Jun 13 2016

DG CLIMA’s public meeting on ETS Innovation Fund: who said what

The Commission workshop High Level Round Table on Low-Carbon Innovation was held on 9 June to gather stakeholders’ views on the future ETS Innovation Fund. The Director General of DG CLIMA, Jos Delbeke, chaired it for the four hours that it lasted. The EIB, represented by Roland Schulze, took the floor several times, too. Their comments, quoted below, are the most noteworthy.

The roundtable brought forward more ideas for ETS Innovation Fund than the debates in June and July the European Parliament and Council (article).

Let’s pick a small number of areas to focus on

Gernot Klotz (President, K4I) was in favour of a competition limited to a few areas, saying, “It needs some top-down approach because it needs focus.” Commissioner Cañete took note of this request to “not try to spread the support all over the place,” as did Delbeke: “We should be very clear about which technology we want.” He had heard other stakeholders join Klotz, including Martin Porter from the Industrial Innovation for Competitiveness initiative (I24C) who said, “We can’t hide away from the need to make certain choices on the technologies to choose.” The think tank Bruegel had also called for this (among other measures) in its position paper of 2015: “develop a more methodological approach to technology selection”.

But 11 days later those following the evening event Innovation: the Way to a Low-Carbon Economy? took the opposite view. See tweet below.

Funds for making green products not green manufacturing

Some industry speakers (and some MEPs) wanted ETS Innovation Fund to directly support production of manufactured goods rather than improvements to the manufacturing process. Crucially the products would have to serve a green purpose. Roland Merger, Vice President Corporate Technology at BASF, was the first to suggest the idea and it found support from Nicolas de Warren of his competitor Arkema. The steel sector, also represented on the panel, was split. Thyssen Krupp’s Head of Innovation Strategy & Projects Markus Oles felt one has “a better chance to reduce in total our emissions in process than if we are only focused on products” and implied through his example that the cement sector would agree. The Director General of Eurofer Axel Eggert, meanwhile, said that so long as there was no worldwide price on carbon emissions, product innovation was the more viable way forward. [NER400.com comment below]

Alternatives to the “focus-on-products” and “focus-on-processes” approaches were put forward. Gernot Klotz called for NER400 to support “value chains” (the network of suppliers and other firms who make an installation possible) as opposed to installations by themselves. “Through the supply of technological elements,” he said, “other countries can participate and benefit, like in the car and ICT industries”. I24C wanted support for a similar concept that it called “ecosystems”.

Projects that take in whole value-chains or ecosystems would be bigger than ones with a smaller scope, implying less work for the EC per euro of support paid out by ETS Innovation Fund. Jos Delbeke pointed this out (see box immediately below).

“The alternative for us as a policy body is in the line of asking industry to make a cluster across sectors resulting in a project bigger than a project in my little sector. There is more a vision about what needs to be done, and there are more industrial players and more industrial sectors. If the consequence of that is bigger projects, we would be willing to take that because it would mean for us less bureaucracy because you would do more coordination. The more you go for tiny projects, the more we pay in terms of resources, man time for dealing with them all.”

— Jos Delbeke

Roland Schulze of the EIB, who has been closely involved with the predecessor of ETS Innovation Fund — NER300 — since its earliest days, repeatedly drew attention to the difficulty of fairly evaluating competing proposals that deal in product innovation or that set the challenge at a very high level, by demanding, for example that a project deliver a ‘functionality’ like thermal comfort. He visited or revisited the topic in every one of the three times he took the floor and was backed up by Martijn Overgaag of Ecofys (see box immediately below).

EIB official pushing for a clear and simple competition

“The idea to simplify on […] functionalities is very attractive. However, I think it will make it even more complicated to measure the value for money impact. […] If it would go that way […] we need to make sure there is no competition among other funds and they are not contradicting or the impact is anyway lost.” He does not want to see overlaps in the kinds of project that the EU’s different funding instruments serve.

“In my personal view, I think process innovation would be more effective with regard to contributing to positively to the objective of achieving a low-carbon economy because it is much more measurable and one can allocate it in the context of reducing CO2 emissions. […] A grant funding mechanism for innovation needs to have a clear indicator to measure that the public funding impact leads to tangible effects in the economy so that the public funding can see some value for money.”

