Explanatory Memorandum to COM(2023)335 - Strategic Technologies for Europe Platform (‘STEP’) - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2023)335 - Strategic Technologies for Europe Platform (‘STEP’). |
|---|---|
| source | COM(2023)335 |
| date | 20-06-2023 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
The EU’s long-term commitment to a green and digital transition and the impact on industry in the EU.
The EU is an attractive destination for sustainable investments. The European Single Market has over the last 30 years delivered very significant economic benefits, delivering to the EU a GDP that is up to 9% higher in the long run, than would have been the case without the Single Market.1 The European business model is based on openness and the EU offers a business-friendly environment. The European social model provides high quality and inclusive education and training, well-functioning social protection systems, as well as public health and environmental protection. Together with fair competition and an unparalleled regulatory framework geared towards the twin digital and green transitions and resilience, this is helping to provide the necessary predictability for investors.
Strengthening the competitiveness and resilience in strategic sectors and reducing the dependencies of the European economy through the green and digital transformations has been the EU compass over the last years. With NextGenerationEU,2 the EU’s flagship economic recovery programme, the EU has closed the gap with pre-pandemic output levels already in the summer of 2021. The funds directed to the twin green and digital transition are making our economy more competitive. The unprecedented efforts by Member States to implement crucial reforms increase the EU’s resilience.
The EU industry has proven its inbuilt resilience but is being challenged. High inflation, labour and skills shortages, demographic change, post-COVID supply chains disruptions, rising interest rates, and spikes in energy costs and input prices are weighing on the competitiveness of the EU industry. This is paired with strong, but not always fair, competition on the fragmented global market. The uptake and scaling up of certain critical and emerging technologies in strategic sectors within the Union will be essential to seize the opportunities and meet the objectives of the green and digital transitions to reduce strategic dependencies and to facilitate cross-border investments across the Single Market. Therefore, immediate action is required to support the development or manufacturing in the Union, or safeguarding and strengthening their value chains, of critical technologies in the following fields: deep and digital technologies, clean technologies, and biotechnologies. The Union also needs to address labour and skills shortages in those strategic sectors.
The EU has already put forward several initiatives to support its industry. The Green Deal Industrial Plan3 seeks to enhance the competitiveness of Europe's net-zero industry, secure the volumes needed for critical raw materials and support the fast transition to climate neutrality. It provides a more supportive environment for the scaling up of the EU's manufacturing capacity in clean-tech. The plan is based on four pillars: a predictable and simplified regulatory environment, speeding up access to finance, enhancing skills, and open trade for resilient supply chains. With the European Innovation Agenda,4 the EU has sought to position Europe at the forefront of the new wave of deep tech innovation and start-ups. One of its main objectives is to improve access to finance for European start-ups and scale-ups, for example, by mobilising untapped sources of private capital and simplifying listing rules. Moreover, the Commission has in March 2023 adopted a new Temporary Crisis and Transition Framework for State aid.5 Member States have more flexibility to design and implement support measures in sectors that are key for the transition to climate neutrality. Member States are also currently amending their national recovery and resilience plans to include REPowerEU Chapters,6 which is a crucial opportunity to provide immediate support to companies and boost their competitiveness, without creating unnecessary strategic dependencies.
While these solutions provide fast and targeted support, the EU needs a more structural answer to the investment needs of its industries. As indicated by President von der Leyen in the State of the Union address of 14 September 2022,7 there is a need to ensure that the future of industry is made in Europe. Moreover, a common European industrial policy requires common European funding.8 Hence, the need to set up a Strategic Technologies for Europe Platform (‘STEP’).
The Platform should help preserve a European edge on critical and emerging technologies relevant to the green and digital transitions, from computing-related technologies, including microelectronics, quantum computing, and artificial intelligence; to biotechnology and biomanufacturing, and net-zero technologies. The European Council recognised the need to address the issue and recommended to ‘ensure full mobilisation of available funding and existing financial instruments and deploy them in a more flexible manner, so as to provide timely and targeted support in strategic sectors without affecting the cohesion policy objectives’.9 This way, the STEP should also help to mobilise private capital to support the competitiveness of European businesses in these technologies in the global arena, which in turn will lead to domestic capacity building.
Placing the STEP at the heart of the EU budget is the most effective solution. The transition to climate neutrality, resilience and digital technologies are already guiding principles of the multiannual financial framework: 30% of the EUR 2 trillion 2021-2027 MFF which includes the NextGenerationEU recovery programmes are being spent on climate actions and more than 20% of the Recovery and Resilience Facility is dedicated to digital policies. Besides, the Digital Europe Programme supports bringing digital technology to businesses, citizens and public administrations. The EU budget is also the ultimate EU tool to underpin the Single Market and common action with value-added at EU level, securing economies of scale, effectiveness, solidarity and passing a clear political message that the EU stands together in the face of challenges.
The creation of the STEP is fully aligned with the ambitions set by Europe’s partners. The United States’ Inflation Reduction Act will mobilise over USD 360 billion by 2032 (approximately EUR 330 billion). Japan's green transformation plans aim to raise up to JPY 20 trillion (approximately EUR 140 billion).10 India has put forward the Production Linked Incentive Scheme to enhance competitiveness in sectors like solar photovoltaics and batteries. The United Kingdom, Canada and many others have also put forward their investment plans in clean technologies. It is important for all actors to ensure that funding be designed and implemented in the least distortive manner practicable. Reinforcing transparency and deliberation on industrial subsidies internationally is equally key to safeguard and improve the existing – but incomplete - level playing field on which the EU’s and global prosperity has been built.
Overview of the EU budget to the green and digital transition
The EU has several funds and programmes on- and off-budget to provide support to deep and digital technologies, clean technologies, and biotechnologies. These instruments include in particular cohesion policy funds, the Recovery and Resilience Facility, the Innovation Fund, InvestEU, the European Defence Fund and Horizon Europe:
- Cohesion policy supports the green (EUR 110 billion) and digital (EUR 36.6 billion) transition in Member States and regions, including a total of EUR 85 billion under the European Regional Development Fund (ERDF), the Cohesion Fund (CF) and the Just Transition Fund (JTF) – the EU’s main funds under regional development policy – to support the EU energy transition.
