Co-funded by the
European Union
A novel private-public fund to unlock €500bn for Europe’s Clean Industrial Deal
Image credits: Getty Images via Canva
Written by InnoEnergy CEO Diego Pavia and Member of the European Parliament Pascal Canfin. This article was originally written for and published on the FT’s Sustainable Views.
An opportunity for the EU to lead on clean technologies, if the bloc plays its cards right
The incoming US administration looks set to shift its climate strategy, casting doubt over the $369bn Inflation Reduction Act – the largest public support scheme for clean technologies in American history. This presents a rare and unique opportunity for Europe to position itself as the global hub for investment and deployment of clean technologies. But in the face of fierce competition from China, Europe must act decisively to create conditions that make investing in home-grown green industrial projects feasible and compelling.
With strained public budgets and three years to wait for the next EU budget, securing the financial firepower of a public US-style IRA is not realistic. Mobilising private capital through a private fund is the only viable path to securing the financial muscle needed.
Europe’s regulatory stability and robust policy framework are not to be overlooked. Demand-side measures, such as the ambitious sectoral targets through the Fit for 55 package, have generated a strong pipeline of projects—from new projects and industrial incumbents—across value chains like batteries and green hydrogen. New supply-side initiatives like the Net-Zero Industry Act are already strengthening the pool of projects.
But a pipeline is not enough to capitalise on this opportunity.
A private fund derisked with EU backing
Our solution is a fund raising €70bn in private capital, de-risked by a public guarantee of €1–2bn annually. Over a 15-year period, the fund could unlock up to €500bn of private capital for the Clean Industrial Deal. This instrument must be part of the array of financial tools assembled within the large Competitiveness Fund already announced by Ursula von der Leyen.
The concept of public guarantees is not new. Guarantees have already proven effective in mobilising private investment through the InvestEU programme, but the scale has been insufficient. From the €26.2 billion guarantee under InvestEU, €20.5 billion has already been allocated, leaving little room for further impact until the next long-term EU budget becomes active in 2028. As underlined in Mario Draghi’s report, the current InvestEU scheme also falls short in supporting higher-risk profiles needed for clean industrial transformation.
For a Clean Industrial fund, a public guarantee from the annual EU budget with more scale and focus is needed to finance the projects for industrial transformation. This guarantee could deliver exponentially greater results and unlocking transformative levels of private capital.
The private capital is available in Europe, but it remains largely untapped for clean tech projects.
Europe’s pensions and insurance savings schemes are valued at over €18tn, but less than 5 per cent of these assets are directed toward green investments.
A fund that is derisked with a public guarantee and is active across the lifecycle of projects—from early-stage to growth and infrastructure investments — can spread risks effectively enough to attract even risk-averse pensions and savings.
The benefits would be two-fold.
The fund would drive high financial returns for European citizens and channel their money into the objective of building a sustainable and resilient Europe. Equally, this instrument would enable pooling of cross-border capital at scale—something fragmented European markets have long struggled to achieve.
Removing barriers to entry for other market players
Deployment of the fund will also address the critical issue of risk absorption for other market players too. The scale-up and supply chain risks of industrial projects in nascent sectors combined with high capital demands easily deter investors still unfamiliar with these projects.
A derisked private fund which acts as a lead investor in a round in a higher risk, often early-stage project can in turn remove the entry barriers for other investors to crowd into the funding round.
It’s clear that Europe needs a bold new approach to financing. Such a fund would accelerate the industrialisation and deployment of critical technologies, deliver tangible benefits to Europeans in terms of growth and jobs, and cement Europe’s reputation as the global home for clean industries. Now is the time to lead the clean industrial race.