Strategic economic policy to advance green innovation and investment in Europe

The urgency of the green transition has been recently highlighted even more by the energy crisis, exposing the vulnerability of the European economy to external geopolitical pressure, notably in the energy field. Green transition and energy security will require a significant upgrading of European innovation and industrial policy, both in terms of volume of investments and rethinking the whole approach to innovation and development, making it more strategic.

This paper explores what this upgrading may mean and what kind of instruments and institutions could be used. In addition to Europe-wide policies, we also look closely at the Central and Eastern Europe (CEE) situation. Most countries of the CEE region are substantially lagging in their innovation investments behind other EU countries. Regarding research and development (R&D) investments as a share of GDP, only Slovenia and Czechia were close to the EU average in 2021. The rest were behind, especially Slovakia, Latvia, Bulgaria, and Romania.

On top of it, the EU itself has been behind other major global players in terms of R&D expenditure. Between 2011 and 2021, EU investments increased from 2.02% to 2.27% of GDP, compared to the US’ increase from 2,76% to 3,45%. In nominal terms, the EU spent €328 bn in 2021, approximately half of that spent by the US - $792bn. The picture will improve in 2022 and in the future as the EU has boosted its spending on digital and green transformation, particularly through the Recovery and Resilience Facility (RRF). The EU plans to spend EUR 723.8 bn for RRF until 2026, which would mean an extra 0,8% of the EU’s GDP per year on average, but not all of it is for innovation. To understand how to foster investment in innovation in the EU, we need to ask why the EU has been lagging behind other regions of the world.
The key factors are some features of the EU design itself. 

Read more in the policy brief below.

* Funded by the European Union. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or EACEA. Neither the European Union nor the granting authority can be held responsible for them.