“In principle I’m agnostic about process or product innovation. The challenge is how can one then identify a proper indicator to then make sure that public grant funding mechanisms will bring value for money. That is a task one has to think about very thoroughly. LCA (lifecycle assessment) very much depends on how one draws the boundaries around the calculation. It is probably not that easy [to draw the boundaries fairly]. I said I’m agnostic but from the clear measurement of an impact, process innovation is much easier.”

— Roland Schulze [NER400.com comment below]

Delbeke aligned himself with de Warren when he summed up the discussions: “We had the discussion on whether we should strive for optimising process emissions […] or whether we should go for product innovations […]. We concluded that in fact the best way to look at this is that there are a number of functionalities that we want to reach and at least five were suggested: we need more for insulation, lightweighting of materials, energy storage, lighting, improved energy efficiency in renewable energy not least of photovoltaic panels.” But Delbeke appeared to acknowledge Schulze’s concerns: “There were four or five elements that I noted from our discussion, of which ‘Keep it simple’. NER300 was overly complicated but the more we were going into the discussion I was holding my breath because if we have to put that into operation it could become as complicated as the NER300.” His willingness to imagine an ETS Innovation Fund that would fund product development did not seem totally sincere. He had also said, “You will hardly hear anyone in DG CLIMA talking about green industries and normal industries. We don’t do that. A windmill is steel, is concrete, is chemicals. These are traditional products that are combined in a very intelligent manner.” If DG CLIMA’s general attitude is to reduce a piece of technology to its inputs, it is hard to see how it will take precisely the opposite position in the case of ETS Innovation Fund to create a list of ‘green’ end-products.

A measurable selection criterion for the competition

Leaving to one side the question of whether environment-enhancing end products or rather the industrial processes that make them should be proper object of ETS Innovation Fund, one idea that resonated with the room was to select projects according to their ability to reduce greenhouse gas emissions. Merger said “We should look at which reduction potential in terms of carbon emissions they have” and Oles agreed that this metric should be used to “prioritise” proposals. At an event in May by Carbon Market Watch Tomas Wyns had introduced his report The Final Frontier. An idea it contained, to require industrial ETS Innovation Fund projects to demonstrate CO2 savings of at least 20% compared to a benchmark, found its way into amendments by the two leading European Parliament MEPs for the ETS Directive (and by several other MEPs), and Wyns plugged his idea at this event, too.

Graeme Sweeney, Chairman of the Zero Emissions Platform promoting CCS savaged the idea of requiring electricity-generating projects to achieve reduction in the levelised cost of electricity by 20% for the reasons given in this article. It, too, had found its way into the amendment proposed by Federley. He said, “It is barking mad.” Delbeke recognised that different approaches would be needed for both: “In each category you can go for the lowest cost of carbon. The story we have heard today from the manufacturing industry is very different and the game is more complicated than the lowest cost of carbon saved. That is one of the conclusions I take with me. The discussions we are having squarely confirm that when it comes to the allocation of funds to the manufacturing industry unlike the renewable sector, it’s a very different process we are faced up to and we need more and better ideas than may have worked for renewables under NER300.”

Europe first!

Klotz saw reducing the EU’s dependence on imported components as an important aim for ETS Innovation Fund. He challenged the audience, “Do we favour that all these processes [to develop technology] happen in Europe and get added value for Europe, because you can easily build a smart city with Amreican ICT, with solar panels from China and with materials from Saudi Arabia.” Delbeke took note. Two hours later, in his wrap-up, he said, “Do we want to maximise part of the low carbon activities inside the European Union and the answer was clearly ‘yes’ and for that we need the continuation of demonstration plants […] [where] low carbon technology that is not yet ripe for uptake by the market can be brought into the market. There were suggestions of how to maximise the European content. The European first idea was mentioned. It was not pursued much more,” but he implied that the mission “to maximise the European presence in low-carbon technology” is worthwhile.

