high-level expert group on key enabling technologies -final report

7/31/2019 High-Level Expert Group on Key Enabling Technologies -Final Report

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KeyEnbling

TecnologiesFinl ReortJ u n e 2 0 1 1

H I G H - L E V E L E X P E R T G R O U P O N

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Table of conTenTs

EXECUTIVE SUMMARY

InTRodUCTIon

ChapTER 1. KETS ARE STRATEgIC To AddRESSCoMpETITIVEnESS And gRAnd SoCIETAl ChAllEngES

1.1 Mai caracteristics KETs

1.2 KETs ueri te cmetitiveess Eurea ecmy a its caaiity

t res t ra caees

ChapTER 2. globAl KETS pERSpECTIVE

2.1 A icreasiy cmetitive evirmet

2.2 Eure is resiiet

ChapTER 3. An InTEgRATEd AppRoACh To KETS oR UTURECoMpETITIVEnESS: ThE ThREE pIllAR bRIdgE ModEl TopASS ACRoSS ThE VAllEY o dEATh

3.1 Eurea KETs eakess: te "Vaey deat"3.2 Te tree iar rie me

ChapTER 4. RECoMMEndATIonS

4.1. A sie KETs ae a a uyee ivati icy at EU eve

4.2. A cmreesive strateic arac t a KETs icy at EU eve

4.3. Cmie aci t rmte RdI ivestmets i KETs

4.4. gay cmetitive Ip picy

4.5. Eucati a skis

4.6. u

AppEndICES

3

p. 9

p. 17

p. 23

p. 29

p. 41

p. 6

p. 4


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EXECUTIVE SUMMARY

STRATEGIC IMPORTANCE OF KEY ENABLING TECHNOLOGIES FOR EUROPE

The Europe 2020 strategy clearly signalled the importance o industrial competitiveness or growthand jobs as well as or Europes ability to address grand societal challenges in the coming years.Mastering and deploying Key Enabling Technologies (KETs) in the European Union is central tostrengthening Europes capacity or industrial innovation and the development o new productsand services needed to deliver smart, sustainable and inclusive European growth.

A GROWING GLOBAL COMPETITIVE ENVIRONMENT

In the KETs domain, the EU is now acing growing and overwhelming global competition romboth developed and emerging economies in particular in North America and East Asia. Althoughthe EU remains resilient, in a position o relative strength, it must now reinorce and rapidlydevelop its KETs industry to compete or the uture. The KETs High-Level Expert Group (HLG)

thereore strongly believes that the EU and its policy makers should urgently engage in a radicalrebalancing o resources and objectives in order to retain critical capability and capacity in thesedomains o vital European importance.

A THREE PILLAR BRIDGE TO CROSS THE KETS "VALLEY OF DEATH":

The HLG has identied the major diculties Europe has in translating its ideas into marketableproducts in crossing the internationally recognised "valley o death". To cross this valley, itrecommends a strategy comprising three pillars:

- A pillar ocused on technological research- A product demonstration pillar ocused on product development- A production pillar ocused on world-class, advanced manuacturing.

By ocusing on these key stages o the innovation chain, the HLG proposals can trigger a virtuouscycle, rom knowledge generation to market ow with eedback rom the market to knowledgegeneration support, thereby strengthening economic development in Europe.

Based on the three pillar bridge model, the HLG has made a series o specic policyrecommendations or a more efective industrial development and deployment o KETs.

POLICY RECOMMENDATIONS FOR THE DEVELOPMENT AND DEPLOYMENT OF KETS IN EUROPE

Firstly, the HLG recommends a single KETs label and ully-edged KETs innovation policy, toexploit their cross-ertilising impact and their pervasive enabling nature. The HLG considers thatthe success o such a policy requires KETs to be positioned as a technological priority or Europe

and or this to be demonstrably translated into the EU's main political and nancial instrumentsin the next nancial perspective 2014-2020.

In particular this priority must be reected in the upcoming Horizon 2020 (Common StrategicFramework or Research and Innovation Financing - CSF), the instruments related to the EU'sRegional Policy and the policies o the European Investment Bank group. In this regard, the EUshould recognise the need or the ull and simultaneous implementation o the three pillar bridge

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model along the innovation chain, rom basic research, through technological research, product development and

prototyping up to globally competitive manuacturing. This notably requires the application o appropriate R&Ddenition aligned on the industrially-recognised Technology Readiness Level (TRL) scale in accordance with OECDpractice and a radical rebalancing o RDI unding in KETs-related programmes towards innovation activities in theuture Horizon 2020 (CSF).

In addition, the HLG agreed on the need or a comprehensive strategic approach to a KETs policy at EU level to beimplemented. The EU KETs policy should be orward-looking and driven in a long-term perspective since it concernsthe innovation capabilities o EU industries in the next decade and beyond. Such a policy needs a ull strategyinvolving all stakeholders - private and public - at European, national and regional level, and must encompass allrelevant policy instruments. In particular, the HLG calls or the selection criteria and implementation rules in the CSFprogramme to be adapted to maximise its impact on the value and innovation chains.