- The Recovery and Resilience Facility and REPowerEU, the EU's plan to make Europe independent from Russian fossil fuels, offer unprecedented opportunities to Member States to finance green and digital investments and reforms.
- Drawing on the revenues from the EU Emission Trading System (ETS)11
- The Modernisation Fund (EUR 60 billion) provides substantial support to 13 beneficiary Member States to accelerate their energy transition.
- The Social Climate Fund (EUR 86 billion) will provide substantial support to Member States to help addressing for vulnerable groups the consequences of the green transition.
- The Innovation Fund (EUR 43 billion) will provide until 2030 funding for innovative low-carbon technologies, including for the manufacturing of these technologies, for instance to help energy-intensive industries, develop carbon capture and storage, innovative renewable energy generation or energy storage.
- InvestEU contributes both to the green transition and to digitisation. Overall 30% of the InvestEU guarantee (i.e. EUR 7.8 billion) and 60% of the Sustainable Infrastructure Window (EUR 5.9 billion) contribute to climate objectives. Further, it is expected that more than EUR 2 billion could contribute to digital objectives and over EUR 1 billion to biotech and medicines related investments.
- Horizon Europe, the EU's main research and innovation programme, will dedicate EUR 20.2 billion to research and development of clean tech; EUR 11.5 billion to biotech and medicines, and EUR 19.3 billion to digital technologies.
- The Digital Europe Programme, with a total budget allocation of EUR 7.6 billion, is providing support to digital technologies.
- The European Defence Fund, with a budget of EUR 8 billion, supports research and development of state-of-the-art and interoperable defence technology and equipment.
While the EU has been providing steady financing both to the green and digital transitions, the funds are generally spread across various spending programmes and following different rules. Leveraging on existing instruments and governance frameworks will speed-up the implementation and allow to mobilise higher amounts of financial support. This is the aim of the STEP.
Strategic Technologies for Europe Platform (STEP)
The STEP will create the necessary conditions for a more effective, efficient and targeted use of existing EU funds while contributing to achieving a level playing field in the Single Market and thereby safeguarding cohesion. It will also help to direct existing funding towards the relevant projects and speed up implementation on a subset of areas which will be identified as crucial for Europe’s leadership. The choice of streamlining and making a better use of existing instruments over creating a brand-new instrument responds to the call by the European Council and has three main advantages. First, timing. With the creation of a new instrument taking at least 12 to 18 months, bringing existing instruments together can be done much more quickly. This would be an indisputable advantage for the beneficiaries of EU funding as they would have the chance to reap the benefits of EU funding more swiftly. Second, adapting the existing instruments would increase the possibilities of blending different sources of financing – under both direct and shared management – thereby leading to a more efficient use of resources. And finally, building on those existing instruments will also be simpler for project promoters and programme managers. With the help of the Sovereignty Portal, all the information about funding opportunities will be centralised. Moreover, it will limit the administrative burden for project promoters and programme managers and minimise the risk of overlaps amongst instruments.
The STEP would allow the Union to react quickly in the face of risks for companies critical for Union’s value chains and to develop a top up for multi country projects, such as Important Projects of Common European Interest (IPCEIs), to enhance all Member State’s access to such projects, thereby safeguarding cohesion, and to strengthen the Single Market and counter unequal availability of State Aid.
On that basis, the objective of the STEP is three-fold:
Contents
- 1. Providing flexibility in existing instruments
- 2. Reinforcing the firepower of existing instruments
- 3. Creating synergies among existing instruments
- Equity support for STEP sectors
- InvestEU
- The European Innovation Council
- Innovation Fund
- European Defence Fund
- Subject matter and Platform objectives (Articles 1 and 2)
- Financial support (Article 3)
- Sovereignty Seal and cumulative funding (Article 4)
- Monitoring and implementation (Article 5)
- Sovereignty Portal (Article 6)
- Amendments to Directive 2003/87/EC (EU ETS Directive) (Article 9)
- Amendments to Regulation (EU) No 1303/2013 (Article 14) and Regulation (EU) No 223/2014 (Article 15)
- Amendments to Regulation (EU) 2021/523, establishing the InvestEU Programme (Article 16)
- Amendments to Regulation (EU) 2021/695, establishing Horizon Europe (Article 17)
- Amendments to Regulation (EU) 2021/697, establishing the European Defence Fund (Article 18)
- Amendments to Regulation (EU) 2021/241, establishing the Recovery and Resilience Facility (Article 19)
- Entry into force and application (Article 20)
Providing flexibility in existing instruments to better support relevant investments
Cohesion funds represent the largest single EU policy financed through the EU budget. To incentivise Member States, the Commission proposes a new priority across all major funds - the European Regional Development Fund (ERDF), Cohesion Fund (CF), and the Just Transition Fund (JTF). The Commission also proposes to open up those funds for large companies in less developed and transition regions, as well as in more developed regions of Member States with a GDP per capita below the EU average, to unleash greater investments in the target areas of the STEP. By providing financial incentives in the form of higher pre-financing and EU financing, Member States are encouraged to reprioritise their programmes. Under those funds, the Commission also proposes a 30% pre-financing in 2024 to incentivise uptake and an increase the EU financing to 100% for STEP projects.
Moreover, it is proposed to provide additional flexibilities for Member States to be able to implement the 2014-2020 cohesion policy programmes. The regulatory framework for the implementation of the 2014-2020 programmes for cohesion policy and the Fund for European Aid to the Most Deprived (FEAD) has already been adapted to provide Member States and regions with additional flexibility in terms of implementation rules of cohesion policy and more liquidity to tackle the effects of the COVID-19 pandemic and the war or aggression against Ukraine.12 These measures, introduced at the end of the programming period, require sufficient time and administrative resources to be fully exploited and implemented. Therefore, it is proposed to extend the deadlines for the submission of the closure documentation under the 2014-2020 period by 12 months. This should help the Member States that will face additional workload linked to the revision of the operational programmes for the purpose of the STEP.
