The European Commission has unveiled a US $6bn package of Innovation Fund calls designed to accelerate the shift toward low-carbon industry, allocating US $3.36bn for scaling up net-zero manufacturing technologies, US $1.51bn for the third European Hydrogen Bank auction and US $1.16bn for a pilot auction focused on industrial process heat.
Announced and financed through EU Emissions Trading System revenues alongside contributions from Germany and Spain, the initiative blends grants with fixed-premium auctions to narrow the cost gap between fossil-based industrial systems and electrified or hydrogen-driven alternatives. Its broader aim is to push large-scale deployment, consolidate manufacturing capacity within Europe and provide predictable revenue streams that can support early-stage projects while testing instruments that could be replicated globally.
Although the package constitutes a major pooled subsidy competitively awarded and weighted toward emissions cuts, cost efficiency and potential for replication, it also signals a deeper intent to convert climate policy into a reliable procurement signal capable of influencing investment decisions for energy-intensive sectors such as steel, cement and chemicals.
The Net-Zero Technologies call focuses on scaling manufacturing for equipment like batteries, electrolyzers and heat pumps, while the hydrogen auction offers ten-year premium contracts for verified renewable or low-carbon hydrogen. The industrial heat auction, a new feature, effectively treats heat as an abatement commodity by rewarding projects that deliver CO₂ reductions at the lowest cost. For African policymakers and industrial actors, the announcement serves both as a caution and an opening.
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Industrialization and urbanization
Africa contributes less than 3% of global energy-related CO₂ emissions and uses only about 6% of global energy, yet demand is rising with industrialization and urbanization. Emissions remain concentrated in a few countries South Africa alone accounted for roughly 28% of the continent’s total in 2023, with Egypt, Algeria and Nigeria following reflecting how availability of heat, electricity and feedstocks ultimately determines whether new factories rely on fossil-fired systems or adopt low-carbon technologies.
Europe’s new incentives intensify competition for industrial capital at a moment when investors prefer markets offering predictable revenues, long-term offtake arrangements, streamlined permitting and clear regulations conditions the Innovation Fund is explicitly designed to deliver. This dynamic is already visible in shifts in cement and fertilizer production toward North African markets where regulatory environments and energy pricing better support export-oriented growth; Egypt’s rise in cement and fertilizer exports between 2019 and 2024 illustrates how energy-intensive manufacturing can migrate to jurisdictions with lower operating costs, though it raises questions around emissions reporting and transparency.
Africa’s hurdles, however, extend beyond capital flows: they hinge on the economics of industrial heat, the readiness of power systems and the availability of affordable equipment. Globally, heat represents nearly half of final energy consumption and close to 38% of energy-related CO₂ emissions, and much of it requires temperatures that are still most cheaply produced with fossil fuels. For African economies, where per-capita modern energy use remains among the lowest in the world, any credible decarbonization path begins with addressing infrastructure gaps scaling reliable electricity, strengthening transmission systems and deploying renewables capable of serving both power and heat demand.
The Innovation Fund’s decision to trial output-based incentives for industrial heat therefore offers a useful model for African governments and development financiers. In practice, Africa faces two practical avenues: advancing cleaner industrialization for domestic markets by retrofitting existing facilities with electric or hybrid heat systems, or positioning select countries as exporters of green commodities such as hydrogen and ammonia by leveraging abundant renewable resource solar in the Sahel, wind in the Horn and the Maghreb, and coastal renewables elsewhere.
The European Hydrogen Bank’s approach to guaranteed offtake could help derisk early African hydrogen projects, which often face higher financing costs and perceived risks. Translating this potential into real project pipelines will require blended finance grant funding, political-risk and currency guarantees, and commercial lending with longer maturities as well as procurement models that aggregate demand and enable regional scale.
Multilateral and national development finance institutions will need to create instruments that reduce capital costs while preserving fiscal stability, combining concessional loans with output-based incentives, engineering and procurement support, and standardized measurement frameworks that allow small and medium-scale projects to become bankable.
The Innovation Fund’s emphasis on replicability and SME participation offers a useful lesson for designing such schemes. For African business leaders, donors and finance ministries, Europe’s move demonstrates how climate policy now shapes competitiveness: industrial planning can no longer be separated from strategies for low-carbon heat and clean feedstocks. Governments should therefore map industrial clusters, quantify heat and power needs across temperature ranges and identify early opportunities for electrification or renewable-heat retrofits.
Closely tracking the Innovation Fund’s winners and contract terms will be essential not as passive observers but as active learners seeking to adapt a playbook that could determine future jobs, trade balances and the long-term competitiveness of Africa’s emerging manufacturing base.