Given the high costs o many KETs RDI projects, the HLG recommends a tripartite approach to nancing whererequired, based on combined unding mechanisms to promote RDI investments in KETs involving industry, the EUand the Member States (at national and local level). It also calls or mechanisms to allow the combination o diferenttypes o EU unding to enable the optimum investment in signicant KET pilot line and manuacturing acilitiesacross Europe while respecting state aid rules. In this regard, the HLG calls or state aid provisions to be adapted toacilitate RDI activities and large-scale investment in KETs, in particular through the generalised introduction o amatching clause in the EU state aid ramework, increased thresholds or notications, aster procedures and greateruse o provisions covering projects o common European interest.

The HLG considers that the rules or participation in the CSF should be strengthened in order to generate greatereconomic value in Europe by better protecting the technological knowledge created. Generally, the EU shouldclearly promote a globally competitive Intellectual Property (IP) policy based on in Europe rst principles. Beorethe start o any project, consortium partners should have to demonstrate that they have a clear IP plan or both theownership o and rst exploitation o IP resulting rom the project within the EU.

In the long term, strengthening the technological and industrial base o Europe requires the development o newKETs' skills and competencies in Europe. The exploitation o KETs synergies and crossing the boundaries towards KETstrans-disciplinarity requires competencies that current linear training and education cannot provide. In particular, theHLG recommends that KETs skills should be promoted within the ramework o the regional policy (European SocialFund) and calls or the creation o a European Technology Research Council (ETRC) to promote individual excellencein technologically-ocused engineering research and innovation mirroring the European Research Councils (ERC)promotion o undamental science. To be competitive. Europe needs a world-class cadre o scientists, engineers andtechnologists.

Finally, the HLG has noted through its work an ongoing and urgent need or stakeholders to have relevant inormationon KETs to inorm strategy and decision making. More hard data is needed on KETs to provide EU, national andregional policy makers with inormation to better develop and implement policies inuencing the development anddeployment o KETs. The HLG recommends the establishment a European KETs Observatory, Monitoring Mechanism,tasked with the mission o perorming analyses and a KETs Consultative Body comprising stakeholders across theentire innovation chain to advise and monitor the progress achieved towards the development and deployment oKETs or a competitive industry in Europe.

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In 2009, the European Union (EU) identied KeyEnabling Technologies (KETs) or their potential impactin strengthening Europe's industrial and innovationcapacity1. In particular, KETs2 were recognized asplaying an increasingly vital role in developingthe required industrial and technological baseindispensable or the delivery o smart, sustainableand inclusive European growth.

It was proposed to create a High Level Expert Group(HLG) on KETs3 tasked with the elaboration o acoherent European strategy to develop six KETs -nanotechnology, micro and nanoelectronics,advanced materials, photonics, industrialbiotechnology and advanced manuacturingsystems4- and bring them most efectively to industrialdeployment.

This HLG KETs was launched in Brussels on the 13 th

o July 2010 in the presence o Vice-President andCommissioner or Industry and Enterprise, Mr. Tajani,Vice-President and Commissioner or the DigitalAgenda, Mrs. Kroes, Commissioner or Research andInnovation, Mrs. Geoghegan-Quinn, the HLG President,Mr. Therme5, along with the twenty-seven HLGMembers (see Annex 2) consisting o representativesrom European Member States, relevant Europeanindustry including small and medium enterprises,research technology organisations, academia andthe European Investment Bank. Its remit, detailed inAnnex 1, is to:

- Assess the competitive situation o the relevant

Itructi

__________________

1. Preparing or our uture: Developing a common strategy or key enabling technologies in the EU, Brussels, 30.09.2009, COM(2009) 512 nal.2. European Competitiveness Report 2010, Brussels, 28.10.2010, SEC(2010) 1276 nal, Commission Staf working - document accompanyingthe communication An integrated Industrial Policy or the Globalisation Era PuttingCompetitiveness and Sustainability at Front Stage, Brussels, COM(2010) 6143. Idem.4. Advanced Manuacturing Systems (AMS) comprise production systems and associated services, processes, plants and equipment.5. M. Therme, Director o the Atomic and Renewable Energies Commission (CEA), Grenoble, France.

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technologies in the EU with a particular ocuson industrial deployment and theircontribution to address major societalchallenges;

- Analyse the available public and private R&Dand innovation capacities or KETs in the EU;

- Propose speciic policy recommendations

or more eective industrial developmentand deployment o KETs in the EU.

The HLG KET gathered extra momentum in 2010with the publication o Commission communicationson the Europe 2020 Strategy7 and related FlagshipInitiatives including An Integrated Industrial Policy orthe Globalisation Era8, the Innovation Union9, and theDigital Agenda or Europe10, along with the RegionalPolicy contributing to smart growth in Europe 2020 11 ,with all communications making explicit reerenceto the importance o KETs or Europe. The HLG KETs

contributed signicantly to the inclusion o KETs andshaping o these policies.