To incentivise Member States to provide resources to InvestEU, the EU flagship programme to boost investments in critical industries, the Commission proposes to increase the transfers to InvestEU from the recovery and resilience plans from 4% to 10%. This additional flexibility to use Member States’ resources under InvestEU will help them to benefit from the established structures and market expertise of the InvestEU implementing partners, to select and finance the most promising companies. In this respect, where a Member State decides to transfer resources to InvestEU national compartments for implementing an existing InvestEU financial product developed for the EU compartment by the Commission with Union implementing partners and international implementing partners, such as the European Investment Bank Group and the European Bank for Reconstruction and Development, meaning that the Member State has no discretionary input into the design of the financial product, such a decision does not render the design of the financial product imputable to the State and hence such a decision does not in itself entail State aid. This is without prejudice to the obligation of Union financial instruments and budgetary guarantees to be consistent with State aid rules pursuant to Article 209(2)(c) of the Financial Regulation.
Moreover, to facilitate the RRF related contributions to the Member State compartment of InvestEU and its uptake, the Commission will adapt the Technical guidance on the application of ‘do no significant harm’ under Regulation (EU) 2021/241 to ensure that financial products implemented under the InvestEU Fund can indicate, where applicable the absence of significant harm to the six environmental objectives set out in Article 17 of Regulation (EU) 2020/852 by applying InvestEU rules in combination with the relevant implementing partner’s policies.
In addition, new STEP priorities will be included in the Innovation Fund, which is a funding programme for the deployment of net-zero and innovative technologies; the European Defence Fund, which is a funding programme for the research and development of defence technology, and the European Innovation Council (EIC) under Horizon Europe, which is Europe’s flagship innovation programme to identify, develop and scale up breakthrough technologies. Moreover, it will be possible for the EIC to provide equity-only support to non-bankable small mid-caps.
Companies looking for investments to start up or scale must overcome a series of interconnected problems from securing patient capital to accessing critical networks and capabilities if they are to remain in Europe and compete effectively in the current wave of innovation.
Figure: Venture capital by destination and by stage (2020-Q1 2023).
Source: Global venture capital – Dealroom Q1 2023 update.
The EU has two main instruments providing equity support for European companies, namely the InvestEU Programme and the European Innovation Council. InvestEU is the EU flagship programme to catalyse private investments in the EU economy. The InvestEU Fund is delivered through implementing partners, including the European Investment Bank (EIB) and the European Investment Fund (EIF), which deploy financial products providing debt (including guarantee), equity and quasi-equity support to companies and projects operating in sectors relevant for the European sovereignty.
In particular, the EIF deploys two equity products with the total EU guarantee allocation of EUR 5.2 billion and an indicative portfolio of EUR 8.7 billion, targeting research, development, commercialisation and scaling of clean technologies or environmental sustainability solutions and digital and sustainable infrastructure projects. As of mid-2023, the EIF has approved more than 100 investments in funds expected to mobilise close to EUR 30 billion of investment. The EIB provides equity-type support under high-risk thematic and venture debt products, focusing inter alia on green transition, strategic digital technologies and key enabling technologies.
The types of support that can be provided through the EIC involve blended finance, grant-only and equity-only under certain conditions. In accordance with the existing legislation, equity-only support can be provided to non-bankable SMEs, including start-ups, which have already received a grant-only support. This initiative expands that definition by allowing to provide equity-only to non-bankable SMEs and small mid-caps carrying out breakthrough and disruptive innovation in critical technologies and regardless of whether they previously received other types of support from the EIC Accelerator. The proposed extension would provide equity-only support to high risk, high potential companies targeting investments in the range of EUR 15 to 50 million and catalysing financing rounds with co-investors in the range of EUR 50 to 250 million.
The EIC was established under Horizon Europe to identify and provide scale up support for breakthrough technologies and innovations, with a focus on higher risk, earlier stage companies. A key component of the EIC is the EIC Fund, which is designed to take risks that the market will not take alone and bridges a critical financing gap for deep tech companies. The EIC Fund has been fully operational since Autumn 2022 and has already made over 130 investment decisions. However, the EIC Fund cannot accommodate the needs of an increasing number of companies that require follow-on financing rounds or larger investment amounts. This is particularly the case for critical and emerging technologies that remain high risk but also require large amounts of capital to reach the market. The new EIC Fund compartment would meet the needs for larger investment amounts (above EUR 15 million), as well as complementing other EU financial instruments and products, including those under Invest EU.
Demand for investments in deep tech in Europe remains strong, with over 5000 applications received in the first two years of EIC operation resulting in support for over 400 companies. Of these, 245 companies have been recommended for the unique blend of non-dilutive grant alongside investment through the EIC and 131 of these companies have received an investment recommendation of EUR 5 million or above. It is estimated that approximately 25% of the companies that have been awarded investment of over EUR 5 million from the EIC will require follow-on funding of on average EUR 25-35 million: representing a pipeline of 20-30 companies a year13 requiring EUR 0.5 to 1 bn per year.
Based on current experience from the EIC, this EU-backed investment would leverage additional private investment of up to five times and therefore significantly address the market gap. Without additional support, many of these companies could relocate outside of Europe to access larger financing rounds or could be overtaken by third country competitors that are better financed.
Reinforcing the firepower of existing instruments to speed up relevant investments
In terms of resources, it is proposed that an additional total amount of EUR 10 billion is allocated to support existing and well-proven EU investment schemes aimed at strengthening STEP investments, while preserving the cohesion objectives and contributing to a level playing field in the Single Market by ensuring a geographically balanced distribution of projects financed under the STEP via the respective mandates of the participating programmes, taking into account the demand-driven nature of certain implementing programmes.
The deployment is well on track with 85% of the initial guarantee already contracted with implementing partners, representing EUR 22.3 billion. The fast absorption of the EU guarantee reveals the large market interest for the funding opportunities offered by InvestEU. This calls for reinforcing the EU guarantee by an additional EUR7.5 billion; requiring a financial top-up of EUR 3 billion with a 40% provisioning rate. This additional guarantee should be exclusively used for project contributing to STEP priorities and has the potential to trigger up to EUR 75 billion of investments with an average multiplier of 10.
