Cleantech for Iberia, Cleantech funding, Critical Raw materials and disclosures: Our Monthly Policy Update

Our monthly Policy Update shares key news from the past month in Brussels, examining the potential impact of recent policy developments on EU cleantech.

This month, we dive into:

Iberia in the Spotlight: The priorities of the Spanish Presidency of the Council of the European Union and the launch of our new initiative, Cleantech for Iberia
A recap of a meeting between Members of the Cleantech Friendship Group and cleantech leaders at the European Parliament on supercharging Europe’s cleantech competitiveness
The EU’s newStrategic Technologies for Europe Platform (STEP), formerly known as the EU Sovereignty Fund
The latest on the Critical Raw Materials Act, the proposed framework setting out targets for the production, refining, and recycling of critical raw materials
The European Commission’s new sustainable finance package, setting out a number of further steps to boost green investments
The 2022 European Investment Bank Group report taking stock of the climate funding activities of the Group
The latest on the Corporate Sustainability Due Diligence Directive, the proposed framework requiring large companies to conduct due diligence on, and take responsibility for, human rights abuses and environmental harm throughout their global value chains

What we have been reading:

International Energy Agency’s report on the state of clean tech manufacturing of five key technologies: solar PV, wind, batteries, electrolysers and heat pumps
The 2023 Strategic Foresight Report, putting forward a set of actions for Europe to achieve its goals
The first International Energy Agency critical minerals review

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Spain takes over the Presidency of the EU Council, as Cleantech for Iberia hosts inaugural event in Madrid

On July 1, Spain acceded to the helm of the Council of the European Union, ushering in a new Presidency troika of 3 EU Member States which will share the European Union’s Strategic agenda for the next 18 months, as follows: Spain (Q3, Q4 2023); Belgium (Q1, Q2 2024); Hungary (Q3, Q4 2024).

Spain comes to the Presidency seat during a critical time when the three key legislative proposals of the Green Deal Industrial Plan will be negotiated between the European Institutions, namely the Net Zero Industry Act, Electricity Market Design, and the Critical Raw Materials Act. Additionally, it will also be responsible for leading the 27 EU Member States in reaching an agreement with regards to financing the restructuring of the European Union Multiannual Financial Framework, otherwise known as the EU budget for the remaining years up to 2027.

The 4 priorities of the incoming Spanish Presidency are:

promoting the reindustrialisation of Europe
The ecological transition
consolidating the EU’s social pillar
strengthening the EU’s unity

Spain is having elections this summer. Should there be a change in direction in Spain’s government, it is not impossible that some of these priorities will be changed in early autumn.

Against the backdrop of the Spanish Presidency and forthcoming elections in Spain, the new regional initiative Cleantech for Iberia hosted its inaugural event on Wednesday, July 5th. Cleantech for Iberia aims to supercharge Spain and Portugal’s cleantech ecosystems and provide a unified voice on behalf of the region’s innovative startups and scaleups. Record-high investment numbers in the cleantech sector over the past half-decade has positioned these companies to boost Spain and Portugal’s industrial competitiveness.

During the event, Nadia Calviño Santamaria, Spain’s Deputy Prime Minister and Minister of Economic Affairs and Digital Transformation, provided a keynote address discussing how the region can become a thriving cleantech innovation hub. Additionally, lively roundtable discussions among more than 60 Spanish and Portuguese cleantech investors, business leaders, researchers and policymakers focused on how to supercharge Iberia’s cleantech sector.

The event saw the release of the executive summary of a forthcoming report into the state of play for Iberia’s cleantech ecosystem. The report reveals that over 160 Spanish and Portuguese cleantech start-ups have received funding since 2018. In defiance of global investment trends, 2022 was an extraordinary year for cleantech growth stage deals in both Spain and Portugal, as €674 million was invested in Iberian cleantech, representing a six-fold investment increase over the previous five years.