By eroding years o economic and social progress inEurope, the current economic crisis has reinorcedthe need to urther pursue and strengthen Europe'scompetitive position in KETs and their deployment, asoutlined in Chapter II. This latter was also conrmedduring a public consultation process involvingEuropean Industry and innovation stakeholdersthrough a series o KET Open Days (see Annex 5) andan Internet Forum. The results o this consultationprocess along with a ocused SWOT analysis o theEuropean KETs base with respect to our internationalcompetitors was presented to the three EuropeanCommissioners in the orm o a working document atthe interim ormal meeting o the HLG KETs memberson the 9th o February 2011. In particular, this reportoutlined the need or a KETs integrated approach orall six KETs, the existence o a Valley o Death orEuropean KETs rom ideas to marketable products, theneed to establish combined unding mechanisms topromote KETs research, development and innovation(RDI) projects, and nally the outline o a three pillarbridge model and strategy, detailed in Chapter III,to reinvigorate Europes competitive position inKETs and underpin uture European competitivemanuacturing.

Following unanimous ormal recognition othe interim conclusions o the HLG and theproposed three pillar bridge model by the aboveCommissioners and the HLG Members, the HLGPresident, Mr. Therme, requested his HLG colleaguesto identiy the bottlenecks at EU level associated with

implementation o this strategy. A series o workshopswere organised on key transversal topics during themonths o March and April 2011 (see Annex 6), alongwith a series o ollow-on meetings with Commissionservices in a wide number o EC services. The policyrecommendations resulting rom both the verticaland transversal analysis perormed by the HLG KETsare detailed in this report in Chapter 4.

The vision o the HLG KET recognises that thosenations and regions mastering KETs will be atthe oreront o uture advanced and sustainable

economies integrating cutting-edge technologiesinto their manuacturing and service industries, andmanaging the shit to a low carbon, knowledge-based economy, and ensuring the welare, prosperityand security o their citizens. It equally recognisesthat the primary responsibility or the globalcompetitiveness o the KETs industry rests with theindividual companies operating in these sectors.Nevertheless, the members o the HLG now look tothe EU parties best positioned to give efect to thegroups recommendations, namely the EuropeanUnion institutions, national and local authorities, toensure that the energy, efort and political supportwhich has been spent on this process is translatedinto demonstrable concrete actions.

__________________

6. EU smart, sustainable and inclusive growth: the European 2020 strategy, Brussels, 3.3.2010 , COM(2010) 20207. An Integrated Industrial Policy or the Globalisation Era, Putting Competitiveness and Sustainability at Centre Stage, Brussels, COM(2010) 6148. Europe 2020 Flagship Initiative, Innovation Union, Brussels, 6.10.2010, COM(2010) 546 nal9. A Digital Agenda or Europe, Brussels, 26.8.2010, COM(2010) 245 nal/210. Regional Policy contributing to smart growth in Europe 2020, Brussels 6.10.2010, COM(2010) 553 nal11. For more inormation on KETs Open Days, consult the HLG KET Website:http://ec.europa.eu/enterprise/sectors/ict/key_technologies/kets_high_level_group_en.htm

HLG KET Board with EC VPs M. Tajani and Ms Kroes

Interim meeting Brussels

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CHAPTER 1:

KeTs aRe sTRaTeGIc

To eURoPe

To aDDRess

coMPeTITIVenessanD GRanD socIeTal

cHallenGes

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Key Enabling Technologies (KETs) are attracting strong interest at both Member State and European

Union level, as they are seen as the route to new products, processes and services capable o generating

economic growth and employment, and contributing to strengthening and / or rejuvenating existing

European sectors. KETs will enable sustainable, smart and inclusive growth in Europe. In addition, KETs'

ollow-through applications will create the substantial jobs, growth and wealth required in our uture

European economies to remain competitive at global level. At the same time, they will make an essential

contribution to the development o products and solutions to address grand societal challenges.

The European Commission selected in its 2009 Communication12 six KETs or Europe, on which the

HLG bases its recommendations. These KETs are nanotechnology, micro-nanoelectronics, advanced

materials, photonics, industrial biotechnology and advanced manuacturing systems. The Commission

based this selection ollowing the screening o the common high-tech areas and strategies at Member

State level. The selection criteria included their economic potential, their value adding and enabling

role as well as their technology and capital intensity regarding R&D and initial investment costs.

1.1 MAIn ChARACTERISTICS o KETS

"KETs are knowledge and capital-intensive technologies associated with high research and development (R&D) intensity,

rapid and integrated innovation cycles, high capital expenditure and highly-skilled employment. Their inuence ispervasive, enabling process, product and service innovation throughout the economy. They are o systemic relevance,multidisciplinary and trans-sectorial, cutting across many technology areas with a trend towards convergence, technologyintegration and the potential to induce structural change13.

