Research and Innovation in Europe

POSITION | EUROPE | RESEARCH AND INNOVATION POLICY

Research and Innovation in Europe Key requirements for the EU legislative period of 2019-2024

January 20th, 2020

23 October 2017

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Research and innovation are key factors for economic growth, prosperity and jobs. They are key to the future viability of both Germany and Europe. Consequently, research and innovation must be an essential and integral part of a European industrial strategy 2030.

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The EU's competitiveness also crucially depends on how to improve the innovation ecosystem and bring innovative solutions from the laboratory to the market.

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The European Commission and the European Parliament urgently need to prioritise research and innovation on their policy agenda for the 2019-2024 parliamentary term, ensuring that Europe continues to play a leading role internationally, offering solutions to global societal challenges.

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This paper identifies key requirements, offering practical proposals for improving European research and innovation policy covering three fields of action, i.e. public investment, innovation-friendly regulatory environment and cooperation from the perspective of German industry.

Christian Rudelt | Digitalisation and Innovation | T: +49 30 2028-1572 | c.rudelt@bdi.eu | www.bdi.eu

Research and Innovation in Europe

Table of contents 1.

The importance of research and innovation for the European economy and society ...... 3

2.

Assessment of EU research and innovation policy to date ................................................. 3

2.1

The EU Framework Programmes for Research and Innovation ................................................ 4

2.2

Innovation and regulation ........................................................................................................... 5

2.3

Cooperation ................................................................................................................................ 5

3.

Key requirements ..................................................................................................................... 6

3.1

More and better public investment ............................................................................................. 6

3.2

Creating an innovation-friendly regulatory environment ............................................................. 9

3.3

Strengthening cooperations ..................................................................................................... 10

Imprint ................................................................................................................................................ 12

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1. The importance of research and innovation for the European economy and society The EU is the world’s second largest economy. It represents 20 percent of all global investment in research and development. Europe accounts for one third of all excellent scientific publications worldwide. In addition, Europe currently has a leading international position in highly innovative industrial sectors such as pharmaceuticals, chemicals, mechanical and electrical engineering, and aerospace – for now.1 Despite these promising figures, the EU is falling behind in several areas. The three percent target for investment in research and innovation (R&I) as a percentage of GDP will not be met for the EU as a whole. There are currently only 26 'unicorns‘ in the EU, compared to 109 in the US and 59 in China, while there are fewer and fewer young innovators. 2 Private business investment in R&I in the EU has increased steadily, but much too slowly. As of today, only 1.3 per cent of the EU’s GDP are invested in European R&I as private investments, compared to 1.6 per cent in China, 2.0 per cent in the USA and even 3.3 per cent in South Korea.3 Research and innovation are fundamental levers for increasing Europe's economic strength and competitiveness. R&I contribute to increasing the market shares of companies, creating new, skilled jobs.

Only research and innovation can create new markets and business models that help to maintain and further develop Europe's prosperity for future generations. The social relevance of R&I is equally important. Without R&I, there would be no (technological) solutions to the societal challenges of today and tomorrow - be they climate change, cybercrime, secure energy supply and energy system transformation, or health and nutrition in a growing and ageing society. Research and innovation are firmly embedded in the daily lives of many people, contributing to improving the Europeans‘ quality of life.

German and European industry are convinced that both research and innovation are keys to the future viability of Germany and Europe. The new EU Commission and the new EU Parliament must urgently prioritise research and innovation in their political agenda for the new legislative period, so that Europe can continue to play a leading role in the world and offer solutions to global social challenges. This is particularly true considering the massive investment in science and technology in key competitor countries such as China, Japan and Singapore. 4

2. Assessment of EU research and innovation policy to date The European Union has always been highly involved with research policy. In 1984, the multiannual EU framework programmes for research were established. These have always made - and still do - an important contribution to both the promotion of science in Europe and the creation of the European Research Area. With the eighth EU Framework Programme for Research and Innovation Horizon 2020, European research and innovation policy was for the first time bundled into one framework programme in order to be able to map the entire innovation chain from basic research to application. Horizon 2020 currently is the largest publicly funded research and innovation programme in the world.

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EU Commission: "Science, Research and Innovation Performance of the EU 2018", p. 10.

Unicorns are young companies (usually start-ups), less than ten years old, with a market capitalisation of over one billion euros.

EU Commission: "Science, Research and Innovation Performance of the EU 2018", p. 10.

EU Commission: "Science, Research and Innovation Performance of the EU 2018", p. 10.

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The Framework Programmes have evolved continuously during their respective periods of operation.

