RECOMMENDATIONS FROM THE PROJECT ON FINANCING ECO-INNOVATION Morten Larsen, Oxford Research, Brussels 30 November 2010 Oxford Research A/S Falkoner Allé 20, 4. sal 2000 Frederiksberg C Danmark Oxford Research AB Norrlandsgatan Stockholm Sverige Oxford Research AS Kjøita Kristiansand Norge

Todays agenda Agenda 1.Overall policy considerations and conclusions 2.Existing instruments 3.How to attract more financing to eco-innovation Financing eco-innovation Work in progress

Financing eco-innovation Overall policy considerations:  Framework for eco-innovation finance: a mix of micro policy and macro policy  Policy stability important  Investment rationale of financial actors is the same as for investments in other innovative sectors (look for same rate of return)  Double externality challenge  Some eco-innovative SMEs have high risk profile HOW TO IMPROVE ACCESS TO FINANCE - ON REASONABLE TERMS FOR BOTH PUBLIC AND PRIVATE PROVIDERS OF FINANCE?

Financing eco-innovation Overall policy considerations and conclusions:  Market maturity differs between sub- sectors  Energy is in some respects different from other types of eco-innovation  Venture capital flows mainly to energy related investments (generation + efficiency) HOW TO IMPROVE ACCESS TO FINANCE - ON REASONABLE TERMS FOR BOTH PUBLIC AND PRIVATE PROVIDERS OF FINANCE?

Financing eco-innovation  Many eco-innovative SMEs are not VC fundable  Early stage: Debt financing is also important – used by almost half of the early stage SMEs in our survey  SMEs and VCs perceive banks to be insufficiently engaged in eco-innovation (non-energy)  Small-scale financing is requested by eco- innovative SMEs (less than €300,000) Overall policy considerations and conclusions:

Financing eco-innovation A DIVERSE SET OF EU INSTRUMENTS AND PROGRAMMES FOR FINANCING (ECO-) INNOVATION ALREADY EXISTS: GRANTS EIP Market Replication and First Application Projects  Private-sector focused  Support market uptake of first commercial deployment and market demonstration LIFE+ - Action Grants  Support public-sector development and implementation of new legislation, policies, programmes and strategies  Public-sector focused  Awareness raising

Financing eco-innovation A DIVERSE SET OF EU INSTRUMENTS AND PROGRAMMES FOR FINANCING (ECO-) INNOVATION ALREADY EXISTS: Financial instruments CIP - €1.1 billion for 2007 to 2013  High Growth and Innovative SME Facility (GIF) - EIF co-invests in VC Funds to increase risk capital for innovative SMEs – early stages (GIF1) and expansion phase (GIF2)  SME Guarantee (SMEG) Facility - Loan guarantees – in one instance focused on eco-innovation - Micro-Credit Guarantees - Equity Guarantees - Securitisation Risk sharing finance facility - Debt-financing instrument under FP7 (loans and/or guarantees) - Provide additional loan finance for R&D, Demonstration and Innovation - E.g. for renewable energy and energy efficiency projects

Financing eco-innovation HOW TO ATTRACT MORE FINANCIAL ACTORS AND FINANCING TO ECO-INNOVATION? General policy stability and focus is an important issue but there are also unique conditions for eco- innovative SMEs that should be addressed. Market failure – knowledge gap Public R&D funding Private financing for commercialisation and scaling up Knowledge of new solutions and regulation needed to make informed investment decisions Knowledge of new solutions and regulation More knowledge => perceived risk reduced Work in progress Calls for further investigation of flexible risk sharing instruments, including: Small scale financing Debt financing Business Angel co-financing Links between instruments

THANK YOU Morten Larsen, Oxford Research, Brussels 30 November 2010 Oxford Research A/S Falkoner Allé 20, 4. sal 2000 Frederiksberg C Danmark Oxford Research AB Norrlandsgatan Stockholm Sverige Oxford Research AS Kjøita Kristiansand Norge