ECA Report: EU Innovation Fund misses targets, blocks tens of billions of euros

The European Union's Innovation Fund, one of the most ambitious financial instruments for the transition to a climate-neutral economy, is proving to be far below expectations, despite a huge potential estimated at around euro40 billion by 2030, according to an audit report by the European Court of Auditors (ECA) and published yesterday on the institution's website.

The cited source states: "The Innovation Fund has a strong potential to strengthen EU innovation and competitiveness in clean technologies, while reducing greenhouse gas emissions, but the results remain modest: allocations are slowly absorbed, projects have long delays and some have already been terminated.”

Launched in 2020 and financed by the sale of certificates under the EU ETS scheme, the fund should represent the industrial engine of European decarbonization, supporting innovative technologies in energy-intensive industries, renewable energy, energy storage, hydrogen, carbon capture and storage, but also mobility and zero-emission buildings.

In reality, according to the cited audit report, the financial mechanism, although impressive in volume, operates cumbersomely and inefficiently. By the end of June 2025, out of the more than euro12 billion available, only euro331.8 million had actually been paid to projects, i.e. 2.7% of the total and less than 1% of the estimated budget of the fund. This major discrepancy between the resources available and their actual use paints a picture of an instrument stuck between ambition and reality.

The problem is not only one of pace, but also of strategic design. The European auditors explicitly point out that "support from the Innovation Fund is not allocated on the basis of a structured analysis”, which raises serious questions about how investments are prioritised. The European Commission has directed resources according to emerging policy priorities, such as hydrogen, batteries, net-zero technologies, without basing these decisions on a coherent assessment of the real potential for reducing emissions or the industrial impact.

The result is a disconnect between declared policies and the real interest of the industry, illustrated by the decrease in the number of projects submitted or the full allocation of budgets in conditions of reduced competition, the cited source shows.

Worse, the structural uncertainty of financing, dependent on the volatility of the carbon price, slows down implementation. The fund's revenues depend on developments in the EU ETS market, where prices have varied between 23.02 euros and 97.51 euros per tonne of CO2, without a mechanism to guarantee a minimum level of resources. This unpredictability makes planning difficult and contributes to the accumulation of unused funds, while projects stagnate. The ECA auditors warn that this combination of financial uncertainty and long implementation cycles creates "the perfect recipe for the accumulation of substantial amounts in the treasury, that is, money that remains on paper instead of reaching the ground".

On the implementation side, the situation is equally worrying, according to the audit report. Around one in five projects fail before becoming operational, and delays are the rule, not the exception, say the auditors from the European Court of Auditors. They also show that, of the 228 projects initially selected, 40 were cancelled, withdrawn before the contracts were signed or terminated later, which directly affects the fund's ability to produce concrete results. The causes are multiple: insufficient maturity of the projects, underestimated costs, withdrawal of partners or the impossibility of attracting complementary financing. In many cases, the projects proved to be much more fragile than the initial assessment suggested, which indicates serious shortcomings in the selection process.

This problem is amplified by the fact that estimates of the impact on emissions are essentially theoretical. Emission reductions, a key criterion for granting funding, are calculated on the basis of assumptions that "may lead to optimistic forecasts”, according to the ECA auditors. They also show that, in practice, the results are disappointing: by the end of 2024, only five projects had reported effective emission reductions, and the total achieved represented less than 5% of the estimated level. At an aggregate level, the fund's portfolio generated results "below expectations”, reaching only 5% of the expected reduction of 0.59 million tonnes of CO2.

In these circumstances, the European Court of Auditors' report paints a picture of an instrument essential for Europe's climate future, but one that is plagued by major structural weaknesses: the lack of a clear allocation strategy, the rigidity of funding mechanisms, overly optimistic assessments and slow implementation, marked by delays and failures. The conclusion is unequivocal: the Innovation Fund "is not delivering the expected level of greenhouse gas emission reductions”.

At a time when the European Union is building its industrial and climate future on clean technologies, and a new euro451 billion European Competitiveness Fund is preparing to take over, the lessons of this partial failure are becoming critical. Without a profound reform of the way projects are planned, assessed and financed, Europe's climate ambitions risk remaining stuck between political promises and modest results, in a dangerous gap for the Union's global competitiveness.