In particular KETs have two specic characteristics that separate them rom other enabling technologies: they areembedded at the core o innovative products and they underpin strategic European value chains.

o KETs re embedded t te core o innovtive dvnced roducts

Combinations o KETs are embedded at the core omost advanced products. For example, an electric caris a combination o advanced materials or batteries,

microelectronics components or power electronics,photonics or low consumption lighting, industrialbiotechnologies or low riction tyres and nallyadvanced manuacturing systems to produce electricalvehicles at a competitive cost (see Figure 1). Similarly amobile phone incorporates microelectronic chips orcommunications, photonics enabled camera and optics,advanced materials or new tactile screens, and so orth(see Figure 2). A recent real-time avian u test instrumentincorporated biotech labels, microelectronics chips,laser based photonic detection, and nanotechnologyoptimised suraces or uidic processing (Figure 3).

Mastering o KETs is absolutely required to ensurethat we can produce within Europe, uture innovativeproducts and is thereore a strategic priority to ensure

12. Source: Commission Communication (COM(2009)512): "Preparing or our uture: Developing a common strategy or key enablingtechnologies in the EU".

13. Source: Commission Staf Working Document (SEC(2009)1257): "Current situation o key enabling technologies in Europe". See alsoEuropean Competitiveness Report, Brussels, 28.10.2010, SEC(2010) 1276 nal, Commission Staf working document accom panying thecommunication. An integrated Industrial Policy or the Globalisation Era.

Figure 1: Advanced products are a combination o KETs:

the case o the electric vehicle

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the competitiveness o European industry. It is these KET enabled products that subsequently allow Europe to addressits grand societal challenges such as De-carbonisation o Transport which requires the development o radically newenergy ecient vehicles enabled by advanced KETs capabilities and capacities.

o KETs underin strtegic Euroen vlue cins

KETs are o systemic relevance and eed many diferentvalue chains14 in very heterogeneous ways. This isdemonstrated in Figure 4 or three specic sectorialexamples: automotive, lighting and electronics valuechains. It is observed that a combination o KETsis necessary at all levels o the value chain to thedevelopment and manuacturing o advanced innovativeproducts.

The products based on KETs oten serve as inputso great value added that are integrated into morecomplex systems. It is these subsequent applicationsthat drive major economic growth and competitiveness.One example o this underpinning nature in eeding aull value chain is the photonics ecosystem shown inFigure 515.

14. Value chain: term used to describe the cooperation o the relevant business sectors ( rom raw material to nal product) to ensure de-livery o products and processes. This actually describes the size o the bridge (i.e. the several lanes mentioned) and the speed at which thisbridge can be crossed. An example o a value chain has players such as a materials producer, a photovoltaic assembler and a nal solar paneldevice provider.

15. Solid State Lighting. The most promising MtM opportunity. Pro. G.Q. (Kouchi) Zhang. Del University

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the case o the mobile phone


the case o real-time avian fu monitoring

Figure 5: Example o value chains: micro nanoelectronics and photonics

Figure 4: KETs underpin value chains


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1.2 KETS UndERpIn EURopEAn EConoMY CoMpETITIVEnESS And EURopES

CApAbIlITY To RESpond To gRAnd ChAllEngES

KETs underpin innovation in many strategic sectors and play a key role in making new products and servicesafordable or the population at large. They contribute to the development o disruptive technologies across sectorssuch as energy (e.g. renewable energies, bio-uel, solar energy etc.), transport (e.g. lighter, saer and energy ecienttransport vehicles), manuacturing (e.g. reduced material and process rates, energy saving), chemistry (e.g. green

processing) and environment (e.g. sensors or environmental monitoring), inormation and communication (e.g.chips or nomadic, multimedia convergence and cloud computing), medicine (e.g. gene therapy and genetic testing)and consumer goods (e.g. mobile phones, lighting). They also contribute to the build-out o a more productive,competitive, energy and resource-ecient economy. Products with enhanced eatures have the potential to bearhigh economic value as well as ensure a more comortable, healthy and sae lie or European consumers and workersin a clean environment.

The mastering and deployment o KETs in Europe are expected to provide signicant economic benets, oferinga widening variety o uses in an increasing number o application areas and industries, as well as contributing toenergy and resource eciency, through innovative materials, processes, technologies and applications.

Ecmic imact

The macroeconomic importance o KETs is that they can open up entirely new markets or underpin and enhanceexisting markets through accelerating technological progress with trickle-down efects on productivity andconcurrent leaps in eciency levels. In addition to eeding numerous ull value chains, products based on KETsoten serve as inputs o great value added that are integrated into more complex products. It is these subsequentapplications that drive major economic growth and competitiveness.

The market potential or specic KETs is shown below16.

