Fact Sheets on the European Union
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Innovation policy

Innovation plays an increasingly important role in our economy. As well as benefiting the EU’s consumers and workers, it is essential in creating better jobs, building a greener society and improving our quality of life. It is also key in maintaining the EU’s competitiveness on global markets. Innovation policy is the interface between research and technological development policy and industrial policy. It aims to create a framework conducive to bringing ideas to market.

Legal basis

Article 173 of the Treaty on the Functioning of the European Union (TFEU), which states that ‘the Union and the Member States shall ensure that the conditions necessary for the competitiveness of the Union’s industry exist’.

Articles 179 to 190 TFEU regulate the Union’s research and technological development (RTD) and space policy. The main instrument of RTD policy is the multiannual framework programme, which defines the objectives, priorities and financial support package. The RTD framework programmes are adopted by the European Parliament and the Council, with prior consultation of the European Economic and Social Committee.

Objectives

The importance of innovation policy is widely recognised and it is closely linked to other EU policies, such as those on employment, competitiveness, the climate and environment, industry and energy. The role of innovation is to turn research results into new and better services and products in order to remain competitive in the global marketplace and improve people’s quality of life.

The EU spends a smaller percentage of annual GDP (2.2% in 2022) than the United States (3.5% in 2022) and the Republic of Korea (4.9% in 2022) on research and development (R&D). In addition, there is a brain drain effect, as many of the EU’s best researchers and innovators move to countries where conditions are more favourable. The EU market remains fragmented and is not sufficiently innovation friendly. To reverse these trends, the EU developed the concept of an ‘Innovation Union’, which aimed to:

  • Make the EU a world-class science performer;
  • remove obstacles to innovation – such as expensive patenting, market fragmentation, slow standard-setting and skills shortages – which prevent ideas from getting to market quickly;
  • Revolutionise the way the public and private sectors work together, notably through the implementation of European innovation partnerships between the EU institutions, national and regional authorities and businesses.

Achievements

A. Innovation Union

The Innovation Union was one of the seven flagship initiatives of the Europe 2020 strategy for a smart, sustainable and inclusive economy. Launched by the Commission in 2010, it aimed to create a genuine single European market for innovation. To achieve this, various measures were proposed in the fields of patent protection, standardisation, public procurement and smart regulation. Several instruments have been introduced to measure and monitor the situation across the EU and the progress being made, including:

  • A comprehensive scoreboard for innovation in the EU based on 32 indicators and a European knowledge market for patents and licensing. The European Innovation Scoreboard (EIS) is a Commission instrument developed under the Lisbon Strategy to provide a comparative assessment of the innovation performance of EU Member States, other European countries and regional neighbours;
  • A regional innovation scoreboard, which classifies the EU’s regions into four innovation performance groups: ‘innovation leaders’, ‘strong innovators’, ‘moderate innovators’ and ‘emerging innovators’. This provides a more detailed mapping of innovation at local level.

The Innovation Union also proposed measures to complete the European Research Area to ensure better consistency between EU and national research policies, and to remove obstacles to researchers’ mobility. In education, the Commission supports projects to develop new curricula addressing innovation skills gaps.

B. Horizon 2020 and Horizon Europe

As a Europe 2020 flagship initiative aimed at securing the EU’s global competitiveness, Horizon 2020, with a budget of EUR 74.8 billion (2015 adaptation), was the financial instrument supporting the implementation of the Innovation Union. Although it was the EU’s eighth framework programme (2014-2020) for research, Horizon 2020 was the first programme to integrate research and innovation.

The Horizon Europe programme was established by Regulation (EU) 2021/695, which lays down the objectives of the programme, the budget for the period 2021 to 2027, the forms of EU funding and the rules for providing such funding.

The mid-term revision of the EU’s long-term budget – the multiannual financial framework (MFF) – for the years 2021-2027 saw amendments regarding aid to Ukraine as well as an increase in the European Defence Fund and the creation of the Strategic Technologies for Europe Platform (STEP). As a result, the Horizon Europe budget was reduced from the initial sum of EUR 95.5 billion to EUR 93.4 billion, with effect from 2025.

The second Horizon Europe strategic plan for 2025-2027, adopted in March 2024, outlines three key priority areas: 1) Green transition; 2) Digital transition; and 3) A more resilient, competitive, inclusive and democratic Europe. In addition, open strategic autonomy and securing Europe’s leading role in developing and deploying critical technologies are general principles guiding investments across the three areas.