A new STEP policy window will be set under InvestEU to provide an additional volume of budgetary guarantee to the implementing partners, which will deploy debt (including guarantees) and equity financial products for companies, including SMEs, and projects in the sectors supported by the STEP, including investment in manufacturing and supply chains. InvestEU will leverage additional investment, particularly from the private sector, by addressing market failures and sub-optimal investment situations experienced in the sectors targeted by the STEP. InvestEU is already able to support projects falling within Important Projects of Common European Interest (IPCEIs) within the meaning of Article 107(3)(b) TFEU and its reinforcement through the fifth window will therefore enhance its possibility to do so for critical projects within the scope of application of STEP.
The EIC is the leading mean for providing seed capital to fast growing start-ups. Given its expertise, the EIC is well suited to reinforce the funding in companies seeking scale-up capital beyond the first innovation phase. A EUR 0.5 billion budgetary reinforcements combined with EUR 2.13 billion from redeployment and de-commitments will enable the EIC to provide unprecedented equity investments for tickets between EUR 15 million and EUR 50 million. With an average multiplier of 5, this can lead to EUR 13 billion of fresh equity support to non-bankable SMEs and small mid-caps.
The Innovation Fund, financed from the auctioning of allowances under the EU Emissions Trading System, is one of the world’s largest funding programmes for the deployment of net-zero and innovative technologies. It aims to bring to market industrial solutions to decarbonise Europe and focuses on highly innovative technologies and processes. The goal to create the right financial incentives for companies to invest in clean tech and to empower them to become global clean tech leaders is fully aligned with the STEP objectives. To respond to the growing needs for innovation to maintain the EU’s competitiveness on global markets, the size of the Innovation Fund should be increased by EUR 5 billion. In line with the objectives of ensuring cohesion and promoting the Single Market, and in order to support the green transition and the development of clean technologies throughout the Union, the additional financial envelope shall be made available through calls for proposals open to entities from Member States whose average GDP per capita is below the EU average of the EU-27 measured in purchasing power standards (PPS) and calculated on the basis of Union figures for the period 2015-2017. Taking into account experience to date, this should result in overall investments of around EUR 20 billion.
The European Defence Fund is critical to enhance the competitiveness, innovation, efficiency and technological autonomy of the Union’s defence industry, thereby contributing to the Union’s open strategic autonomy. It also supports the cross-border cooperation between Member States as well as cooperation between enterprises, research centres, national administrations, international organisations and universities throughout the Union, both in the research and in the development phases of defence products and technologies. To respond to growing needs, the European Defence Fund should be increased by EUR 1.5 billion. Taking into account the limited experience to date, this could result in overall investments of around EUR 2 billion.
Taken together, the reinforcements of the foregoing four programmes and instruments (InvestEU, European Innovation Council, Innovation Fund, European Defence Fund) can be expected to lead to additional investments in the critical technologies covered by STEP of around EUR 110 billion.
By providing financial incentives in cohesion policy funds in the form of higher pre-financing and co-financing, Member States are encouraged to reprioritise their programmes. Every 5% of reprogramming towards STEP priorities leads to EUR 18.9 billion of resources made available, in addition to EUR 6 billion to be paid out from the Just Transition Fund. The increase of the ceiling under the RRF to use resources for InvestEU products via its national compartments represents an additional flexibility for Member States of EUR 30 billion potentially available for such sovereignty investments.
Altogether, the total estimated amount of new investments through STEP could reach up to EUR 160 billion.
Creating synergies among instruments to better support relevant investments
To access those funds, companies and project promoters will be able to consult a new publicly available website (the ‘Sovereignty Portal’). This Portal will provide information about relevant funding opportunities with the ongoing and upcoming calls under the EU programmes contributing to the STEP objectives as well as guidance and contacts to the existing advisory hubs.
Moreover, a ‘Sovereignty Seal’ will be awarded to projects contributing to the STEP objectives, provided that the project has been assessed and complies with the minimum quality requirements, in particular eligibility, exclusion and award criteria, provided by a call for proposals under Horizon Europe, the Digital Europe programme, the EU4Health programme, the European Defence Fund or the Innovation Fund, and regardless of whether the project has received funds under those instruments. These minimum quality requirements will be established with a view to identify high quality projects. This Seal offers a unique opportunity to build on the applicable high-quality evaluation processes under those instruments. This Seal will be used as a quality label and will help projects attract public and private investments by certifying its contribution to the objectives of the STEP and therefore guiding market participants in their investment decisions. Moreover, the Seal will promote better access to EU funding and financing, notably by facilitating cumulative or combined funding from several Union instruments. This would, for instance, allow Member States to grant support from ERDF and ESF+ to projects having been awarded a Sovereignty Seal directly, subject to compliance with applicable State aid rules.
The Commission is also working to ensure synergies between the rules of the Innovation Fund and the State aid rules to ensure a more streamlined process. The Commission will further align criteria and streamline processes to ensure that the decision on State aid is taken at the same time as the funding decision from the Innovation Fund, provided a complete notification by the Member State occurs in due time. Such synergies are also being assessed for other selected EU instruments, including the EIC Fund.
The Commission will also consult Member States on a proposal to enable higher rates of aid via a bonus for projects within the scope of STEP in assisted regions to spur further economic development, while preserving cohesion objectives.
Authorities in charge of programmes falling under STEP should also be encouraged to consider support for strategic projects identified in accordance with the Net Zero Industry and the Critical Raw Materials Acts that fall under the scope of Article 2 of the Regulation, subject to compliance with applicable State aid rules.
STEP– focus on investments
To be successful, the STEP should focus on few but well-targeted investment areas. The Platform should ensure and preserve a European edge on critical and emerging technologies and related manufacturing in the following fields:14 deep and digital technologies, clean technologies, and biotechnologies. The scope of the STEP would therefore focus on leading edge technologies to advance the green and digital transitions, supporting both the manufacturing side and the value chains.
Deep and digital technologies
Innovation, and in particular its new wave of deep-tech innovation, is the European reply to bring down greenhouse gas emissions, to make our economies more digital and to guarantee Europe’s food, energy and secure raw materials supply and security. Deep tech innovation, which is rooted in cutting edge science, technology and engineering, often combining advances in the physical, biological and digital spheres and with the potential to deliver transformative solutions in the face of global challenges. Those innovations have the potential to drive innovation across the economy and society, thus transforming the EU’s business landscape.