Table 1: Estimated global market potentials o Key Enabling Technologies

The market size estimation data represent an average across entire market sectors. Within specic KETs, the annualgrowth rate o the industries that they support varies dramatically with very signicant niche opportunities. Forexample, the average annual growth rate o the global photovoltaic industry exceeds 25%. Likewise, products

16. Source: Background study; Conndustria (2009).

27 bn300 bn

125 bn480 bn150 bn200 bn

1282 bn

16%13%

6%8%6%5%

Expected size in 2015(~2012/15)

USD

Expectedcompound annual

growth rateNanotechnologyMicro andnanoelectronicsIndustrial biotechnologyPhotonicsAdvanced MaterialsAdvanced Manuacturingsystems

TOTAL

12 bn250 bn

90 bn230 bn100 bn150 bn

832 bn

Current market size(~2006/08)

USD

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underpinned by nanotechnology are orecast to grow rom a volume o $254 billion in 2009 to $2.5 trillion by 201517.In the industrial biotechnologies sector, the value o biochemicals (other than pharmaceuticals) will increase rom1.8% o all chemical production in 2005 to between 12% and 20% by 201518. A recent report by the World EconomicForum (WEF)19 concluded that converting biomass into uels, energy, and chemicals has the potential to generateupwards o $230 billion to the global economy by 2020. Manuacturing industries contributed to some 17.1% oGDP and accounted or some 22 million jobs in the EU in 2007.

These sizeable markets sustain signicant employment in the EU. For example, in the micro-nanoelectronics industry(materials, equipments and semiconductors) there are approximately 500 companies in Europe employing directly200 000 people and creating around 1 million indirect jobs. These numbers do not include the electronics systemsand services industry. Direct employment has remained substantially stable during the last ten years with majorgrowth in employment generated in the related services industry.

There are approximately 5 000 photonics companies in the EU, mostly SMEs, employing 300 000 people directly. Inaddition, the jobs o more than 2 million employees in the EU manuacturing sector depend directly on photonicsproducts.

Similarly, employment statistics show a 25% increase in employment in specic nano-related businesses between2000 and 2008 globally. Extrapolating this trend, by 2015 one can orecast 400 000 nanotechnology related jobs in

the EU, in sectors (e.g. process and manuacturing, automotive, ICT, medical) in which the EU is amongst the worldleaders. In addition, it is estimated that by 2015 approximately 2 million nanotechnology related workers will beneeded worldwide, including 300 000 to 400 000 in Europe20.

Imact Scieta caees:

From an inclusive growth perspective, KETs contribution to society as a whole is particularly signicant in termso employment stabilisation, creation and improvement o productivity and income levels, reduction o povertythrough "smart specialisation", and better quality o lie.

One such example is the KETs enabled societal benets or elderly people. It is predicted that by 2050 the numbero people in the EU aged 65 or more will have grown by 70% and or those in the 80+ age group by 170%. Asaging people are more prone to illness, keeping people healthy and active, while managing healthcare costs, is animportant societal challenge which KETs address21. Early diagnosis using photonic technologies will help preventsevere illness, and may also provide efective new treatments leading to early stage cures. The combination ophotonics and microelectronics in healthcare has been estimated to ofer potential health cost reductions o 20%.Nanotechnology combined with biotechnology provides optimised ormulation and delivery o drugs. Sensing,interacting, destroying, monitoring and tracking biomolecules involved in pathological processes is o paramountimportance or diagnosing, curing and monitoring human illnesses that mostly start at the molecular level.

17. According to Irelands Nanotechnology Commercialisation Framework 2010 2014, Foras, (Aug.2010) http://www.oras.ie/media/or-as310810-nanotech_commercialisation_ramework_2010-2014.pd.http://ec.europa.eu/enterprise/sectors/ict/key_technologies/kets_high_level_group_en.htmAccording to OECD, "Nanotechnology: an overview based on indicators and statistics" (2009), based on Roco, MC and WS Bainbridge, Socie-

tal Implications o Nanoscience and Nanotechnology, Kluwer Academic Publ, (2001)18. OECD (2009) The Bioeconomy to 2030: Designing a Policy Agenda

19. World Economic Forum (2010) The Future o Industrial Bioreneries.

20. According to OECD Nanotechnology: an overview based on indicators and statistics (2009), based on Roco, MC and WS Bainbridge Socie-tal Implications o Nanoscience and Nanotechnology, Kluwer Academic Pub., (2001

21. World Economic Forum (2010) The uture o Industrial BioreneriesSee http://www3.weorum.org/docs/WEF_FutureIndustrialBioreneries_Report_2010.pd

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Remote health care monitoring will allow citizens to age longer and more saely at home and avoid hospitalovercrowding. Nanotechnology and advanced materials continuously improve orthopdic implants (bio-resorbablescafolds, llers, pins, biocompatible coatings, etc.) and computer assisted surgery permits key-hold surgery reducingrecovery time. Biochips combining advanced materials, nanotechnologies, nanoelectronics, and biotechnologies willallow rapid diagnosis o, or example, bird u, and ICT based mental health management can provide therapy with80% savings in therapist time compared to conventional therapy. Semiconductors ofer automatic blood-pressuremonitors and pain-management devices. Solid state lighting improves hospital environments as well as reducing

energy costs signicantly. It is clear that KETs will contribute to lower the costs o public health systems.

Societal challenges also can act as market pull, spuring KETs to provide and master solutions which can tacklesocietal challenges.

