Financing Eco-Innovation in Austria: A Critical Perspective

1. Financing Eco-Innovation: A critical perspective on the Austrian experience of financial support programmes Wolfram Tertschnig Federal Ministry of Agriculture, Environment and Water Management, Austria Sustainable Development and Environmental State Aid Policy Division wolfram.tertschnig@lebensministerium.at

2. Eco-innovation requires more than just €€€ … • Eco-innovation is generated out of a policy-driven market (European and national agendas determine investment schemes) • requires political stability and predictability • Government authorities act as investors (e. g. water and waste management sectors) • requires security and longevity of financial resources • Eco-innovation occurs at the interface of R&D policies, aid regimes and fiscal instruments, the economic and environmental policy framework • requires coherent polices and good public governance • Inconsistencies on any of the above and associated political risks deter private investors to take financing decisions

3. Eco-innovation may happen if Multi-annual financial provisions A broad range of financing mechanisms / fiscal instruments Cofinancing by structural funds Federal environmental State aid Policy Technology Clusters / Clearing Houses Cooperation across various funding schemes Political strategies and action plans

4. The Austrian Environmental Fund – Facts & Figures • established in 1984 • administration: since 1993 MoE & Kommunalkredit Public Consulting (PPP) • grants awarded to enterprises cover 20-30 % of environmental costs • 2009 – 2013: annual 90 M€ “regular” funding budget + 100 M€ 2009/10 dedicated for thermal insulation of buildings as part of the economic recovery package (to be continued in the 2011-2014 period)

5. The Austrian Environmental Fund – Facts & Figures • Funding priorities reflect environmental policy targets (from acid rain in the 1990ies to climate protection measures) • since 1996: increasing share dedicated for climate effective projects (2009: 98%) • at present, the fund identifies some 25 target categories reflecting objectives derived from national/European strategies • 1993 – 2009: 35.000 projects • 4,4 B€ total investment volume • 830 M€ total grant volume

6. The Austrian Environmental Fund – Terms and Procedures • Our instrument is technology driven • predefined BATs, with minimum requirements defined • extra boni for state of the art and peak cost-effectiveness approaches within each target category • Ex-ante and ex-post evaluation as well as monitoring schemes addressing various focal areas (internal reviews, peers and researchers) to optimize cost benefit ratios and other objectives • Institutional cooperation with the national R&D funding schemes providing custom-fit solutions for demonstration projects

7. The Austrian Environmental Fund – Effects I • impact on technology diffusion • varying influence of the instrument on the total market (thermal solar plants: 5 %, small biomass units: 15 %, biomass district heating: 100 %) • impact on generating environment and climate protection investments • based on a grant: investment volume ratio of 1:5, the Fund triggers environmental investments of approx. 450 M€ p.a. • impact on public revenues and avoided spendings • fiscal return on investment ranging from 200% (regular year) to 500% (economic recession / crises) • aggregate value added : 0,64% of annual investment volume

8. The Austrian Environmental Fund – Effects II • impacts on jobs • per M€ of funding some additional 60 green jobs • impactson CO2 reduction • 2008: 11.7 Mio. t • 2009: 8.2 Mio. t • impactson CO2 abatement costs covered by public financing • 6 €/t CO2 – 15 €/t CO2 (life time)

9. Outlook • environmental policy and public funding remain major drivers in the environmental technology and eco-innovation development and diffusion • targets set for shares of renewable energy will increase this role since the public sector will be financing most of the corresponding measures (by means of subsidies or via tariffs/taxes) • higher energy / resource prices (taxation) will increase the role of private financing institutions (banks, venture capital funds) in addressing energy efficiency and resource productivity goals, allowing for a subsequent decrease in public spending

10. European dimension • as regards resource efficiency innovations: • enhancement of non-monetary approaches fostering eco-innovations, such as: platforms, networks and clearing houses, promoting technology exchange and diffusion, dissemination of innovations, long term and integrated environmental policy and SD planning, a level playing field for various means of private capital • as regards renewable energy innovations: • continuing need for long term financing provisions, a greater harmonisation between European and national energy strategies and corresponding funding schemes, a greater focus on the removal of environmentally harmful subsidies • growing impact of the European innovation programmes (LIFE+, CIP)