem with the Innovation Fund lies elsewhere. It is in the very mechanics of the device. A fund supposed to finance innovation which conditions its payments on results is not a fund for innovation. It is a fund to reward those who are successful. Which is very different – and profoundly contradictory with the stated objective.
Carbon money recycled into industrial hope
Let’s go back to the genesis of the project. The Innovation Fund was born in 2020 on a stimulating idea: recycling revenues from the European carbon market into financing industrial decarbonization. Fueled by the auction of emission allowances as part of the trading system (ETS), it was to mobilize some 40 billion euros between 2020 and 2030. This amount was calculated on the basis of a carbon price of 75 euros per tonne. The goal: to finance innovative technologies on a large scale in energy-intensive industries, renewable energies, hydrogen, energy storage and carbon capture.
This fund succeeded the NER300 initiative, a more modest program whose financing approach the Court’s auditors had already assessed “insufficiently adapted to the risk reduction needs of demonstration projects”. The Innovation Fund was to correct this: funding rate raised to 60% of relevant costs, with partial payment upon completion of the financial package and more sophisticated selection criteria.
It targeted what innovation economists call « valley of death »namely this critical phase where a technology has passed the basic research stage but has not yet found commercial funding because it is too risky. A real niche, recognized by the industry itself as without equivalent at national or European level. What the market does not deliver spontaneously, the European effort would fill it.
The market does not always follow
The Danish TopSOEC project illustrates what this fund can produce when the conditions are right: financing the world’s first factory for the industrial manufacturing of solid oxide electrolysis modules, a promising technology. This involves producing green hydrogen on a large scale, from renewable electricity, with less energy loss. The chain is coherent – from research to industrial demonstration, without any interruption in funding. This is exactly what the Innovation Fund was designed for.
In France, two projects were audited by the Court of Auditors on site: one in solar energy, the other in the steel industry. The first had achieved 63% of its emissions reduction targets, driven by the general increase in energy prices. The second peaked at 35%. This is the EB UV project, carried out by ArcelorMittal Construction France on its Contrisson site, in the Meuse. For 2.4 million euros in subsidy, ArcelorMittal installed a paint hardening process by electronic bombardment on its steel coil coating lines – a first in Europe for this application, developed over thirteen years with the Liège research center.
The objective: to eliminate the gas incineration system, which emits CO2and replace it with a solvent-free process. The technology works. But the outlets for the products thus processed have not kept pace with expectations. Two destinies which say the essential: the best clean technologies remain at the mercy of the markets that they intend to transform.
A machine seized from the design
The first problem is structural. Funding for the Fund depends on the price of carbon, which is by definition volatile. Between July 2020 and June 2025, the auction price for European carbon market quotas fluctuated between 23 and 97 euros per tonne. No mechanism guarantees the Fund a minimum level of resources. The European Commission must wait to know how much money it has actually collected before launching calls for proposals.
Result: a massive accumulation of pending assets. At the end of 2025, 12.3 billion euros were lying dormant in the Fund’s coffers: 11.6 billion euros committed to grant agreements, not yet paid, and 700 million euros remaining to be allocated. Result: actual payments to projects only amounted to 332 million euros… Less than 1% of the overall allocation. Five years after launch. This raises serious questions.
It is all the more relevant to identify the blockages since, during the next long-term budget, the Commission will have to manage a Competitiveness Fund which will mobilize, according to the proposal on the table, 451 billion euros. It is not a question of missing out, this time, given the expectations of this fund which responds to the most pressing recommendations of the Draghi report.
So how do we manage to release so little money five years after the birth of the Innovation Fund? This figure measures the delay in technologies that could have been deployed, industrial processes that could have been tested, entire sectors that could have been structured. And which could, at the same time, have judiciously reduced the EU’s dependence on hydrocarbons at a time when we are experiencing a new oil shock since 1973 with the Iranian crisis.