The European Innovation Agenda already aims to position Europe at the forefront of the new wave of deep tech innovation and start-ups. One of its main objectives is to improve access to finance for European start-ups and scale-ups, for example, by mobilising untapped sources of private capital and simplifying listing rules.
The STEP would add another dimension to the EU commitment to the delivery on this agenda. The EU will steer further funding, and also define a clear investment direction. This will further support deep tech investments in Europe, to the benefit of the EU economies and the society as a whole.
Digital technologies have a profound impact on the competitiveness of the EU economy as a whole, boosting efficiency and innovation. Their adoption and integration across the economy will be vital to the overall competitiveness and productivity.15 To maintain its industrial leadership, the EU needs to attain a leading role in key digital technology.
Clean technologies
EU’s competitiveness in the clean energy sector entails the capacity to produce and use affordable, reliable and accessible clean energy and compete in the global clean energy markets, with the overall aim of supporting the transition to climate neutrality and bringing benefits to the EU economy and people. The EU is currently facing technological and non-technological challenges, such as high energy prices, critical raw materials supply chain disruptions and skills shortages. Strengthening the competitiveness of the EU clean energy sector will contribute to increasing the EU's technology leadership, and shape a more resilient, independent, secure and affordable energy system needed to meet these challenges. In that context, the Commission’s communication on the Green Deal Industrial Plan presented a comprehensive plan for enhancing the competitiveness of Europe’s net-zero industry and supporting the fast transition to climate neutrality; and the Net-Zero Industry Act16 establishes a framework of measures for strengthening Europe’s net-zero energy technologies manufacturing ecosystem.
Since 2020, the European Commission has published yearly progress reports on competitiveness of clean energy technologies that present the current and projected state of play for different clean and low-carbon energy technologies and solutions. According to the 2022 Competitiveness Progress Report,17 which the Commission publishes in the context of the Governance of the Energy Union and Climate Action framework, ‘The rapid development and deployment of home-grown clean energy technologies in the EU is key to a cost-effective, climate friendly and socially fair response to the current energy crisis’. The report also confirms that more public and private investments in clean energy research and innovation, scale-up and affordable deployment are of pivotal importance. The EU’s regulatory and financial frameworks have a crucial role to play here. Together with the implementation of the New European Innovation Agenda, EU funding programmes, enhanced cooperation between Member States, and a continuous monitoring of national R&I activities, are crucial to design an impactful EU R&I ecosystem, and to bridge the gap between research and innovation and market uptake, thus reinforcing EU competitiveness.
Biotechnologies
Biotechnology and biomanufacturing are key for the modernisation of the European industry. They are used in a variety of industrial sectors such as healthcare and pharmaceuticals, agriculture, materials, and bioeconomy. Reaping the full benefits of biotechnology can help the EU economy grow and provides new jobs, while also supporting sustainable development, public health, and environmental protection.
The coronavirus pandemic has proven the importance of biotech with vaccine manufacturers having played a key role in reversing the course of the pandemic. And while Europe continues to be a leader in life science innovation, its biotech industry remains approximately a quarter of the size of the US in terms of both the number of companies and the value of venture financing.18 In addition, financing – both at the earliest stages and later on – is deemed more limited in Europe than in the US. This constrains companies’ ability to invest in larger diversified pipelines and leaves them reliant on their initial investors.
• Consistency with existing policy provisions in the policy area
The Green Deal Industrial Plan is the EU’s roadmap to secure the long-term competitiveness of Europe's industry and support the fast transition to climate neutrality. The Net-Zero Industry Act represents its regulatory arm. The act seeks to ensure a simpler and fast-track permitting, promoting European strategic projects, and developing standards to support the scale-up of technologies across the Single Market. It is complemented by the Critical Raw Materials Act,19 to ensure sufficient access to those materials, like rare earths, that are vital for manufacturing technologies that are key for the twin transition. Another key instrument to support the competitiveness of the European industry is the European Chips Act.20 It seeks to bolster Europe’s resilience in semiconductor technologies and applications, and boost the EU's share of the global microchips market.
• Consistency with other Union policies
The proposal falls within the EU’s overall efforts to secure the green and digital transformation of its economy. It contributes to the objectives of parts of the Fit for 55 package21 that focus on decarbonising EU industry.
The proposal will also contribute to the EU’s resilience and open strategic autonomy by strengthening the EU’s capacity as regards critical technologies, including key energy-related technologies, which is crucial for supporting the development of other sectors of the economy.
It relies on existing EU policies that seek to achieve the same objective – from cohesion, through recovery investments to research and innovation financing – which seek to support European economy and channel EU funds towards the green and digital transformation.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
This Regulation pursues the general objective of setting up a legal framework which supports the channelling of EU funds towards STEP projects. The objectives of the STEP will be achieved through the following programmes:
- European Regional Development Fund (ERDF) and Cohesion Fund (CF), established under Regulation (EU) 2021/1058;22 the Just Transition Fund (JTF), established under Regulation (EU) 2021/1056;23 the European Social Fund Plus (ESF+), established under Regulation 2021/1057;24 the Common Provisions Regulation (EU) 2021/1060.25
- Recovery and Resilience Facility, established under Regulation (EU) 2021/241.26
- InvestEU, established under Regulation (EU) 2021/52327
- Digital Europe, established under Regulation 2021/694;28 Horizon Europe, established under Regulation 2021/695;29 European Defence Fund, established under Regulation (EU) 2021/69730 and the Innovation Fund, established under Directive 2003/87/EC.31
- The STEP will also be implemented within the EU4Health programme, established under Regulation (EU) 2021/52232, concerning the objective to reinforce the development of biotechnologies in the Union.
Therefore, considering the above, Article 164, Article 173, Article 175 i, Article 176, Article 177, Article 178, Article 182(1) and Article 192(1) are the relevant legal bases for the implementation of this Regulation.
• Subsidiarity (for non-exclusive competence)
The objectives of the proposal cannot be achieved by Member States acting alone, as the problems are of a cross-border nature, and not limited to single Member States or to a subset of Member States. The proposed actions focus on areas where there is a demonstrable value added in acting at Union level due to the scale, speed and scope of the efforts needed within the Single Market.
