Project

With the Clean Industrial Deal, the European Commission responded to the growing challenge of combining climate protection and industrial value creation in the EU. This political agenda ties in with the Draghi Report on European competitiveness published in autumn 2024, which analyses key structural challenges facing the European economy.

Climate neutrality by 2050 remains the EU's central reference target, flanked by the Commission's recommendation for an EU-wide net reduction target of 90% by 2040. At the same time, attention has shifted to the fact that the transformation of energy-intensive industrial processes cannot be controlled by regulatory requirements or CO₂ price signals alone, but that additional, specifically designed investment incentives are necessary.

Against this backdrop, the competitive funding mechanisms of the Innovation Fund should be further developed. With the help of a fixed-premium auction for a uniform good, funding is to be channelled into climate-neutral industrial processes in a market-oriented and cost-efficient manner. Building on the experience gained with the European Hydrogen Bank's hydrogen auctions, the Commission is examining the transfer of these competitive award mechanisms to other areas of industrial decarbonisation, such as the low-emission provision of industrial process heat, in order to trigger investment and mobilise private capital.

The aim of the project is to support the European Commission in designing and implementing a new fixed premium auction within the framework of the Innovation Fund. The focus is on developing a competitive funding mechanism that triggers investment in climate-neutral industrial applications where CO₂ price signals alone are not sufficient to enable viable business models. The aim is to use public funds efficiently, reduce investment risks and mobilise private capital.

Based on a systematic analysis of potential funding goods and corresponding project pipelines, a suitable auction good was identified and its funding logic specified. Building on this, the project supported the design of the auction, including the terms and conditions, the settlement and monitoring requirements, and structured stakeholder consultations. In addition, quantitative simulations were used to estimate bidding behaviour, budgetary effects and emission reductions. Furthermore, options for integrating national funds via ‘auctions-as-a-service’ were developed.

As part of the project, a fixed premium auction for industrial process heat was developed as a new competitive funding instrument under the Innovation Fund. Electrification and the use of renewable process heat were identified as suitable auction good and incorporated into the design of the competitive funding scheme.

Based on this, the terms and conditions of the planned auction were developed in close cooperation with the Commission and adapted to the existing administrative structures of the Innovation Fund. Additionally, quantitative analyses and auction simulations were conducted to estimate expected bidding behaviour, budgetary effects, emission reductions, and the sectoral and geographical distribution of potential projects. These analyses provide a key foundation for decisions regarding the design of the auction within two temperature ranges.

Another outcome was the conceptual preparation for integrating national funds via the 'Auctions-as-a-Service' approach, which will enable coordinated implementation at EU and Member State levels. The process heat auction also serves as a blueprint for future auction formats, providing an important reference point for the Industrial Decarbonisation Bank. This bank is currently being established to support Europe's long-term industrial transformation.

April 2025 – April 2026

• European Commission (DG Climate Action)

• ICF