They provide numerous programmes and instruments to promote innovation in Europe. These instruments make an essential contribution to the European innovation ecosystem. With the expertise of its European Research and Innovation Policy (EFIP) working group and in close collaboration with BUSINESSEUROPE, the BDI has contributed to the Horizon 2020 negotiations and the successor programme Horizon Europe (HEU), which is currently still being negotiated.5 The Framework Programmes certainly are central instruments of European research and innovation policy, but they are not the only ones. The following section will tie a brief survey of the issues framework programmes/public funding, regulatory environment and cooperation to concrete suggestions for improvement.

2.1

The EU Framework Programmes for Research and Innovation

The EU Framework Programmes for Research have been in action since 1984; the current framework programme Horizon 2020 introducing a clear focus on innovation. There are many reasons for German and European companies to apply for the programmes and the funding opportunities in Brussels. In addition to the financial aspects of the latter, these are mainly the opportunities for EU-wide networking, excellence and cooperation. In EU-funded projects, international teams from scientific institutions, international and small and medium-sized enterprises (SMEs) and start-ups are working together interdisciplinary. Companies involved can scout for technology and learn from their partner companies‘ status of technological development. The principle of excellence ensures that only the best projects are awarded the contract, thus guaranteeing high quality projects. Science has benefited massively from EU funding under the Framework Programmes. The European Research Council is now recognised worldwide for its scientific excellence.

Despite a fundamentally positive assessment, there is still room for improvement, particularly in the following areas:

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Too little basic funding: Horizon 2020 takes up 6.71 percent of the total EU budget. The budget share for HEU of 100 billion euros for the period 2021-2027 proposed by the Commission would only amount to 7.63 percent of the total EU budget. This clearly fails the rapidly growing importance of research and innovation for Europe.

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Stagnating corporate participation: The participation of industry in the Framework Programmes for Research and Innovation has recently even fallen slightly to currently just under 30 percent of the participants in total. Reasons for this are manifold. One problem, for example, is the high oversubscription of the programmes, i.e. low rates of successful applications for project funding. Depending on the instrument, these are between 3.5 and 14 percent. Moreover, submitting an application still involves a relatively high administrative burden. This discourages many companies, especially SMEs, from participating in the Framework Programmes. Since only companies can convert research results into innovations and new products on the market, stagnating or, in the worst case, declining company participation means that essential innovation goals of the EU Framework Programmes are not achieved.

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Insufficient venture capital (VC): The market for venture capital in Europe, at around EUR 6.5 billion, is only one sixth of the volume of the US market (around EUR 39.4 billion). As a

Cf. BDI position paper "German industry's experiences two years after the launch of Horizon 2020", available at: https://bdi.eu/media/themenfelder/innovation/publikationen/2160321_Positionspapier_Programmstart-Horizont2020_DE.pdf and BDI position paper "German industry's recommendations on FP9", available at: https://e.issuu.com/embed.html#2902526/61864764.

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result, fast-growing start-ups and companies in Europe are lacking urgently needed capital, especially in the later scaling or growth phase.6 Moreover, venture capitalists often have special expertise in growth processes which they could pass on to young companies. The planned European Innovation Council (EIC) within the framework of Horizon Europe is a step towards the right direction, but is not yet sufficient as an instrument for promoting highly innovative European start-ups.

2.2

Innovation and regulation

The EU is equipped with one of the most advanced regulatory architectures in the world. One of the greatest success stories most certainly being the single market. At the same time, the complexity and the sometimes high demands of this regulatory landscape entail the risk of impairing the innovative ability of companies. One of the aims of the EU's better regulation agenda is to ensure the highest possible quality standards when drafting European legislation. This includes the development of EU legislation to promote innovation and new technologies. In tangible terms, the innovation principle was introduced in the form of the so-called Tool No. 21 as an instrument for better regulation in the EU. 7 Tool No. 21 provides guidelines for assessing the impact of proposed EU legislation on innovative capacity. A disadvantage being, however, that this tool is not applied on a mandatory basis, instead generally only being used for legislative proposals with an innovation dimension.

However, the general aim of the innovation principle should be that the Commission, when drafting any new legislation, should take into account both the risks and the opportunities of regulation for innovation during the regulatory impact assessment. The innovation principle or tool No. 21 would have to be applied to all legislative proposals during the impact assessment in order to be fully effective.

2.3

Cooperation

The EU Research Framework Programmes have indeed managed to create unique opportunities for cooperation between European and international partners, while at the same time funding interdisciplinary projects involving companies, non-university research institutions, universities, polytechnics and the public sector.