Given the challenges for accelerating the deployment of net-zero and digital technologies, intervention at the level of the Union helps coordinate responses to address the Union’s needs for additional manufacturing capacities and to prevent structural dependencies. Action at Union level can clearly drive European actors towards a common vision and implementation strategy. This is key to generate economies of scale and of scope and to generate critical mass necessary for scaling up green and digital technologies manufacturing in the EU, while limiting fragmentation of efforts, deepening of regional imbalances and self-harming subsidy races between the Member States.
• Proportionality
The proposal is designed to help developing a manufacturing ecosystem via measures to facilitate investments. The objective is to support the longer-term competitiveness and innovation capacity of European industry via manufacturing capabilities, de-risking of investments into strategic projects, as well as by start-ups, scale-ups and SMEs.
The measures do not go beyond what is necessary to achieve these goals. The STEP does not consist of a new fund structure but relies on existing EU funding instruments and the proposed additional resources are proportionate to the need to accelerate Platform investments in the short term.
• Choice of the instrument
A Regulation is the appropriate instrument as it provides directly applicable rules for the support.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Stakeholder consultations
No stakeholder consultation was carried out specifically. This initiative takes into account stakeholder consultations conducted for the preparation of other related initiatives, such as the Critical Raw Materials Act, the Net-Zero Industry Act, the European Innovation Agenda, the Fit for 55 package, the European Chips Act, and the Digital Decade Compass. Moreover, the European Commission has long-standing and regular contacts with industry stakeholders, Member States and trade associations, which enabled the collection of feedback relevant to the proposal.
• Impact assessment
This proposal does not create a new instrument but is implemented through existing tools under the EU budget, which are amended to be able to better mobilise investment resources into critical technologies. Those existing tools, such as cohesion funds, InvestEU and Horizon Europe, have been subject to an impact assessment.33 Moreover, the proposal builds on existing proposals which have been subject to impact analysis, such as the Critical Raw Materials Act, the European Innovation Agenda, the Fitfor55 package, the European Chips Act, and the Digital Decade Compass as well as the investment needs assessment published on 23 March 2023. This analysis, carried out in impact assessments or analytical staff working documents,34 covers the most significant impacts of this proposal. For those reason, another impact assessment is not needed. The explanatory memorandum also reflects the ex-ante assessment carried out by the Commission in relation to the equity-only support to be provided under the EIC for non-bankable SMEs and small mid-caps.
• Regulatory fitness and simplification
The proposal is not linked to regulatory fitness and simplification but contains a number of provisions to simplify the implementation of existing EU instruments. The reporting requirements have been kept to a minimum to limit the administrative burden on Member States’ authorities and companies, while not undermining the sound financial management principles.
• Fundamental rights
Article 15 of the Charter provides for the freedom to choose an occupation and the right to engage in work. Supporting the competitiveness of the European industry will ensure economic growth and make sure it continues to offer job opportunities to citizens and residents of the Union.
Article 16 of the Charter of Fundamental Rights of the European Union (‘the Charter’) provides for the freedom to conduct a business. The measures under this proposal support the creation of innovation capacity and the deployment of clean energy technologies, which can reinforce the freedom to conduct a business in accordance with Union law and national laws and practices.
BUDGETARY IMPLICATIONS
The proposal will result in additional pre-financing to be paid under JTF in 2024, financed by the European Recovery Instrument NextGenerationEU. It will also result in additional pre-financing to be paid under the ERDF, CF and ESF+ in 2024 for amounts programmed under priorities dedicated to operations contributing to strengthening STEP objectives. The additional pre-financing payments for the JTF in 2024 will be financed only from external assigned revenues and will result in a frontloading of NGEU payment appropriations from year 2026 to year 2024. All amounts will be available as external assigned revenues, within the meaning of Article 21(5) of Regulation (EU, Euratom) 2018/1046 stemming from the Next GenerationEU borrowing operations.
The additional pre-financing payments for the ERDF, CF and ESF+ in 2024 will result in a frontloading of payment appropriations to 2024 and is budgetary neutral over the 2021-2027 period. This additional pre-financing was not envisaged in the draft budget. The Commission will monitor the amounts programmed by Member States under priorities dedicated to operations contributing to STEP objectives and assess their impact on the payment needs in the context of the global transfer exercise in 2024. The amount paid as additional pre-financing shall be totally cleared from the Commission accounts not later than closure of the respective programmes, such that the total amount of payments made under the concerned Funds will remain unchanged with this proposal. The proposed modification does not require changes in the Multiannual Financial Framework annual ceilings for commitments and payments as per Annex I to Council Regulation (EU, Euratom) 2020/2093, and does not imply changes to the overall payment needs over the 2021-27 programming period.
As for Horizon Europe, the proposal consists in reinforcing the envelope of the EIC by EUR 2.63 billion in total:
- EUR 0.8 billion are proposed to be redeployed from the resources allocated to Pillar II Global Challenges and European Industrial Competitiveness for the period 202[x] to 2027;
- EUR 0.13 billion from the reflows of the EIC pilot of Horizon 2020
- EUR 1.2 billion resulting from total or partial non-implementation of research projects supported by Horizon Europe and its predecessors, are proposed to be made available again, in line with Article 15 i of the Financial Regulation, to the benefit of the EIC strand of Horizon Europe; and
- EUR 0.5 billion budgetary reinforcement
In addition, the Innovation Fund should be reinforced by EUR 5 billion, the European Defence Fund by EUR 1.5 billion and the InvestEU should benefit from a reinforcement of EUR 3 billion resulting in a guarantee of EUR 7.5 billion.
The total budgetary implications for the MFF is therefore EUR 10 billion.
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
The Commission will monitor the implementation of the Platform and measure the achievement of the objectives under this Regulation in a targeted and proportionate manner. The Commission will ensure that data for monitoring the implementation of the activities and results are collected efficiently, effectively and in a timely manner.
To monitor the implementation of the Platform, the Commission will compile the expenditures related to the STEP from the relevant programmes. The respective climate spending targets under the relevant programmes continue to apply. This requires the following:
- Common Provisions Regulation: updating Annex I of the Regulation to include additional intervention fields;
- Recovery and Resilience Facility: tagging and reporting based on a break-down of the estimated expenditure by the Commission in accordance with article 29 i of that Regulation of investments related to the STEP objectives;
- InvestEU: tracking of expenditures by the Commission.
