The stakes ahead for Europe’s cleantech toolbox: clear priorities, clear mandates and coordinated pathways
The fight over the next EU budget is about “how much”. For clean technologies, it should also be about “who does what”. In response to changing needs, Europe has incrementally expanded its cleantech finance toolbox by adding new tasks to existing funds and new instruments alongside them. The parallel negotiations of the new EU budget and the reform of the ETS is a chance to give each of them a clear job, clear priorities, and coordinated pathways between instruments. Manufacturing scale-up is the first test.
Over the weekend, the Irish Presidency of the Council of the European Union put numbers on the table for the EU’s next long-term budget. Its ‘negotiating box’ proposes cuts of €159 billion, or 8%, compared with the Commission’s proposal. The cuts fall unevenly: spending on competitiveness, prosperity and security would fall by 13%, while agriculture and cohesion remain largely untouched. EU leaders are due to discuss the proposal this week.
The European Competitiveness Fund, the budget’s main new instrument for industrial policy, sits at the centre. The negotiation box sets its envelope at €180 billion over seven years, of which, €20 billion would go to its Clean Transition and Industrial Decarbonisation window. Tellingly, the Presidency presents the Competitiveness Fund as part of a wider package of “over €400 billion” for competitiveness, together with Horizon Europe and the Innovation Fund. Yet the Innovation Fund is not part of the EU budget: it is financed from carbon-market revenues, and its future is being decided in a separate negotiation, the review of the EU Emissions Trading System (ETS).
The two files move on the same timeline and under the same political pressure, but through separate processes. Together, the budget and ETS negotiations will determine much of the public finance available for clean technologies and industrial decarbonisation after 2028.
Two political processes, one financing landscape
While Member States negotiate the budget, co-legislators are also revising the ETS. The Commission’s proposal would reshape the Innovation Fund after 2030 and create two new ETS-funded instruments: an Investment Booster and an Industrial Decarbonisation Bank.
The MFF determines the scale and structure of budget-funded support; the ETS review determines the resources and mandates of instruments financed through allowance auctioning. Europe’s cleantech industries, however, experience them as one financing landscape. An electrolyser manufacturer, for instance, might look to the Competitiveness Fund to finance a new production line, while demand from its customers depends on the Innovation Fund’s auctions for renewable hydrogen.
The question raised by these parallel negotiations is therefore not only how much support will be available, but how responsibilities will be divided between instruments: which financing challenges each should address, how to prioritise, and how different forms of support should connect.
Different financing needs require different response
Clean technologies are not all at the same stage of maturity, and they do not face the same barriers. A first-of-a-kind project may face technology, construction and financing risks, which, as I4CE’s (2026) Bankability Test shows, shape whether banks will lend at all. A battery factory may need support during ramp-up, before it can operate reliably at commercial scale and compete with imports from established producers. A renewable hydrogen producer may need a predictable premium to compete with cheaper fossil-based supply. These different needs can coexist within the same value chain.
Public finance for cleantech therefore cannot be judged by its overall size alone. What matters equally is whether the instruments are designed in a way to help tackle the funding barriers upholding projects. EU support already reflects this: the Innovation Fund provides grants for innovative projects and cleantech manufacturing, its competitive-bidding mechanisms include auctions for renewable hydrogen production, and its new Battery Booster Facility will provide interest-free loans to battery-cell producers during ramp-up. A coherent financing architecture should build on this diversity rather than assume that all clean technologies follow the same route to commercial maturity.
The Innovation Fund shows how the toolbox has expanded
The Innovation Fund illustrates how Europe has adapted its support as cleantech priorities have evolved over recent years. Originally designed to support large-scale innovative demonstration projects in ETS sectors, the Fund became the EU’s main vehicle for new cleantech priorities. Over recent years, it has taken on additional functions: dedicated calls for cleantech manufacturing, competitive auctions for renewable hydrogen production, and the Battery Booster Facility for battery-cell ramp-up. These mechanisms address different needs: technology demonstration, manufacturing investment and revenue support.
Each addition responded to a specific need. But, as the European Court of Auditors found, the Commission adapted calls and budgets to emerging priorities without a “structured, forward-looking analysis” of the technological landscape. It recommended that resource allocation be guided by such an analysis. In other words, the Fund expanded by responding to individual needs, but without a clear basis for deciding how those needs should be prioritised against one another.
In light of limited resources and increasingly diverse tasks, this matters. Our latest paper on the Innovation Fund makes clear that the ETS revision is a chance to clarify its role in the expanding cleantech financing architecture, with grants that take greater risks on breakthrough innovation. When it is no longer the only option, there is chance for greater specialisation. As the wider cleantech toolbox broadens, this reflection should be more explicit and transparent, targeted at each of the instruments: what should it prioritise, with what resources, and in relation to which other forms of support?