With abundant sources of clean energy like wind and solar, a developing hydrogen economy and a strong existing industrial base, Spain and Portugal possess many potential competitive advantages in sectors such as green steel and long-duration energy storage. Indeed, both countries are already demonstrating leadership in achieving their commitments to decarbonize. Spain and Portugal possess abundant clean energy resources including wind, solar and hydropower: Spain is currently on track to achieve its goal of 81% of power generation from renewable energy by 2030, while Portugal is likely to hit its goal of over 80% of annual energy generation with renewables by 2026. Additionally, Spain is already home to 20% of hydrogen projects worldwide.

At the event, participants heard some recommendations for further strengthening Iberia’s cleantech sector. One of the key challenges Iberian cleantech startups face is getting their most promising technologies from pilots to commercial scale. While investment in Iberian cleantech investment has greatly increased over the last five years, it still falls short of what is needed for Spanish and Portuguese industrial cleantech to succeed from research to large-scale projects, and is also less than the total amount of investment several of their European peers receive. Beyond capital, there’s a need for innovative regulation and a clear industrial strategy at the European-level to ensure deployment of large-scale projects using both European and Iberian technology. A clear conclusion from the event is that in order to establish the Iberian peninsula as Europe’s next hub of cleantech innovation, the whole eco-system must work more closely together, from innovators to investors, researchers to policymakers, and beyond!

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^{Further reading:}^{EU Strategic Agenda for the next 18 months covering the new Presidency troika}^{Spanish language article on Cleantech for Iberia’s inaugural event and policy recommendations in the publication “Renewable Energy”}^{The executive summary of Cleantech for Iberia’s forthcoming report}

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Cleantech Friendship Group Meets in European Parliament in Strasbourg

On 12 June, the Cleantech Friendship Group organised a discussion in the European Parliament with cleantech leaders from across all of Europe, comprising of both top investors and top innovators who came together to discuss the cleantech community’s experience from the field., during the European Parliament’s plenary week. The event was hosted by MEP Pascal Canfin, together with the two co-chairs of the Group, MEP Lídia Pereira and MEP Mohammed Chahim.

Key takeaways:

🎯 Clarity and ambition are needed on defining what cleantech actually is. Equally so, realism is needed for deciding which technologies need support to have their business case made and which don't, given the current EU ETS price level; In other words, where does the EU need to step in to take on risk and where is this not needed?

💶 More European private investments should be channeled into EU cleantech. This would ensure European ownership of European unicorns, for example by leveraging European pension funds to support European cleantech developments—currently there is the risk these funds would be supporting US cleantech developments.

🤵 Better staffing and more sectoral skills and expertise is needed in governments and at the EU level to better support cleantech scaleups,

🏛️ Government capacity needs to be more autonomous in policymaking and not only lean on the input from incumbent market players

✔️ EU legislators need to continue raising the bar on environmental legislation so as to help make the performance of sustainable frontrunners become the norm

📈 More public funding for innovation is needed at EU level, which should include a well-designed Sovereignty Fund, as well as to leverage public guarantees schemes for European innovators looking to scale-up in Europe. Furthermore, policymakers must be careful not to erode the Single Market through national state aid schemes

💡 The Innovation Fund should be larger and work better and more transparently to support disruptive clean technologies all across the EU

⚡ The European cleantech community needs clearer market signals and a guarantee that they will have sufficient ease of access to European markets, which currently favour the incumbents

📋 Cleantech leaders would benefit from greater mandated regulatory harmonisation across the European Union

👷🏻‍♀️ Regulators need to publicly acknowledge the fact that deploying cleantech is good for the whole of society. They can do this by liaising more closely with cleantech leaders to show that, beyond addressing the dangers of climate change, scaling cleantech is also about long-term job security through building skills for the net-zero economy and – by extension – about competitiveness.

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The Strategic Technologies for Europe Platform (STEP)

On June 20, the European Commission announced a proposal for the creation of a Strategic Technologies for Europe Platform (STEP), in tandem with launching a Communication to promote European economic security and a proposal to amend the multiannual financial framework (MFF) which regulates the EU budget and is vital for securing the means and resources for the STEP.