- Direct management programmes (Horizon Europe, Innovation Fund, European Defence Fund, Digital Europe Programme, EU4Health Programme): tracking of expenditures by the Commission.
To monitor and assess the performance of the programme, the Commission will compile the results of performance indicators related to the STEP from the relevant programmes.
The implementation of the performance indicators related to the STEP requires:
- Cohesion instruments: amending of the annexes of the fund-specific regulation containing the performance indicators;
- InvestEU: amending Annex III of the InvestEU Regulation containing the key performance and monitoring indicators;
- Recovery and Resilience Facility: relying on the existing reporting framework
- Direct management programmes (Horizon Europe, Innovation Fund, European Defence Fund, Digital Europe Programme, EU4Health Programme): information to be gathered by the Commission.
• Detailed explanation of the specific provisions of the proposal
Chapter 1 of this Regulation (Articles 1 to 8) sets out the common provisions necessary for the creation of the STEP, while Chapter 2 contains the amendments to other relevant pieces of EU legislation (Articles 9 to 19).
Article 1 explains the subject matter of the Regulation, and Article 2 defines the objectives and scope of the instrument. In accordance with Article 2, the STEP has a twofold objective: (i) to support the development or manufacturing of critical technologies in the Union or safeguarding and strengthening their value chains; and (ii) reducing labour and skills shortages in those strategic sectors. Article 2 also defines the fields for those critical technologies, namely deep and digital technologies, clean technologies, and biotechnologies. This provision further specifies that, in order for a technology to be deemed as critical for the purposes of the Platform, it should meet the following conditions: (i) bring an innovative, element with significant economic potential to the Single Market; or (ii) contribute to reduce or prevent the strategic dependencies of the Union. It is also clarified that, where an IPCEI approved pursuant to Article 107(3)(b) TFEU relates to any of the technology fields referred to in Article 2(1)(a), the relevant technologies should be deemed to be critical. Article 2 also provides with further guidance as to the meaning of ‘value chain’.
This provision lays down the additional EU funding which is used to reinforce the firepower of several instruments, namely InvestEU, Horizon Europe, European Defence Fund and the Innovation Fund.
Article 4 creates a ‘Sovereignty Seal’, which is a new label intended to help project promoters attract public and private investments by certifying its contribution to the STEP objectives. The Sovereignty Seal would be awarded under directly managed programmes, namely Horizon Europe, the Innovation Fund, the Digital Europe programme, the EU4Health programme, and the European Defence Fund. The Seal builds on the existing ‘Seal of Excellence’, which is a quality label for eligible projects that could not be funded due to lack of budget available. Unlike the Seal of Excellence, the Sovereignty Seal is defined only by reference to the objectives pursued by the projects to which it has been awarded, and regardless of whether the project has been able to receive EU funding as long as it has been successfully evaluated under Horizon Europe, the Innovation Fund, the Digital Europe programme, the EU4Health programme or the European Defence Fund. This is a way to promote that projects which have been partly funded can also receive cumulative or combined funding with another Union instrument (Article 4(1)(b)). Moreover, the Sovereignty Seal would also apply to cases where a project has not been able to receive EU funds under one programme, in order to promote that it receives support under another programme (Article 4(1)(a)).
This provision also indicates that projects having been awarded a Sovereignty Seal should be prioritised by Member States when proposing their Recovery and Resilience Plans and when deciding on investment projects to be financed from its share of the Modernisation Fund. As regards the InvestEU Programme (see also Article 15), the Sovereignty Seal should be taken into account by the Commission in the context of the procedure provided for in Article 19 of the EIB Statute and of the policy check laid down in Article 23 of Regulation (EU) 2021/523. In addition, the implementing partners should be requested to examine projects having been awarded the Sovereignty Seal in case they fall within their geographic and activity scope. Concerning cohesion policy, it is proposed that managing authorities are able to grant support from the ERDF or the ESF+ directly, subject to compliance with applicable State aid rules, for operations attributed a Sovereignty Seal (see Article 13).
Strategic projects identified in accordance with the Net Zero Industry and the Critical Raw Materials Acts that fall under the scope of Article 2 of the Regulation may benefit from cumulative funding across relevant Programmes.
Article 5 defines how the Commission shall monitor the implementation of the STEP, the results and progress towards the achievement of its objectives.
Article 6 sets out the obligation for the Commission to set up a new publicly available website (the Sovereignty Portal) to provide support to companies and project promoters seeking funds for STEP investments. To that end, the Portal is required to display in particular the following information: ongoing and upcoming calls for proposals linked to the STEP objectives (Article 6(1)(a)) and contacts to the national competent authorities designated to act as the main point of contact for the implementation of the STEP at national level (Article 6(1)(d)). Moreover, the Portal should inform about the projects which have been awarded a Sovereignty Seal label, in order to give them visibility towards potential investors (Article 6(1)(b)), as well as strategic projects identified under the NZIA and the CRMA (Article 6(1)(c)). Moreover, the Platform should present the information about the implementation of the Platform (Article 6(2)). Article 6 i requires Member States to designate one national competent authority to act as the main point of contact for those priorities, with the objective to ensure the consistent application of the STEP throughout the Union, and in order to facilitate the combination of available funding for Platform projects, notably under directly managed programmes and shared management programmes.
Annual report and evaluation (Articles 7 and 8).
Articles 7 sets out the obligation for the Commission to provide an annual report to the European Parliament and the Council on the progress made in implementing the STEP objectives.
Article 8 lays down the rules on the evaluation of the Platform. The Commission is required to provide an evaluation report to the European Parliament and the Council by 31 December 2025.
Article 9 amends the EU ETS Directive to specify the amount of additional funds to be implemented through the Innovation Fund for projects aimed at supporting the development or manufacturing in the Union of clean technologies. This additional support is made available only to Member States whose average GDP per capita is below the EU average of the EU-27 measured in purchasing power standards (PPS) and calculated on the basis of Union figures for the period 2015-2017.
