Published November 4, 2025
By NZero
Europe continues to strengthen its position as a leader in climate-focused industrial transformation. The European Commission’s €2.9 billion (about US $3.1 billion) investment in 61 large-scale net-zero technology projects under the Innovation Fund demonstrates how emissions trading revenues can directly finance industrial change. The initiative spans 19 sectors and 18 countries, expected to cut 221 million tonnes of carbon dioxide equivalent within a decade. While rooted in Europe, this approach provides a global reference point for how countries such as the United States can link carbon markets and industrial innovation to accelerate decarbonization.
The Innovation Fund is managed by the European Climate, Infrastructure and Environment Executive Agency (CINEA). It reinvests proceeds from the EU Emissions Trading System (EU ETS) into projects that deploy low- and zero-carbon technologies. By 2030, ETS revenues are expected to generate around €40 billion (about US $43 billion). These funds are used to co-finance technologies that face high capital costs or long payback periods, supporting sectors like heavy industry, clean manufacturing, and renewable infrastructure.
The most recent Innovation Fund call, IF24, attracted 359 applications requesting €21.7 billion (about US $23 billion) in total support, highlighting strong private-sector demand for public co-financing. The Fund selects projects based on emission-reduction potential, cost efficiency, scalability, and innovation maturity. This system demonstrates how the polluter-pays principle can be transformed into a steady stream of climate investment.
The United States could apply a similar approach. Carbon market revenues from state-level initiatives such as California’s Cap-and-Trade or the Regional Greenhouse Gas Initiative could feed into a federal or regional innovation fund. This would complement the existing tax incentives of the Inflation Reduction Act by providing grants for pre-commercial and demonstration-scale projects.
The 61 projects funded under the latest call represent nearly every pillar of industrial decarbonization. Energy-intensive sectors such as steel, cement, and chemicals will adopt carbon capture, utilization, and storage (CCUS) and electrified production systems. Renewable hydrogen is a key theme, with projects focused on large-scale generation and industrial integration. The Fund also supports renewable power, long-duration storage, and advanced grid integration to stabilize a growing share of variable renewables.
Cleantech manufacturing receives dedicated funding for battery cell production, sustainable construction materials, and circular manufacturing methods. According to CINEA, these projects are designed to scale quickly and deliver measurable climate benefits across the EU single market.
In the United States, the Department of Energy’s Office of Clean Energy Demonstrations (OCED) runs the Industrial Demonstrations Program, providing up to US $6 billion for decarbonizing heavy industry through advanced materials, hydrogen use, and low-carbon fuels. Both initiatives share a goal of reducing emissions from hard-to-abate sectors, though the EU’s Innovation Fund focuses more on direct grant financing rather than tax-based incentives.
Europe’s Innovation Fund illustrates how carbon-pricing mechanisms can evolve into self-sustaining innovation systems. Several lessons have global relevance. First, carbon revenues should be recycled directly into technology deployment rather than general fiscal budgets. Second, funding should remain technology neutral, rewarding performance and innovation rather than specific sectors. Third, transparent, competitive calls ensure the most impactful projects receive support.
The U.S. Inflation Reduction Act, valued at around US $369 billion, relies primarily on tax incentives, which can be slow to mobilize capital for first-of-a-kind industrial projects. A hybrid approach that blends direct grants, like the EU’s model, with the U.S. incentive structure could accelerate demonstration and scaling. Countries in Asia and the Americas could adapt this model to strengthen public-private partnerships and attract international investment.
As more private investors seek credible frameworks for co-financing, programs like the Innovation Fund set a benchmark for accountability and impact measurement. Extending similar carbon-financed innovation models worldwide could unlock the global investment needed to decarbonize industries that currently produce nearly one-quarter of global greenhouse gas emissions.
The European Commission’s €2.9 billion (about US $3.1 billion) Innovation Fund round proves that well-designed carbon pricing can generate the resources required for industrial transformation. By channeling EU ETS revenues into net-zero technologies, Europe is turning policy ambition into investment reality. The next call, planned for late 2025, will expand support for renewable hydrogen and energy storage, reinforcing the Innovation Fund’s role as the financial engine of the Clean Industrial Deal.
For the United States and other economies, this model offers a clear roadmap: link emissions markets with innovation finance to accelerate decarbonization in steel, cement, and chemicals. Converting carbon revenues into reinvestment for clean technology could become one of the most effective strategies for global industrial transformation.
