Today (Wednesday 27 May) the EC releases its COVID-19 Recovery package and Multiannual Financial Framework. The Green Deal and net-zero ambitions are expected to be a substantial part of it. Eleonora Moro and Léa Pilsner at E3G draw attention to Research & Innovation (R&I, or R&D), often in danger of being seen as a luxury in times of crisis because the big wins are not immediate. Already, the EU could do much better. Looking at R&D expenditure as a percentage of GDP the EU (2.06%) continues to trail behind all its peers: Japan (3.2%), USA (2.78%) and China (2.13%). But, as the authors explain, productivity and competitiveness are tightly bound to R&I. A slip today will cost the EU in the future. Regarding this sector, greater levels of energy independence and cost savings will be among the big-picture rewards. And a culture that supports innovation in their businesses can make them more resilient to economic crises. The authors conclude with recommendations, including support for collaboration, private R&I, scale-up, and narrowing the innovation gap seen in southern and eastern Europe.
Research and innovation (R&I) is critically important to addressing global challenges. The on-going COVID-19 pandemic makes this abundantly clear. For months now, research to develop vaccines and treatments to combat the virus, as well as innovative solutions to maximise the construction, deployment and distribution of life-saving medical equipment and personal protective equipment have dominated news headlines. As public attention in Europe turns to economic recovery, R&I will continue to be key.
On Wednesday 27 May the European Commission is expected to release its COVID-19 Recovery package and Multiannual Financial Framework (MFF). The plan, to support the EU’s COVID-19 recovery as well as climate neutrality over the next seven years, is expected to amount to at least €1 trillion. If EU recovery is to be sustainable, resilient and fair the package must provide targeted support for green R&I.
A Green R&I stimulus
Green R&I – research and innovation in tech, products and processes for accelerated decarbonisation – can offer the necessary short-term stimulus to recover from the pandemic-induced recession. At the same time green R&I can help build an economy aligned with the European Green Deal’s climate neutrality objective.
Measures such as retrofitting buildings, developing clean infrastructure, and investing in natural capital have both positive economic and climate benefits, and innovation can aid in deploying such measures at the necessary scale.
Beyond short-term recovery needs, green R&I also has the potential to increase the productivity and competitiveness of the EU economy, putting Europe at the forefront of future growth. In fact, according to some studies, historically R&I is estimated to have contributed up to two-thirds of economic growth in the EU.
Green R&I can build resilience to future shocks and improve citizens’ daily lives. At the individual level, innovation in clean technology builds resilience to crises. For example, installing renewable energy and energy efficiency in households enables greater levels of energy independence and cost savings. At the business level, innovative companies have survived previous economic crises better than others.
R&I is at risk from the economic crisis
Despite the numerous economic, social and environmental opportunities offered by an innovative green recovery for Europe, the R&I sector is still at risk from the COVID-19 induced economic crisis.
Funding constraints threaten a full generation of innovative green enterprises. Small innovative enterprises and start-ups are particularly threatened, as they have fewer internal resources and greater obstacles in accessing credit. Even in larger firms, R&I activities tend to be cut or delayed during crises due to falls in demand and economic uncertainty.
Constrained public finances similarly risk halting green R&I activities. Many European countries struggled to maintain public research spending in the years following the 2008 financial crisis, especially once debt consolidation policies dried up public coffers. With the EU already trailing behind its competitors, including the United States and China in R&D expenditure as a percentage of GDP (see Figure 1 below), this must be avoided today.
Regional innovation gap
In addition, the fundamentally different macroeconomic situations across European member states mean countries such as Germany and the Netherlands have much more fiscal space to maintain R&I spending than other countries. The discrepancy risks widening the existing ‘innovation gap’ between Northern/Southern and Eastern/Western European countries (see Figure 2 below).
What can the EU do?..
The upcoming MFF and recovery plan gives the EU the chance to ensure green R&I opportunities are seized while avoiding costly risks.
1] Target green R&I boost in Europe
Green R&I breakthroughs and incremental improvements require reliable and continuous funding. The EU can ensure research continuity through Horizon Europe, supporting research programmes and ensuring budgets are not cut in the upcoming MFF. The EU should continue to facilitate EU-wide and global research collaboration, maintaining already established international networks.
Initiatives to pool patents would allow research to build on previous breakthroughs, enabling a more dynamic R&I ecosystem in Europe. On innovation, the EU can support scaling up and commercialising innovative clean technology and green SMEs through the European Innovation Council.
2] Incentivise private green R&I investment
Both EU-wide and national R&I policies and funding priorities should ensure private investment is leveraged towards green R&I. Although public funding provides a relatively minor proportion, roughly 30% of EU R&I investment, it has the potential to catalyse private investment.
EU policies and investments can leverage private funding by providing a strong market signal that green R&I is an EU priority. In addition, policies de-risking investment in breakthrough and incremental innovation; developing and demonstrating replicable practices; and pooling resources to achieve economies of scale would incentivise private investment.
3] Encourage deeper EU and national alignment on green R&I
The COVID-19 pandemic shows the importance of decisive action in co-ordinating efforts across countries and sectors towards a common objective. EU policies can act as a guideline for greater coherence across national and EU agendas.
The SET-Plan is an EU programme aiming at the joint development of low carbon energy technologies. It offers an opportunity to co-ordinate EU, national and private R&I, and could have even greater impact if funding were to be attached to it.
4] Narrow the European innovation gap
To maximise EU R&I potential, the EU should more systematically facilitate investment in green R&I projects in Southern and Eastern European countries and include these countries in EU-wide innovative value chains. Mobilising all member states in this way will contribute to the EU becoming a stronger global R&I actor.
Narrowing the European innovation gap will increase EU competitiveness, while expanding cohesion and enabling more member states to become innovation leaders. Flagging second-best projects that do not win Horizon Europe funding but are deemed viable and valuable through a certification scheme could further aid in steering private investment.