European Cleantech Industry Faces Critical Funding Gap
Europe has emerged as a leader in cleantech innovation, developing cutting-edge technologies in batteries, electrolysers, supercapacitors, and green steel and cement. These advancements have the potential to drive Europe’s competitiveness, energy resilience, and decarbonization efforts for years to come. However, the continent is facing a significant funding gap at the scale-up stage, which poses a critical risk to the next generation of the industry.
The European Commission estimates that scaling the manufacture of key technologies under the Net Zero Industry Act will require a staggering €92 billion of public and private investment by 2030. Yet, new research shows that Europe is already facing a funding gap of over €50 billion by that time. If additional technologies, such as green steel and cement, long-duration energy storage, and green chemistry, are taken into account, this funding gap could easily reach hundreds of billions of euros.
Global Peers Outpace Europe in Cleantech Investments
While Europe struggles to fill its funding gap, other global players are aggressively investing in cleantech. The United States, through the Inflation Reduction Act, is projected to unlock $1.2 trillion of cleantech incentives by 2032. China invested a staggering $676 billion in clean energy in 2023 alone, while Japan plans private-public investments of approximately $1 trillion over the next decade through its GX Initiative. These substantial investments put Europe at a disadvantage and highlight the urgent need for increased funding to maintain its competitiveness in the cleantech sector.
Investment Disparity: European Cleantech Venture Capital Lags Behind
Looking at private investments, European cleantech venture capital investments have remained stagnant at €11 billion. The United States continues to dominate the cleantech venture capital landscape, with the Asia Pacific region steadily gaining ground since 2020. Europe’s lack of growth equity, commercial debt, and project finance are hindering the growth of first-of-a-kind (FOAK) projects. Although there have been some successful fundraising initiatives, such as Sweden’s H2 Green Steel and France’s Verkor, these cases are still exceptions rather than the norm in Europe.
A Cleantech Investment Plan to Drive Economic Competitiveness
To safeguard Europe’s industrial and climate leadership and enhance energy resilience, it is crucial to develop an ambitious Cleantech Investment Plan that combines public sector-enabled initiatives with private sector leadership. In the face of budgetary constraints and political pushback against green policies, several proposals can help massively scale cleantech deployment in a fiscally efficient manner.
- Mobilizing capital from institutional investors: Europe should review prudential rules to make it easier for institutional investors to fund the cleantech transition. Additionally, de-risking instruments and fund-of-funds can be developed to attract private capital and encourage investment.
- Deploying public guarantees to de-risk cleantech investments: Cleantech manufacturers face challenges financing their FOAK projects through commercial loans. Public guarantees can mitigate this risk and mobilize more private capital towards cleantech manufacturing. The European Investment Bank’s guarantee for the wind sector serves as an example that can be expanded to support other validated clean technologies ready to scale in Europe.
- Earmarking revenues from the EU Emissions Trading System (EU ETS) for cleantech: The EU ETS generates substantial revenues, and a portion can be allocated to cleantech deployment. By front-loading cleantech investment through borrowing against future ETS revenues, Europe can accelerate its transition to a low-carbon economy.
By implementing these measures, Europe can address its funding gap and create an enabling environment for the growth of the cleantech industry. To learn more about Europe’s cleantech capital stack and proposals for a Cleantech Investment Plan for European Competitiveness, read the full report from Cleantech for Europe.
About Cleantech for Europe: Cleantech for Europe is a trailblazing initiative launched in 2021, representing the pioneers in developing, deploying, and investing in clean technologies across the EU. Their mission is to bridge the gap between cleantech and policy leaders, providing insights and building coalitions to pave the way for a sustainable future. The organization’s Senior Policy Officer, Sofia Karagianni, leads the cleantech funding policy and oversees the initiative’s Investor Coalition. Sofia brings extensive experience in EU climate and financial policy, and she is passionate about diversity and inclusion.
Analyst comment
Positive: Europe’s cleantech industry has made significant advancements in innovative technologies that can drive competitiveness and decarbonization efforts.
Negative: Europe faces a critical funding gap of over €50 billion, which could potentially reach hundreds of billions of euros. This puts Europe at a disadvantage compared to global players like the US and China, who are aggressively investing in cleantech.
Neutral: Europe’s cleantech venture capital investments have remained stagnant, hindering the growth of first-of-a-kind projects.
Analysis: Europe needs to develop an ambitious Cleantech Investment Plan to attract more funding from institutional investors, deploy public guarantees to de-risk investments, and earmark revenues from the EU Emissions Trading System for cleantech deployment. Implementing these measures can address the funding gap and boost the growth of the cleantech industry in Europe.