About 75 percent of the Horizon 2020 budget have been used for instruments supporting collaborative R&I projects that bring together various organisations from science and business from different countries. For example, Horizon 2020 has so far supported 2,355 projects involving cooperation between the higher education sector and private companies.8 However, functioning partnerships of this kind are not generally supported; funding is limited to individual projects and must be applied for again and again. Therefore, more intensive and long-term cooperation is currently being implemented in innovation clusters outside the EU Framework Programmes.

This is where support from coordinated EU funding (for example through technology funds), or fundamentally from a coherent EU strategy, is lacking. The same applies to technology infrastructures (e.g.

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EU Commission: „Assessing the potential for EU investment in venture capital and other risk capital“, access: https://ec.europa.eu/programmes/horizon2020/en/news/assessing-potential-eu-investment-venture-capital-and-other-risk-capital-fundfunds For more information on Tool No.21 see https://ec.europa.eu/info/sites/info/files/file_import/better-regulation-toolbox21_en_0.pdf EU Commission: „Interim evaluation of Horizon 2020“, S. 97, access: https://publications.europa.eu/en/publication-detail//publication/fad8c173-7e42-11e7-b5c6-01aa75ed71a1/language-en/format-PDF/source-77918455

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clean rooms for chip production), which have only recently come back into the Commission's focus and will be increasingly promoted in the future.9

3. Key requirements Europe's ability to improve the existing innovation ecosystem and bring innovative solutions from the laboratory to the market will be crucial to ensure the EU's competitiveness.

European and especially German companies are at the forefront of the global innovation competition.

Research and innovation must therefore be at the heart of a modern EU industrial policy that enables companies to be in the front ranks for key technologies and to provide solutions to key societal challenges.

This chapter sets out key demands for the next EU policy cycle for 2019-2024 in three areas of action, closely linked to research and innovation. Recommendations on related policy areas, such as digitisation and health economics, are contained in other BDI papers.

3.1

More and better public investment

Promoting level of funding and focus!

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A budget of at least 120 billion euros must be made available for the forthcoming EU framework programme Horizon Europe to make the European R&I ecosystem globally competitive. This public financial incentive is the key and, moreover, an important political signal to free up private resources for R&I investment, to address societal challenges and to reduce the gap between R&I expenditure in Europe and that of other regions in the world.

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At least 60 percent of the Horizon Europe budget must be allocated to Pillar II "Global challenges and European industrial competitiveness". Programme Pillar II is designed to facilitate ambitious joint R&I projects in key industrial sectors and to bring technologies to industrial maturity.

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Key Enabling Technologies10 (KETs) must be adequately funded and supported by a specific programme. The EU must increase public investment in R&D-intensive sectors and allocate at least eight percent of Horizon Europe's budget to projects related to key technologies. In addition, missions within the framework of Horizon Europe should also focus stronger on this.

Subsidy administration ▪

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For many years, complaints from project applicants about the cost and complexity of applying for European R&I funding have been addressed only by gradual adjustments. The current time passing between the application to the actual conclusion of the contract as well as the statistically poor chances of a successful application are in stark contrast to ever faster innovation

For technology infrastructures see EU Commission: "Staff Working Document Technology Infrastructures",access: https://publications.europa.eu/en/publication-detail/-/publication/0df85f8b-7b72-11e9-9f05-01aa75ed71a1 Key Technologies have been proposed by the EU High Level Expert Group on Industrial Technologies as being the following: Advanced manufacturing technologies, advanced materials and nanotechnologies, life sciences (including biotechnology), micro- and nanoelectronics and photonics, artificial intelligence, cybersecurity and connectivity, in: EU Commission: "Refinding Industry. Defining innovation", p. 10, access: https://ec.europa.eu/research/industrial_technologies/pdf/re_finding_industry_022018.pdf

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cycles and the necessity to be flexible. It is time to try out new ways of allocating funds, starting with the ambitious goal of going from application to approval in less than 50 days. New methods such as remote evaluation procedures should be used for the evaluation of all calls for proposals. In addition, more use should be made of digital technologies to speed up decisionmaking - always ensuring, of course, that public funds are used properly. A transparent and correct selection process of the best project proposals is and remains essential.

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EU funding programmes (including, i.a., Innovation Fund, Cohesion Fund, InvestEU) should give preference to project applications that either directly or indirectly support research & innovation in the EU. For example, a new infrastructure with new, innovative elements is preferable to a standard infrastructure based on established technologies, meaning a new laboratory or test bed for industry 4.0 technologies should be preferred to conventional infrastructures.