The STEP proposal creates a single online platform (a Sovereignty Portal) where under a so-called ‘Sovereignty Seal’ technology-related projects can be granted multiple strands of EU funding. The platform works by integrating all the various existing streams of EU funding into a broader technology sovereignty framework. This allows for projects which meet the quality criteria (eligibility, award or exclusion) to tap into multiple funding pools, while also creating more flexibility (enlarging the criteria of who can apply, unfortunately by also making calls open to big companies). STEP also enables the EIC to provide equity-only to non-bankable SMEs and small mid-caps and regardless of whether they previously received other types of support from the EIC Accelerator.

The initial examples of clean technologies listed in the STEP Recitals resemble those covered by the NZIA list of Net Zero Strategic Technologies in the Commission proposal, with a few welcome additions (i.e., construction). STEP aims to increase the firepower of existing initiatives: It adds €2.63 billion to the European Innovation Council (EIC); increases funding for the European Defence Fund up to €1.5 billion; and asks for top-ups of up to €3 billion to InvestEU and up to €5 billion to the Innovation Fund. Yet, STEP does not change existing application processes, which have made schemes like the EU Innovation Fund hard to access for cleantech companies.

See an analysis below:

Graph above by the Jacques Delors Institute in the context of a discussion hosted by Cleantech for Europe at the Press Club in Brussels, featuring the world Fund, member of our investors’ coalition, and Skeleton Technologies, member of our scale-up, who also shared their analysis of STEP. Full recording available here:

Impact on cleantech:

STEP aims to tackle the problem of preserving the integrity of the single market following the loosening of state aid rules (TCTF) in response to the ongoing energy crisis and ambitious industrial policy from China and the US. Unfortunately, howethe requested additional funding of €10 billion – less than what was recently offered by Germany to support the building of a single chip factory in the country – is wholly insufficient for this purpose.

Given the previous announcement of a proposal for a ‘European Sovereignty Fund’ to serve as the financial leg of the Green Deal Industrial Plan, STEP appears as a second-best solution to address several problems facing Europe today. In its current form, the STEP plan does not offer the needed clarity, simplicity and focus required to ensure each of those concerns are addressed in their full complexity.

Finally, there is no certainty that the additional €10 billion in funding requested for STEP – which is not focused exclusively on cleantech, as it also covers digital, deeptech and biotech – will be approved by Member States. To scale-up EU cleantech manufacturing, innovators require measures and funding with great speed, scale and simplicity. The EU needs to unlock financing many times larger than the current STEP plan provides for within a matter of months. The focus on cleantech must be sharp and send clear market signals.

STEP is several steps away from the much anticipated ‘European Sovereignty Fund’ as it does not amount to a cleantech funding arm of the European Union’s response to the US Inflation Reduction Act’s generous tax credits and bolstering of the US Department of Energy’s Loan Programs lending capacity. Hence, it falls far short of what is required to preserve EU economic security and competitiveness, while preventing a fragmentation of the single market by the recent easing of state aid rules.

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Critical Raw Materials Act

On 30 June, the Council of the EU adopted its position on the Critical Raw Materials Act, providing it with a mandate for negotiations with the European Parliament, which will start after the Parliament adopts its own position.

The Council position raises the level of ambition for 2030 recycling capacity (from 15 to 20%) and processing capacity (from 40 to 50%). It also reinforces sustainability criteria, adapts the process of granting permits and explores obligations on the member states to ensure account is taken of their different situations.

Impact on cleantech:

Increased ambition on domestic recycling and processing capacity is welcome, even though it could be higher. Yet, the proposal does not include any new financial resources to encourage the uptake of domestic capacity while deadlines for permitting procedures are preserved, and in certain cases extended, leaving open how this higher ambition should be achieved. Cleantech innovators in mining (e.g., precision drilling), refining (e.g., direct lithium extraction) and recycling (e.g., spent and scrap battery recycling) will benefit from the increased ambition, but could be further incentivized through dedicated provisions emphasizing CRM clean technologies that reduce the environmental impact of mining and processing and reduce virgin CRM demand through recovery, reuse and recycling. The CRMA should include specific regulatory and financial provisions for research, development, and demonstration (RD&D) to develop and scale CRM-cleantech.