Evirmeta a eery imact

In a resource-scarce and knowledge-rich Europe, new products must have high knowledge content and lowmaterial / energy resource needs. As stated in the EU 2020 Strategy, Europe must promote technologies and productionmethods that reduce natural resource use, and increase investment in the EU's existing natural assets22.

Key Enabling Technologies can play an important role in this context. By developing and implementing technological

solutions along three parallel approaches, Europes vulnerability to materials scarcity can be mitigated within theollowing timescales:- short term: enhance recycling and develop recycling technologies;- medium term : design or recycling;- long term : develop substitution materials.

Advances in materials technologies and otherKETs will be required to meet such challengingrequirements, but these are within the reach oEuropean development capabilities. The progresson short and medium terms goals can be achievedwithin a 2020-horizon. Europe is a global leader inrecycling technologies and industry, this positionshould be urther strengthened. The conceptualstage o a design or recycling initiative orselected products can be rapidly set up, industryand technological research organisations havealready declared their interest.

KETs are crucial in the battle to combat climatechange and mitigate the efects o the mountingprice and scarcity o oil and other essential rawmaterials. Europe's need or Energy is predicted toincrease steadily, with most energy uses switching

to electrical (transportation, heating, cooling). Electric energy production, distribution, storage and a more ecientuse o electricity are striking examples wher the application o KETs can provide powerul solutions or improvingthe uture Energy System. The introduction o Smart Grids and Smart Meter Technology will empower consumers tomake real-time power saving decisions. Low consumption lights and LEDs will also save signicant energy. OrganicLight Emitting Diodes or lighting have a potential to use less energy than uorescent lamps23 and less resources too.Ecient new battery advanced materials such as those to be used in uture electric vehicle (see example below) can

22. Europe 2020 Flagship Initiative, Innovation Union, Brussels, 6.10.2010, COM(2010) 546 nal

23. http://www.bmb.de/de/7045.php

Figure 6: KETs contribution to climate change mitigation: the case o Photo-

voltaic cells.

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assist in making the most o renewable energy technologies, advanced materials or rotor blades can make moreecient wind turbines and breakthroughs are likely in the realisation o high eciency uel cells, direct hydrogengeneration and new energy storage solutions such as super capacitors. Today over two thirds o global installedphotovoltaic capacity is ound in the EU and PV generation costs could continue to all by 8% a year24.

In addition, many innovative technologies are either signicantly less damaging to the environment or directlyapplied to environmental protection. Industrial biotechnologies, based on renewable resources, can save energy in

production processes. Reports on the potential o industrial biotechnology to cut CO2 emissions conclude that theull climate change mitigation potential o biotechnology processes and bio-based products ranges rom between1 to and 2.5 billion tons CO2 equivalent per year by 203025.

In conclusion, KETs are strategic or the competitiveness o the European industry, economy and society.

24. SET or 2020, report, EPIA, 2009

25. WWF (2009) Industrial biotechnology: More than green uel in a dirty economy

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CHAPTER 2:

Global KeTs

PeRsPecTIVe

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The EU is acing growing global competition on KETs rom both developed and emerging economies,

in particular, the US and East Asia, as detailed in the section below. European policy makers must

now urgently engage in a radical rebalancing o resources and objectives in order to retain critical

capability and capacity in these domains o national and European importance. From a global

perspective, or the time being, the EU remains resilient, in a position o relative strength, that must

now be reinorced and rapidly developed to compete or the uture.

2. 1 An InCREASInglY CoMpETITIVE EnVIRonMEnT

The HLG analysis ocuses on our key areas:

- Global public investment in KETs and the absence o a level playing eld or Europe;- A resurgent America with a national priority ocus on manuacturing;- A strategic priority ocus on Applied Research and Development in competitor national public RDI budgets;- The rapid ascent o traditionally European value chains by Far East companies.

o public investment in KETs No level lying feld

Europe's competitive position as a developer and manuacturer o KETs is continually being challenged. There

is intense global competition to develop and commercialise KETs and or the high value R&D or manuacturingacilities linked to these. In many competitor countries, generous incentives are available to support investmentprojects, which are oten negotiated on a case-by-case basis, and which the EU has been unable to match. Whilstit is almost impossible to present a consolidated comparison o diferent policies, one can however highlight thegeneral trend with the ollowing illustrations rom diferent KET sectors.

Avace Materias

natecy

Magnetic Random Access Memory

The technology o magnetic random access memory was recently mastered and led to development andcommercialisation in Europe. This type o memory could replace traditional memory on silicon as it is aster, lessexpensive and consumes less energy. The nanotechnology involved was also developed in Europe. This year,RUSNANO, the Russian government controlled investment und, tasked with the mission o creating by 2015 aNano industry took high JV stake in the relevant European industry. RUSNANO "helps" oreign companies toinstall manuacturing and R&D sites in Russia and so, transer the technology.