Knowledge-sharing — speakers silent

A questioner twice asked the panellists for their views on ETS Innovation Fund’s knowledge-sharing rules. No answer came. Then Delbeke tried a third time, “The point that we were not hearing anything about was the knowledge-sharing that was repeatedly brought on the table. Any comments on the obligations under the current NER300?”

Only Merger responded, saying, “For me the main point is that how you do it is clear from the start so that when you apply for a project you do not end up with lengthy discussions and then you can make your decision whether you want to be part of the project or not.”

The Commission proposed no knowledge-sharing conditions for ETS Innovation Fund (see post). Delbeke offered this clue as to why that might be: “It was a heated point I remember when we adopted NER300 and the lack of clarity that is there now cannot be attributed to the Commission but to very difficult compromise making in the institutions.” Some MEPs want knowledge-sharing rules back put in.

Tolerant of failure

Delbeke appealed for NER400 to tolerate failure: “If you take risk, you are not always going to see success everywhere. You will also see a failure. Do we have a culture of accepting or do you want one or the other official — Commissioner or who else — to be blamed and to be taken up in a political scrutiny process that is as far as that is concerned not a pleasant one.” He retained the idea as one of the five mentioned in his summing up, although whether he meant “risk” or “expectations” is not clear: “We need to in particular manage the risk much better. […] We should get out of the blame game. If a technology does not make it nobody should have to be blamed.”

He had support from industry speakers: Klotz and Francesco Venturini, ENEL Green Power CEO.

A focus on demonstration projects

Commissioner Cañete defended the EC’s proposal to focus on demonstration projects: “Europeans have been very intelligent in delivering resarch in the past, but now we have to deliver innovation and every speaker has said we have given less attention than in the past. Big research budgets, but not concentrate on how we bring the patents to the market, how we develop the projects, and all the difficulties involved in that along the way. It’s complicated to patent. It’s much more complicated to bring a product to the market and make the consumers accept it.” Delbeke was blunter: “No research, no laboratories, no PhDs, but demonstration projects, pilot projects in industry.”

But what kind of demonstration projects? Delbeke said, “The intent is still to be clarified to what extent we go for breakthrough technologies breaking through, disrupting or whatever the name can be or on the other hand the rolling out of very interesting technology that are already known and are very interesting but for which the delta remains significant” [“delta” being the difference in cost between the output of the eco-friendly technology and that of the equivalent dirtier incumbent].

Next steps

  • Delbeke said, “We have lots of other policies […] [We do our] innovation policies collectively with a number of DGs, like DG Grow, DG RTD etc.” A coordination meeting with other DGs would take place immediately after the meeting.
  • Of his openness for fresh thinking from the Council and European Parliament he said, “We are motivated to make something more specific than what is there in the ETS proposal. In the ETS proposal, it was capturing a lot of ideas but in a not-too-specific manner, so the co-legislators will have to put more flesh on the bones and whatever is not spelt out in the Directive will have to be spelt out later in an Implementing Decision. So once the ideas are clear we can come forward with more operational thoughts about what needs to be done.”
  • Of the timing (note the meeting was held before the Brexit referendum result) he said, “Our thinking is open, but only for a while because legislation will be adopted, presumably second half 2017, so it’s now time to take heart and conclude in the next couple of months because otherwise the opportunity for modification of our proposal that was deliberately left more open compared to the NER300 but without having filled out the last detail yet.”

  1. NER400.com’s comment

    Roland Schulze is right to insist on a clear selection criterion for the projects in the competition, especially as the competition will span a wide range of very different technologies. Basing selection on non-quantitative criteria like a degree of innovativeness will make it harder for the losers to accept the result.

    Product innovation would not be an appropriate object for ETS Innovation Fund even if the products eligible for funding are useful for shifting to a low-carbon economy. The focus, for projects in industry, must be on cutting process emissions because ETS Innovation Fund’s purpose is to help European companies protect themselves from carbon leakage. The risk of carbon leakage (i.e. the risk of an industry shifting to a part of the world where environmental standards are lower) is not reduced by helping those companies make their products more attractive to consumers, at least not directly. Delbeke is right to be sceptical.