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Sustainable Finance Update

On June 13, the European Commission published a set of legislative and non-legislative initiatives to strengthen the existing EU sustainable finance framework in the areas of:

The Taxonomy. In addition to expanding on the economic activities that substantially contribute to the objectives of climate change mitigation and adaptation, the Commission sets out new technical criteria for economic activities making a substantial contribution to one or more of the non-climate environmental objectives (namely sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control and protection and restoration of biodiversity and ecosystems). These activities include the manufacture of automotive and mobility components, the manufacture, installation and servicing of high, medium and low voltage electrical equipment and the manufacturing and leasing of aircraft. The technical criteria will now be sent for scrutiny to the European Parliament and Council. If they get greenlighted, they will enter into force and apply from January 2024.
ESG ratings. The Commission released a proposal for regulating ESG rating providers. The proposed legislation would apply to ESG rating providers regardless of whether they are EU-domiciled. Non-EU ESG rating providers may offer ESG ratings in the EU, for instance, where a positive decision on equivalence of the third-country regime has been taken by the European Commission or ESG ratings developed outside the EU may be endorsed by an authorized ESG ratings provider in the EU. It is not yet known when the legislation will come into force but it is unlikely to be before the end of 2024.
Transition finance. The Commission issued a non-binding recommendation providing guidance on how firms, investors, and financial intermediaries can use the EU sustainable finance framework to approach transition finance. The recommendation provides a definition of transition finance, as “the financing of climate - and environmental performance improvements to transition towards a sustainable economy, at a pace that is compatible with the climate and environmental objectives of the EU.” The recommendation also provides guidance and examples for companies and the financial sector about transition plans.
Sustainable Finance Disclosure Regulation (SFDR): The Commission indicated that a consultation on assessing SFDR will be launched in autumn 2023. This is in recognition of various shortcomings of the current regulatory framework, including the fact that SFDR has been applied as a labelling regime and burdensome reporting requirements. The review will focus on how to improve SFDR’s legal certainty and enhance its usability and role in mitigating greenwashing.

Impact on cleantech:
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Scaling cleantech, decarbonizing existing assets and processes and optimizing portfolios by retiring carbon-intensive legacy assets requires a robust policy framework that enables investors and financial institutions to channel financial flows towards these activities. While the EU has been a pioneer in setting up such a framework with the EU Taxonomy and the SFDR, it has not yet achieved to unlock the capital needed to facilitate an EU wide cleantech transition. The Commission’s 2023 Strategic Foresight Report estimates that Europe will need additional investments of EUR 620 billion annually to meet the objectives of the Green Deal and REPowerEU. Cleantech investors and financial institutions still struggle to navigate the granularity and burdensome reporting requirements and voice concerns about widespread greenwashing. The new proposals put forward by the European Commission are a good step in the right direction, by introducing greater transparency in the market, enlarging the list of green activities under the Taxonomy and laying out ideas on the financing of activities that are not yet sustainable but in transition. However, these proposals do not tackle the constraints cleantech investors face, from future policy uncertainty and technological costs that raise the cost of capital to data limitations and unattractive risk-return profiles.

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Turning the European Investment Bank into Europe’s Climate Bank

n 2020, the European Investment Bank Group (comprised of the European Investment Bank and the European Investment Fund) committed to increase its lending to climate action and green activities to more than half of its funding activities by 2025. In this context, on June 29, 2023, the European Investment Bank Group (EIB Group) published a report taking stock of the Group’s green funding activities. In 2022, the EIB Group financed €36.6 billion in green lending, representing 58% of its total lending, exceeding its 2025 target of 50% for a second year. The EIB Group supported €222 billion of green investments for 2021-2022, which means it is on track to meet its target of €1 trillion in green investments by 2030.

