EC launches Innovation Fund and European Hydrogen Bank Auction

The European Commission (EC) will finance the Innovation Fund and European Hydrogen Bank Auction from the EU emissions trading system (EU ETS) revenue.

PHOTO: European Union Commission building in Brussels, Belgium. Getty Images

The EC has launched a call for proposals to support deployment of novel low- and zero-emission fuels and technologies under its Innovation Fund, with a budget allocation of €4 billion ($4.36 billion).

The funding will come from a portion of revenues generated from the EU ETS, according to the EC. The Innovation Fund will now also cover maritime projects since shipping emissions will be included in the EU ETS next year.

Additionally, €800 million ($872 million) of emissions trading proceeds will go to the European Hydrogen Bank's first auction for green hydrogen projects. These funds will also be routed through the Innovation Fund.

Innovation Fund to boost decarbonisation in EU

The Innovation Fund will allocate the following amounts according to the size and budget of the projects:

• Capital expenditure (capex) over €100 million ($109 million): €1.7 billion ($1.85 billion)
• Capex between €20-100 million ($22-109 million): €500 million ($545 million)
• Capex between €2.5-20 million ($2.7-22 million): €200 million ($218 million)
• €1.4 billion ($1.53 billion) is allocated for projects with capex exceeding €2.5 million ($2.7 million). These projects should focus on "manufacturing components for renewable energy, energy storage, heat pumps and hydrogen production."
• €200 million is allocated for pilot projects aiming at “deep decarbonisation” with capex over €2.5 million

The EC suggests that deep decarbonisation can be achieved by substituting conventional fuels with biogas, electricity and hydrogen, as well as by using secondary technologies such as carbon capture and storage (CCS).

Subsidising green hydrogen production

Moreover, as part of the European Hydrogen Bank's auction, “producers of renewable hydrogen can bid for support in the form of a fixed premium per kilogram of hydrogen produced," the EC explained. This premium could be up to €4.5/kg ($4.9/kg).

The premium is "intended to bridge the gap" between the cost of green hydrogen production and its selling price, since grey hydrogen can still be produced at a lower cost using natural gas. This will help cover the extra costs associated with renewable hydrogen production, while also providing an incentive for consumers to switch.

The selected projects will receive subsidies for up to 10 years in addition to revenue generated from green hydrogen sales. “Once projects have signed their grant agreements, they will have to start producing renewable hydrogen within five years," the EC said.

The subsidy scheme is expected to drive investments and ramp up green hydrogen production in the European Union. The pilot auction is expected to contribute to the EU's goal to produce 10 million mt/year of green hydrogen domestically by 2030. 

The hydrogen bank’s auction will close on 8 February and Innovation Fund proposals will close on 9 April 2024.

By Konica Bhatt

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