Btteries Cse Study

The US, using ARRA (American Recovery and Reinvestment Act) and ATVMIP (Advanced Technology VehiclesManuacturing Incentive Program) instruments, has targeted priority KET sectors or investment and build-out

o pilot line prototyping capability notably or batteries. One such strategic area is the development o electricalvehicle and batteries development inrastructure.

This US policy was successul in attracting European industry and consequently transerring completemanuacturing know-how. A new advanced battery acility is being built in the USA or a European company,which will manuacture lithium-ion cells, modules and battery packs or military, industrial, and agriculturalvehicles. The acility received a $95.5 million grant rom the US DoE out o a total cost o $200 million.

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ptics

o Resurgent americ: Focus on Mnucturing

US President Barack H. Obama, in his State o The Union speech, on January 25 2011, stated At stake [right now] iswhether new jobs and industries take root in this country, or somewhere else. []. The rules have changed! [] We needto out-innovate, out-educate, and out-build the rest o the world.

Over the past two years, US public investment has exceeded 7B$ on KETs related RDI projects and strategicmanuacturing capacity. This efort will soon be expanded signicantly with the unveiling o a strategy aimed atreviving the U.S. manuacturing sector. The key eature o the recommendation rom the President's Council o Advisorson Science and Technology (PCAST) on May 19th 2011 is the creation o a $500-million Advanced ManuacturingInitiativerun by the Commerce Department and involving other ederal agencies. The program would und "generic"industrial technology commercialisation projects that would have widespread economic impact and create jobs.The efort would grow to $1 billion a year over our years.

o Strtegic riority ocus on alied Reserc nd Develoment

Many o Europes competitor nations, in particular, the US and East Asia, now have a determined ocus on translatingbasic science via technology building blocks into advanced processes, products and systems.

Their national public research and innovation unding agencies and instruments are aligned with this strategy. Thisis clearly demonstrated in the benchmarking o the distribution o ederal R&D unds (using OECD Frascatiand Oslo agreed taxonomy or classiying public investment in research and innovation with categorisation o

undamental, applied and development research) shown in Figure 726. It is observed that both the US and Asianederal R&D unds go mainly into development R&D activities. In the case o the US and Korea or example, 76% ounds go into applied R&D.

25. A ressource ecient Europe-agship initiative under the EU 2020 strategy, 26.1.2011, COM (2011) 2126. Source: Key Science and Engineering Indicators, National Science Board, 2010 Digest, NSF, http://cordis.europa.eu/erawatch, OECD"Research and Development Statistics .

Iustria bitecy

European industrial biotechnology companies nd it easier and aster to get nancing in the US than in theEU or its rst industrial scale plant. The US department o energy (DoE) and the US department o Agriculture(USDA) have quickly established grant and loan guarantee programmes respectively with streamlined selectionprocesses in the domain o biotechnology. They ofered a $50 million grant rom the DoE and a conditionalcommitment or a $75 million loan guarantee rom the USDA to a leading European biotechnology company

or a new $130 million production acility to produce advanced biouels rom waste in the USA. The Europeancompany has been able to secure nancing in the US and not in the EU, although it is ully aligned with theEurope 2020 Strategy and in particular the objectives o the agship initiative, Resource Ecient Europe25,through its process technology to convert waste into bioethanol and renewable power.

In 2004, Europe held ve o the top ten positions in PV manuacturing. In 2010, only one European companyremained in the top ten ranking. US$34 billion was provided during the last 15 months by Chinese GovernmentBanks to China-based solar companies as very-low-interest long term loans. Most recently, Jinko, a Chinesepretender or the remaining two non-Asian places among the TOP10 or 2011 received a $7.6 Billion creditacility (16th March 2011).

For comparison, the EIB lent approximately 6B in 2010 or the entire renewable energy sector.

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It is revealing, using the samemethodology, to analysis specicKET areas. The nanotechnology caseis shown in Figue 827.

It is observed that whereas theEU accounts or 27% o globalpublic nanotechnology undingand or 33% o all Nanotechnology

publications, its share drops to17% o Nanotechnology patentsand to 15% regarding Nano-basedproducts. One might concludethat the EU leads the way inBasic Research and that otherscommercialise the ideas.

The above analysis would suggest a major rebalancing o resources towards innovation is necessary i the EU is toclose the current innovation gap.

o asi moving u trditionnlly Euroen vlue cins

Industry rom emerging economies such as Brazil, India and China, which traditionally have played a secondary rolein the global innovation landscape, have now begun to catch up in developing their own innovative capabilities

27. Source: Cross-sectoral Analysis o the Impact o International Industrial Policy on Key Enabling Technologies (Danish Technological Institutewith IDEA Consult, 2011), Institute o Nanotechnology, (analysis rom UNU-MERIT and VDI-TZ), 2010, OECD (2009): Nanotechnology: An Over-view based on Indicators and Statistics: http://www.oecd.org/dataoecd/59/9/43179651.pd, http://www.as.org/sgp/crs/misc/RL34511.pd

Figure 8: Nanotechnology public unding in the EU, the US and the rest o the world.