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European regions should be allowed to apply for funding from different EU funding programmes simultaneously. Individual regions should be encouraged to develop regional development plans in which they set out their respective development priorities and R&I strategy.

On this basis, it should be possible for them to apply for Horizon Europe as well as for infrastructure funding, ETS innovation funding and other programmes to support their plans. Such orchestrated funding applications, which are simultaneously directed at different funding programmes, should be preferred to single funding applications, provided that they are based on a sound regional strategy and are in line with the principle of excellence of European R&I funding.

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Set up an interdepartmental task force within the European Commission to ensure synergies between the different EU funds related to R&I.

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Maintain the principle of excellence (both scientific and innovative aspects) in all EU research programmes to promote technology, research and innovation in the EU. All attempts to undermine or dilute this principle should be stopped. The EU R&I Framework Programmes aim to ensure Europe's global competitiveness. This will benefit the whole innovation ecosystem of the EU. It requires excellence and high quality. Rather than challenging the established criteria for excellence in Horizon Europe, synergies should be promoted with the help of the Cohesion Funds to reduce geographical, economic, scientific and social disparities in Europe.

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Focus of Horizon Europe on initiatives and projects with European added value. In the interests of efficient and targeted use of funds, EU research funding must be reserved for initiatives that cannot be implemented at a national level and that require European cooperation due to project size and/or complexity.

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Avoidance of distortion of competition. The increased innovation and market orientation of European funding programmes entails the risk of favouring individual companies or groups of actors. It must therefore generally be ensured that larger projects close to the market - such as pilot lines - will not lead to competitive disadvantages for other market participants.

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Missions â–Ş

As a new instrument, missions should be designed so they both finance and promote groundbreaking innovations beyond Horizon Europe, thus contributing significantly to their implementation. Missions are designed to enhance public support for European R&I policies by focusing on concrete objectives and a strong relevance to the general public. At present, too few projects - even disruptive ones - are financed by EU programmes, despite the fact that they can bring a potentially significant technological breakthrough. For this reason, some Member States are creating measures in the form of high-risk support programmes modelled on the US DARPA agency. One example in Germany is the establishment of the Agency for Springboard Innovations (SPRinD), which is intended to promote disruptive technologies.

This experience should be used in shaping the future EU research and innovation landscape.

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3.2

Creating an innovation-friendly regulatory environment

Innovation-focused regulatory practices ▪

The regulatory environment should be provided with a positive narrative for new and disruptive technologies and innovations. The regulation of future technologies always reflects the position of the public and of society. A new technology, which often actually involves major risks, will usually be subject to overly strict regulations, even if the potential benefits significantly exceed the risks. One example being artificial intelligence (AI): AI and other technologies are crucial for Europe's future prosperity and competitiveness. The EU should therefore strive for technological leadership in AI and be able to honestly assess its opportunities and potential, including risks. In addition, appropriate measures should be taken to avoid too strong focus on risks and to pave the way for innovation-friendly regulation.

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Fully implement the innovation principle throughout the policy cycle, from regulatory impact assessment to implementation. An important step in this direction would be the mandatory use of the Tool No. 21 innovation guide in the framework of regulatory impact assessment process for all future EU legislation. The EU should also provide guidance on the relationship between the innovation and precautionary principles, as these are all too often interpreted as contradictory rather than complementary.

Real laboratories for R&I ▪

Support for national real-world laboratories. Real-world laboratories are demarcated virtual or physical spaces in which innovators can test their products and technologies under relaxed legal conditions or regulations. While some Member States have introduced real-world laboratories, these only exist under national law and cannot be extended into the EU legal area.

This major shortcoming must be remedied. The Member States, in cooperation with the European authorities, must be able to temporarily suspend the restrictions in national legislation in order to draw conclusions on how regulation can be developed in a way that promotes technology. This would also improve the exchange of best practices between Member States and the EU. In principle, however, national derogations must not lead to fragmentation of the internal market and distortions of competition. It is therefore necessary to establish consistent European criteria and approval procedures for national real-world laboratories.

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Introduction of real-world laboratories at EU level. A European regulatory framework for real-world laboratories should cover the areas governed by European law, covering all European agencies and regulators, to ensure a harmonised pan-European approach to real-world laboratories. As both companies and institutions need to be familiarised with this new approach, EU real-world laboratory regulation should be supported by an extensive communication campaign. In addition, the Commission should implement pilot applications for enterprises.

European partnerships and business associations should be involved in the identification of suitable fields of experimentation, for example in the fields of AI, biotechnology and energy research. Ideally, the Commission will set both a numerical and a calendrical target to establish real-world laboratories on the market.