The reforms create a chance to clarify the division of labour
The proposed reforms would reshape the architecture in two complementary ways.
On the budget side, the European Competitiveness Fund would consolidate 14 funding instruments into a single framework, including a ‘clean transition’ window. Its stated objective is to support a more seamless investment journey from research to manufacturing and deployment. In principle, this could make it easier to align grants, financial instruments and advisory support around common priorities.
On the ETS side, the Commission proposes a clearer distinction between innovation and deployment. The Innovation Fund would be endowed with 200 million allowances from 2031 and support innovative industrial technologies and cleantech manufacturing. The Investment Booster would reserve 400 million allowances for 2028-2031 to provide fixed carbon premia on a first-come, first-served basis. From 2030, the Industrial Decarbonisation Bank would support the scale-up and roll-out of more mature decarbonisation projects, including through carbon contracts for difference (CCfDs).
In principle, this is a more explicit division of labour: innovation support, accelerated deployment and larger-scale industrial roll-out would have distinct homes. Getting these boundaries clear will be a central challenge to the subsequent design procedures for the individual tools.
Cleantech manufacturing scale-up is a case in point. Support for this stage has emerged incrementally: the European Innovation Council’s STEP Scale-Up scheme provides equity investments of €10-30 million to help companies leverage larger private funding rounds, while the Innovation Fund has supported cleantech manufacturing through dedicated calls and has recently introduced interest-free loans for battery-cell producers during ramp-up.
Under the Commission’s proposal, however, the Innovation Fund would focus more narrowly on innovative industrial technologies, with a smaller endowment from 2030 on. The proposed Investment Booster and Industrial Decarbonisation Bank, meanwhile, appear primarily designed to accelerate decarbonisation investment by larger and more mature industrial installations. For cleantech developers aiming to scale production, this raises the question of where support for factory investment and production ramp-up will sit.
Within the instruments under the remit of the Commission discussed here, that leaves the European Competitiveness Fund as the most likely home for manufacturing scale-up support. Its clean-transition window explicitly covers cleantech manufacturing and supply chains, and its common framework could in principle connect grants, financial instruments and advisory support. But this is precisely where the budget negotiations matter. The ECF is under strong political pressure, and its final resources, priorities and instruments remain uncertain. Even once established, much will depend on how the Commission designs and sequences its instruments.
A central challenge will therefore be to assign responsibility for manufacturing scale-up clearly and connect it to the demonstration and deployment support that technologies may need before and after. To find a clear home for this crucial stage of the financing journey, it is therefore crucial to join the discussions on the new EU budget and the reform of the EU’s carbon market.
A coherent cleantech finance toolbox needs three things
The negotiations should not be judged only by the size of the envelopes. Funding volumes matter, but so does whether the instruments add up to a functioning system. Three tests would help.
First, clear responsibilities. Each instrument should have a defined purpose: the financing barrier it addresses, the stage of the financing journey it targets, and its relationship to instruments serving adjacent needs. Overlap is not necessarily a problem if instruments provide complementary forms of support. It becomes problematic when several instruments pursue the same task without a clear lead or rationale.
Second, clear priorities. The Innovation Fund experience shows why this matters. The Court of Auditors found that resource allocation had not been guided by a structured, forward-looking analysis, and recommended such an analysis to inform decisions on decarbonisation pathways and emerging priorities. Applying this principle more systematically across the emerging architecture would make trade-offs visible and allow for clearer prioritisation.
Third, coordinated pathways between instruments. Clean technologies need to be able to scale in Europe. That requires more than individual instruments: it requires compatible eligibility criteria, timing and combination rules, and a plausible route from one form of support to the next. A technology moving from demonstration to manufacturing scale-up, or from manufacturing to deployment, should not depend on project-by-project discovery of where support might come from.
Design choices will outlast the negotiations
The current negotiations are only the first stage of a longer process.
Co-legislators will decide the overall architecture: budget envelopes, the allocation of ETS allowances to EU-level instruments, legal mandates and basic governance. Much of the practical design – work programmes, call criteria, investment guidelines and delegated acts – will follow. The first phase determines the framework; the second determines what that framework means for technologies and investors in concrete terms.
That means the opportunity to improve the toolbox does not end when political agreement is reached. But early choices can constrain what is possible later. If mandates, resources and delivery mechanisms are settled file by file, Europe risks simply rearranging today’s overlapping toolbox – without a clear vision of how it should all fit together.
The test for the emerging architecture is therefore straightforward: whether each instrument has a clear responsibility, resources aligned with that responsibility, and workable connections to the other support that clean-technology projects may need. Getting this right would not guarantee that every project succeeds. It would, however, make it more likely that public money reaches the risks and stages where it can make the greatest difference.
Over the coming months, I4CE’s Cleantech Toolbox series will examine the main instruments one by one, starting with the Innovation Fund’s grants for demonstration projects.