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Corporate Sustainability Due Diligence Directive

On 23 February 2022, the European Commission published its proposal for a legal framework on corporate sustainability due diligence. The proposed framework requires certain large companies operating in the EU, to identify, and, where necessary, prevent, mitigate or end, any actual or potential adverse impacts that their operations, and the operations of entities in their extended supply chains, have on human rights and the environment. The proposed framework must be green stamped by the European Council and the European Parliament before entering into force. On 1 December 2022, the Council adopted its negotiating position and, on 1 June 2023, the European Parliament did the same. The most contentious issue among the European Commission, the European Council and the European Parliament is the in-scope activities whose impact on human rights and the environment companies will have to monitor. The European Commission and the European Parliament take a full life cycle approach requiring in scope companies to monitor activities from production to the end consumer. The European Council takes a more narrow approach proposing that companies should monitor activities like transportation, distribution and disposal, but not the use of a company’s products or services by the end consumer. As for next steps, the proposed framework will now be discussed by the European Commission, European Parliament and European Council to agree on the final form of the legal text.

Impact on cleantech:

Companies covered by the proposal would have to adopt a plan to ensure that their business model and strategy are compatible with a transition to a sustainable economy, as well as with limiting global warming to 1.5 °C in line with the Paris Agreement. The plan would have to identify the extent to which climate change is a risk for, or an impact of, a company's operations. This plan could act as a strong signal to corporates to invest in cleantech solutions to reduce their carbon footprint and help their commercialization.

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State of cleantech manufacturing

The International Energy Agency (IEA) released a special briefing on the on the state of clean technology manufacturing. The report dives into how production capacity for clean technologies clusters around the globe, noting that China alone represents 40-80% of the manufacturing capacity for these technologies. Interestingly, it also states that if all announced projects are delivered, then the EU would be able to deliver on all its domestic needs in batteries, electrolysers and heat pumps in the APS in 2030. For analysis into the IEA’s prioritised sectors, and to read policy recommendations targeted at G7 countries, check out the full report. Overall, the report concludes that manufacturing of clean tech is growing across the world, and recommends to policymakers that certain technologies, such as solar photovoltaic (PV), wind, batteries, electrolysers and heat pumps, be prioritised.

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Strategic Foresight Report 2023

The European Commission published its Strategic Foresight Report. The report provides an overview of the challenges Europe faces and proposes ten areas for action to achieve a successful green transition.

Out of its ten action areas identified in the report, a number impact cleantech more clearly. These measures include:

Strengthening the Single Market to foster a net zero economy through further developing tools to assess future dependencies across strategic sectors and supporting the rapid manufacturing of raw materials and net zero technology equipment.
Developing a green transatlantic marketplace facilitating to spur green investments
Increasing private financial flows including through derisking breakthrough sustainability projects., highlighting they key role of the European Investment Bank in the funding of these projects

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International Energy Agency Critical Minerals Market Review 2023

The IEA released its first report taking stock of the market for materials necessary for electric vehicles, wind turbines, solar panels and similar technologies. This market has doubled in size in the five years through 2022, to USD 320 billion. The report underlines that demand for lithium has tripled compared to the 70% rate for cobalt and 40% for nickel. In response, investment in critical mineral development rose 30% last year, following a 20% increase in 2021. Among the different critical minerals, lithium saw the sharpest increase in investment, 50%, followed by copper and nickel.

Article link

Policy Update–Incoming EU Commission Special Edition

Unleashing Europe’s Cleantech Potential: What is Needed to Make the Draghi Report a Success

Joint Letter in Response to EIB Strategic Roadmap

Policy Update: The EU Green Deal’s Legacy

Open letter to lead candidates: Europe needs a Cleantech Competitiveness Deal

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Open Letter: EU needs to up its investment game if it wants to become the home of cleantech

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