Stakeholder involvement ▪

The EU needs to proactively engage with regulatory stakeholders. The overall laudable EU agenda for better regulation and the so-called "innovation deals" have so far had too little impact on Europe's innovation capacity in general, as they have focused only on specific

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issues. This is regrettable, particularly considering the fact that knowledge already acquired about regulatory barriers to innovation has not been sufficiently analysed and removed. Further efforts to promote a stronger commitment of the EU Commission towards stakeholders in the field of regulation are therefore necessary. One approach could be, for example, to address business associations directly, to organise conferences on different regulatory areas or to involve a group of business representatives on regulatory issues. The aim must be to enable the European Commission to quickly gain a comprehensive overview of those cases in which regulation stands in the way of innovation and new technologies in order to work out appropriate solutions.

R&I-specific regulation ▪

Handle Open Access rules sensibly. The rules for OA must not jeopardise legitimate interests, such as commercial exploitation, data protection rules, privacy, confidentiality, competition interests of the Union, security rules or intellectual property rights, as well as restrictions on the confidentiality of all participants in a EU-funded R&I project. The principle "as open as possible, as close as necessary" should be the core principle for the implementation of the Open Science policy. In particular, company applicants for Horizon Europe funding who, for competitive reasons, prefer to withdraw from Open Access obligations in the HEU project should not be disadvantaged during the evaluation.

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Further promote and strengthen the protection of intellectual property. The conditions and modalities for access and exploitation rights to intellectual property or project results generated within a HEU project should not be further extended during the duration of HEU. Access to a project‘s general information is not affected.

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Strengthening cooperations

European partnerships ▪

Strengthen partnerships within the HEU framework. Budgets for partnerships and calls for collaborative research must be designed according to their technological content, their objectives and their expected impact. Capping the budget for partnerships must be avoided at cluster level. After all, achieving critical mass is one of the key criteria for the success of partnerships. In addition, companies participating in a partnership must generally be able to choose between "in-kind" contributions and financial contributions to the partnership.

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Partnerships must be designed in a way making them attractive to companies. It would be useful for the EU Commission to exchange views on future needs and challenges for more relevant public-private partnerships and sector-specific R&I activities at an early stage, i.e. before partnerships are concluded, in the form of a structured dialogue with industry. Partners and stakeholders of cooperation should continue to be involved in decision-making throughout the life cycle of those partnerships, since they are committed right from the outset to achieving common long-term goals. In addition, stakeholders from other relevant sectors should be involved in the planning of a partnership from the beginning and throughout the process. This creates synergies, improves the success of the partnership and promotes cooperation and stakeholder engagement.

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A coherent strategy for innovation clusters, i.e. developing R&I networks with universities, scientific institutes and industry. Based on a comprehensive assessment of existing clusters, this strategy should encourage the creation and specialisation of further innovation clusters.

Research and technology infrastructures ▪

Develop a European approach and a common vision for technology infrastructures to support industrial scale-up and technology diffusion. With the exception of the already existing "Digital Innovation Hubs", there currently is no offer for companies, SMEs, start-ups, mid-caps, nor for large companies, to gain access to services and facilities of technological infrastructures - for example clean rooms of the Helmholtz Centres. Based on the recently published Commission working document on this subject,11 the EU should create a framework for quick and easy access to such infrastructure. This promotes networking and reduces the need for companies to invest in technical infrastructure.

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Carry out a comprehensive gap analysis of the state of deployment of technological infrastructure in the EU. The aim is to identify which infrastructures need to be modernised or extended to meet industrial requirements. It is important to identify the role these technological infrastructures can play in strategic and global value chains. It should also assess the need to develop an EFSI-like roadmap for the creation of state-of-the-art European technology infrastructures.

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Ensure access for international industry to leading research infrastructures in Europe.

For example, this could be the Helmholtz Association’s German Electron-Synchrotron DESY in Hamburg. This issue may well be essential for attracting investment in research and innovation to Europe.

see EU Commission: "Staff Working Document Technology Infrastructures", available at: https://publications.europa.eu/en/publication-detail/-/publication/0df85f8b-7b72-11e9-9f05-01aa75ed71a1

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Imprint Federation of German Industries (BDI) Breite StraĂ&#x;e 29, 10178 Berlin www.bdi.eu T: +49 30 2028-0 Editorial Office Christian Rudelt Senior Manager Digitalisation and Innovation T: +49 30 2028-1572 C.Rudelt@bdi.eu Document number: D 1123

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