C. Cohesion policy

Cohesion policy also focuses on research and innovation. In more developed regions, at least 85% of resources from the European Regional Development Fund at national level are allocated to objectives related to innovation, with the 2021-2027 priorities being investments in a smarter, greener, more connected and more social Europe that is closer to its citizens.

D. Financial instruments

The Innovation Union also aimed to stimulate private-sector investment. Therefore, among other things, it proposed an increase in EU venture capital investments. In order to improve access to loans for R&D projects and launch demonstration projects, the Commission, in cooperation with the European Investment Bank Group (the European Investment Bank (EIB) and the European Investment Fund), launched a joint initiative under Horizon 2020. This initiative, ‘InnovFin – EU Finance for Innovators’, consisted of a series of integrated and complementary financing tools and advisory services offered by the EIB Group, covering the entire value chain of research and innovation in order to support investments from the smallest to the largest enterprises.

In addition to cohesion policy programmes, several EU funding programmes, such as the Recovery and Resilience Facility, InvestEU and the Innovation Fund, are available to fund investments in innovative technologies. The Innovation Fund in particular is one of the world’s largest funding programmes supporting net-zero and innovative technologies, with a focus on energy and industry.

E. The European Institute of Innovation and Technology

The European Institute of Innovation and Technology (EIT) was established in 2008. Its overall mission is to increase Europe’s competitiveness, its sustainable economic growth and job creation by promoting and strengthening cooperation among leading business, education and research organisations. It also aims to power innovation and entrepreneurship in Europe by fostering environments for creative and innovative ideas to thrive. The EIT achieves these objectives mainly through its Knowledge and Innovation Communities (KICs), which bring together more than 1 200 partners from business, research and education (the ‘knowledge triangle’).

F. Innovation Council

In 2017, the Commission created a fifteen-member High-Level Group of Innovators that helped shape the design of the European Innovation Council (EIC) in the framework of Horizon Europe. The EIC is the EU’s flagship innovation programme to identify, develop and scale up breakthrough, and in particular deep-tech, innovations. It has a budget of EUR 10.1 billion to support them throughout the life cycle from early stage research to proof of concept, technology transfer and the financing and scale up of start-ups and small and medium-sized enterprises. In 2021, the Commission signed a memorandum of understanding between the EIC and the EIT to strengthen their cooperation to support the best European entrepreneurs. In response to the Russian war of aggression against Ukraine, the Commission set aside EUR 20 million to support Ukrainian start-ups through a targeted amendment to the 2022 EIC work programme.

G. European Innovation Agenda

The 2022 New European Innovation Agenda aims to position Europe at the forefront of the new wave of deep-tech innovation, which requires breakthrough R&D combined with substantial capital investment in order to address pressing societal challenges. The Agenda proposes 25 specific actions in five flagship areas: 1) funding scale-ups; 2) enabling innovation through experimentation spaces and public procurement; 3) accelerating and strengthening innovation in European innovation ecosystems across the EU and addressing the innovation divide; 4) fostering, attracting and retaining deep-tech talents; and 5) improving policymaking tools. In order to continuously develop the strategic aspects of the European Innovation Agenda, the European Sounding Board on Innovation was created as a platform for advice and for discussions of emerging issues with high-level representatives from European academia and industry.

The Commission’s 2022 edition of the Science, Research and Innovation Performance (SRIP) report also focuses on the EU’s innovation performance in a global context and suggests measures to address issues such as the difficulty of attracting and retaining talent.

H. H. Net-Zero Industry Act

Innovation is a vital part of the new initiative to strengthen the manufacturing ecosystem of Europe’s net-zero technology products – the Net-Zero Industry Act (NZIA) 2.4.1. It covers 19 net-zero technologies, creating more favourable conditions for investments in new projects in order to reduce the EU’s reliance on highly concentrated imports. Among other measures, the NZIA supports innovation through the creation of net-zero regulatory sandboxes, the coordination of research and innovation activities through the Strategic Energy Technologies Plan Steering Group, and the use of pre-commercial procurement and public procurement of innovative solutions.

Role of the European Parliament

Parliament has adopted a number of resolutions to bolster the EU’s innovation policy, including the following:

For more information on this topic, please see the Committee on Industry, Research and Energy (ITRE) website.

 

Kristi Polluveer