Amendments to Regulation (EU) 2021/1058, Regulation on the European Regional Development Fund and on the Cohesion Fund (Article 10), Regulation on the Just Transition Fund (Article 11), and to Regulation (EU) 2021/1057, Regulation establishing the European Social Fund Plus (Article 12)
Article 10 amends the Regulation on the European Regional Development Fund (ERDF) and on the Cohesion Fund (CF) to create new specific objectives under Policy Objective 1 (a more competitive and smarter Europe by promoting innovative and smart economic transformation and regional ICT connectivity) and Policy Objective 2 (a greener, low-carbon transitioning towards a net zero carbon economy and resilient Europe by promoting clean and fair energy transition, green and blue investment, the circular economy, climate change mitigation and adaptation, risk prevention and management, and sustainable urban mobility). It is also made possible to support productive investments in enterprises other than SMEs, in less developed and transition regions, as well as in more developed regions in Member States whose average GDP per capita is below the EU average of the EU-27 measured in purchasing power standards (PPS) and calculated on the basis of Union figures for the period 2015-2017.
Article 11 amends the Regulation on the Just Transition Fund (JTF) to indicate that such a programme can support investments linked to the STEP objectives.
Moreover, in order to help accelerate those investments and providing the necessary liquidity, an exceptional pre-financing of 30% will be available for the year 2024. It is also set out that Member States should be able to apply an increased EU financing rate of up to 100%. This is reflected for the three Regulations above, by including the same provisions under Articles 10, 11, and 12.
Annexes I and II of the ERDF and CF regulation are amended to include the indicators related to the new STEP objectives.
Amendments to Regulation (EU) 2021/1060, Regulation laying down common provisions applicable amongst others to the ERDF, CF, JTF and ESF+ (Article 13)
This Regulation is also amended to allow that projects having been awarded a Sovereignty Seal could benefit from better access to EU funding, notably by facilitating cumulative or combined funding from several Union instruments. To that end, managing authorities will be able to grant support from the ERDF or the ESF+ directly, for operations attributed a Sovereignty Seal. It is also set out that Member States should be able to apply an increased EU financing rate of up to 100%.
Article 49 of the CPR Regulation is amended to ensure that the managing authorities identify and submit to the Commission the planned calls for proposals related to the STEP objectives in order to publish them on the Sovereignty portal, as well as a dedicated secondary theme for the ESF +.
The amendment to Annex I of the CPR Regulation incorporates supplementary intervention fields that will allow to track the expenditure related to the new Platform objectives.
Amendments to Regulation (EU) No 1303/2013 (Article 14) and Regulation (EU) No 223/2014 (Article 15)
This amendment to provide with additional flexibilities for Member States to be able to implement the 2014-2020 cohesion policy programmes, the EMFF and the Fund for European Aid to the Most Deprived (FEAD). The regulatory framework for the implementation of the 2014-2020 programmes has already been adapted to provide Member States and regions with additional flexibility in terms of implementation rules and more liquidity to tackle the effects of the COVID-19 pandemic and the war or aggression against Ukraine.35 These measures, introduced at the end of the programming period, require sufficient time and administrative resources to be fully exploited and implemented. This is linked to the need for the Member States to focus administrative resources on the revision of the operational programmes towards the STEP.
Therefore, the deadline for the submission of that final payment application should be extended by 12 months. Furthermore, the deadline for the submission of the closure documents should also be extended by 12 months so that the necessary controls and audits allowing for an orderly closure of programmes under the 2014-2020 programming period can be carried out. In order to ensure a sound implementation of the EU budget and respect for the payment ceilings, payments to be made in 2025 should be capped at 1 % of the financial appropriations from resources under the Multiannual Financial Framework per programme. It should be clarified that amounts due exceeding the ceiling of 1% of programme appropriations per fund for 2025 would not be paid in 2025 nor in subsequent years but only used for the clearance of pre-financing. Unused amounts shall be decommitted in accordance with the general rules for decommitment at closure.
This provision creates a new policy area (fifth window) aimed at supporting STEP investments under InvestEU, and it accommodates the additional amount of EUR [...] billion proposed in the context of the MFF review by amending the amounts of the EU guarantee for the purposes of the STEP. Amendments are also made to reflect the Sovereignty Seal dimension into InvestEU, as explained under Article 4.
It also proposes additional flexibilities and clarifications to better pursue the objectives of this initiative. In relation to the combination of portfolios, it is specified that when support from the financial instruments referred to in Article 7(1) is combined in a financial product in a subordinated position to the EU guarantee under this Regulation and/or EU guarantee established by Regulation (EU) 2015/1017, the losses, revenues and repayments as well as potential recoveries may also be attributed on a non pro rata basis. This amendment aims at facilitating synergies between the InvestEU and other Union programmes by increasing the flexibility on the design of blending operations.
To facilitate the uptake of the Member State compartment, it is proposed to slightly increase the time period available to conclude a guarantee agreement from nine to twelve months from the conclusion of the contribution agreement. The rules on the membership of the Investment Committee are also amended to clarify that a non-permanent member may be assigned to a maximum of two configurations to apply a selection process that allows to constitute the Investment Committee for the new fifth window in a swift manner.
Annex III of InvestEU Regulation is amended to include the indicators related to the new STEP window.
This provision aims at providing additional flexibility and funding for the EIC Accelerator. The Accelerator under Horizon Europe should be able to provide equity-only support to non-bankable SMEs, including start-ups, and non-bankable small mid-caps, carrying out innovation in the technologies supported by STEP. Moreover, the unused funds committed for the EIC Pilot under Horizon2020 should be made available for the purposes of the EIC Accelerator under Horizon Europe.
Article 18 amends the Regulation on the European Defence Fund to specify the amount of additional funds to be implemented through the European Defence Fund.
Amendments to Regulation (EU) 2021/241, establishing the Recovery and Resilience Facility (Article 19)
This Regulation is amended to increase the ceiling for the amount of estimated costs of the recovery and resilience plans that Member States can use for the Member State compartment of InvestEU. In addition to the applicable ceiling of 4% of the recovery and resilience plan’s financial allocation, Member States can decide to allocate a further 6% to support STEP investments, therefore up to a total of 10%. Article 29 is amended to ensure the Member States identify and submit to the Commission the planned calls for proposals related to the Platform objectives in order to publish them on the Sovereignty portal.
It is proposed that this Regulation, which is directly applicable in all Member States, enters into force on the day following that of its publication.