The Commission stuck in a too-rigid legislative framework
In the global race for clean technologies, where China massively subsidizes its solar, wind and battery industries, each year lost is paid for in market share and technological dependencies. The second problem is more philosophical. The rigidity of the legal framework prevents the European Commission from adapting its requirements to the real complexity of projects. The completion of the financial package – the stage from which payments can begin – must take place within a period of four years, enshrined in the ETS directive: no more, no less, whatever the size or complexity of the project.
Or, la Commission “is not able to adapt the requirements according to its own assessment of the complexity or scale of the projects financed”listeners note. It does not have the necessary room for maneuver for industrial projects which deserve flexibility. It is this legislative constraint which partly explains why 40 of the 228 projects selected – or almost one in five – do not reach commissioning.
Here again, we must read this figure correctly: 20% failure is not scandalous in the field of innovation – it is often a sign that we are financing the right risks. What poses a problem is that these failures occur too late, after years of procedures, negotiations and modifications of grant agreements.
The seven major projects of the first call of 2020, to which 1.15 billion euros had been allocated in March 2022, were in March 2025 behind an average delay of 24 months in their commissioning. Only one had completed its financial package on time. Not for technological reasons – the Court notes explicitly, most projects delayed “did not experience any technical issues†– but for economic and administrative reasons: building permits delayed, costs exploded by post-Covid inflation, partners who are withdrawing, and the market which is not taking off.
The Court identifies a third, more political dysfunction: since 2022, and after the start of the war in Ukraine, the Commission began to direct calls for proposals towards emerging priorities (hydrogen, batteries, clean technologies) without structured analysis of the real potential of these innovations.
Low climate impact
The European Hydrogen Bank thus absorbed 2 billion euros of calls in 2023 and 2024. Except that the number of proposals submitted was reduced from 132 to 61 between 2023 and 2024. For electric vehicle batteries, only 14 proposals were received. been submitted in response to a call for one billion euros, and 15% of the envelope remained unused in June 2025, without any grant agreement having yet been signed.
The Innovation Fund, designed as a neutral instrument to support disruptive innovation, has gradually become a sounding board for current political priorities – hydrogen yesterday, batteries today – without this shift being based on a structured analysis of their real potential. This is what the auditors observe, who note that the actions thus undertaken “ may not be sufficiently relevant for the achievement of its objectives. » Be careful not to confuse financing of innovation and political display…
The real climate impact remains, for the moment, symbolic. At the end of December 2024, the 208 projects in the portfolio should have avoided 592,453 tonnes of CO equivalent2. They only avoided 25,952 – or 5% of the intermediate objective. We are very far from the target… “Clear strategic priorities, faster deployment of funds and more realistic evaluation of projects are necessary to optimize the impact of this Fundâ€recommends, Joao Leao, the Portuguese member of the Court, responsible for the audit.
Make a mistake yes, but change quickly
The Commission, in its responses, accepts the three recommendations made by the Court: a structured analysis of the technological landscape by the end of 2027, measures to accelerate deployment by 2030 and an improvement in the evaluation of projects by 2028. On the other hand, it contests the fundamental criticism: slowness. She rightly emphasizes that 93% of the projects are not yet in operation and that it is ” too early to draw valid conclusions ».
She also puts forward a competing figure: the five projects audited on site had achieved on a weighted average 73.6% of their reduction objectives over their respective monitoring periods – therefore above the percentage retained (57%) by the Court as a simple average. The statistical dispute is real, and it reflects a fundamental question: how to judge a bet on the future with the instruments of the present?
The real reform is not in the evaluation criteria nor in the methodology for calculating avoided emissions. It is based on the acceptance of a simple principle: financing innovation also means financing failure. On condition that this failure is rapid, documented and bears lessons. A fund that cannot afford failure cannot afford innovation. The machinery of the Innovation Fund is too slow. Commissioner Wopke Hoekstra, who heads DG CLIMA, will undoubtedly have a lot of lessons to learn from this report.
