Don’t let geopolitical pressures warp the next Framework Programme, say Thomas König and Klaus Weyerstrass
For 20 years, the guiding principle of the EU’s Framework Programme for R&D has been to promote innovation. But Europe’s policy goals are shifting. With the need to reduce greenhouse-gas emissions and with geopolitical tensions rising, technological and energy sovereignty is of high concern.
The tasks involved—avoiding deindustrialisation and achieving the turn to renewable energy—are daunting. Hence the growing significance of industrial policy in European political debate.
The EU faces geopolitical pressure from both west and east. The United States Inflation Reduction Act of 2022 aims to curb inflation by reducing the budget deficit, lowering the prices of prescription drugs and investing in domestic energy production, while promoting clean energy. This will be paid for by higher corporate taxes. Only companies located in the US or in a country with which it has a free-trade agreement are eligible for subsidies.
Regarding decarbonisation, the growing use of electric vehicles, solar panels and wind turbines massively increases the need for raw materials. China has a quasi-monopoly on some of these rare earth metals, so the more Europe needs to import, the more political leverage it gives to Beijing.
On both fronts, the answers are to promote free trade to diversify supply chains; invest in R&D to reduce dependence on rare earths; and increase the recycling of batteries and other materials already in use in the EU.
The EU’s strategic options are limited. It cannot levy taxes, and member states have the final say in creating new funding instruments. Maybe this is why EU policy initiatives tend to react to specific crises, such as the Juncker plan to respond to the financial crisis, and the Recovery and Resilience Facility created in the wake of the pandemic. Mostly, such instruments repackage existing funds and add new debt.
Impressive creation
There are, of course, non-crisis-mode policy instruments that provide funding at EU level, including the Framework Programme. The programme is small compared with the Common Agricultural Policy and Structural Funds, but it is still an impressive creation, having grown in both budget and impact since the 2007 Lisbon Treaty that set the union’s current constitutional structure.
One reason for the Framework Programme’s success is that it is not itself a research programme. Rather, as its name suggests, it defines the regulatory framework for a series of research-funding instruments, ranging from the European Research Council’s focus on competitive frontier research, to the mobility programmes contained in the Marie Skłodowska-Curie Actions, to challenge-oriented missions and industry-related innovation instruments. In total, the programme now covers pretty much all of the imagined steps on a linear model of innovation, from lab to market.
The Framework Programme is tightly linked to the EU budget. This makes sense, given that it is one of a suite of distributive policy instruments. This linkage means the programme gets rebranded and rearranged for each multi-annual budget period. Brussels insiders are already positioning themselves for negotiations around the next edition, succeeding Horizon Europe and starting in 2028. At present, the most likely shift looks like being away from innovation towards industrial policy.
One scenario is that the programme is partially reassigned to industrial policy, perhaps by expanding the use of specific programmes to fund research and innovation activities within the Important Projects of Common European Interest.
However the discussion develops, Europe should resist the temptation to raise industrial subsidies, which must be paid for with higher taxes elsewhere. A worldwide subsidy race would do more harm than good.
Another scenario is that the Framework Programme’s budget is diverted to fund industrial policy. This would at least maintain the R&D programme’s integrity. But the effect would be similar to the first scenario—again, not a good way to support industrial policy.
Finally, the Framework Programme might renew its focus on innovation policy from a different perspective, based on an understanding that R&D is essential to decarbonisation. Such a realignment would be the best outcome.
The EU already has the tools to decarbonise, in the shape of the carbon emissions trading system and taxes on carbon emissions. Along with a Carbon Border Adjustment Mechanism, which prevents countries from offshoring their emissions, and requirements for environmentally friendly procurement of products such as steel, these would be more effective than subsidising the domestic production of green technologies. Public money would be better spent on funding research into more efficient technology.
Thomas König and Klaus Weyerstrass are at the Institute for Advanced Studies in Vienna
This article also appeared in Research Europe