Figure 7: Strategic ocus on applied research and development:

the case o US, China, Korea, China.

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and some have emerged as major players in certain technology intensive KET sectors like mobile communications,electronics and inormation technology. For example, Chinese companies are rapidly moving up strategic industryvalue chains previously considered as European.

Similar case studies abound. For example, Acer, a Taiwanese company, ounded in 1976 as a distributor o importedsemiconductors, is now worldwide n2 in the PC market and ranks n1 worldwide in notebook shipments .

2.2 EURopE IS RESIlIEnT

Europe is resilient and has considerable assets in this global KETs competition. From research and industrialperspectives, these assets include a strong technological research base, leveraging in particular Europes leadingResearch Technology Organisations, as well as world leadership in several KET application sectors (automotive,aeronautics, health, and energy) relying, or most o them, on strong technological and manuacturing competencesin large and small companies, and in production and competence networks along established and highly diversenew value chains.

An analysis o EPO/PCT patent applications (European Competitiveness Report 2010) shows that Europe is neitherlosing nor gaining ground in the six European KET priority technologies, judging by its share o patent applications. Inall cases, Europe is conronted with increasing competition rom Asia, which in the past decade has made considerableprogress, whereas North Americas overall share in global technology output has gradually diminished.

o a world clss KET reserc nd knowledge cretion lndsce

One o Europe's major strengthsconsists o a strong research base,highlighted by the European share oworld KET patents. Europe is denitelystill in the global race. Europe issecond in terms o patent lling (32%)ater Asia (38%), and beore the USA(27%)28.

28. Sources o igures 9 and 10 are: EPO/PCTpatents, 2000-2007 / European CompetitivenessReport 2010 / European Competitiveness in KeyEnabling Technologies 2011

Cse study huwei:

Huawei was ounded in 1988 as a distributor o imported telecommunications switches. It is now n2 worldwidein global mobile inrastructure equipment markets. In less than 20 years, Huawei has moved up the global

telecommunications value chain, previously dominated by European global players such as Ericsson, Alcatel,Nokia and Siemens. Most recently, Huawei overtook both Alcatel-Lucent to become world's No. 3 in mobilenetwork and the Nokia and Siemens Networks or the No. 2 position in the global mobile inrastructureequipment market. In 2010, it was named the world's top patent producer, becoming the rst Chinese companyto head the United Nations WIPO list (1,737 applications).

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Figure9: Share o EPO/PCT pa tents by regions in all KETs cumulated


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23

CHAPTER 3:

an InTeGRaTeD aPPRoacH

To KeTs foR fUTURe

coMPeTITIVeness:

THREE PillAR bRidgEmodEl To PAss ACRoss

THE "VAllEy of dEATH "

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3.1 EURopEAn KETS wEAKnESS: ThE "VAllEY o dEATh"

Whilst European R&D is generally strong in new KET technologies, the HLG has observed that the transition romideas arrising rom basinc research to competitive KETs production is the weakest link in European KET enabledvalue chains. This is demonstrable evidence o the impact to-date o the absence o a major ocus on enablinginnovation in the EU and an over-emphasis on basic research both within EU research programmes and in someMember States.

This situation, namely the gap between basic knowledge generation and the subsequent commercialisation o thisknowledge in marketable products, has been commonly identied across the KETs and is known in broad terms as the"valley o death" issue. Its efects can include not only relocation o manuacturing and R&D, but also the disruption oentire value chains with their ultimate consequences on the sustainability o various strategic sectors in Europe. The"valley o death" is due to many actors including the absence o smart regulation, the unavailability o pre-commercialR&D support, insucient access to large scale nance, and lack o political support and pro-active KET policies.

This Valley o Death has been identied in many competitor countries, including the USA, China and Taiwan. Allhave established coordinated programmes in strategically important areas that cover the ull innovation chainaddressing basic and applied research, demonstrators, standardization measures, deployment and market access,all at the same time and, signicantly, in a logical joined-up manner. Deployment is aided by targeted instruments

addressing all technology readiness levels o competing technology approaches, rom basic science through proo-o-concept and prototypes, to large-scale demonstration actions and public procurements. One example is the USDepartment o Energys Solid State Lighting (SSL) programme, or which it has developed a comprehensive nationalstrategy that encompasses Basic Energy Science, Core Technology Research, Product Development, Manuacturing

Research and Development Initiative, Commercialization Support, SSL Partnerships, and Standards Development29.

O particular note to the HLG were the recent mirror recommendations (May 2011) o its sister high level groupin the US; President Obama's advisory panel on science and technology (PCAST) tasked with the elaboration o astrategy aimed at reviving the U.S. manuacturing sector. PCAST expressed concern that the U.S. innovation systemwas being compromised by the loss o manuacturing. "As manuacturing goes, so too will design and R&D," they said."We need to create ways o moving these discoveries past the Valley o Death".

Developing new policy issues and nancial instruments to support KETs will be meaningless i the identied critical"valley o death" problem cannot be solved.

3.2 ThE ThREE pIllAR bRIdgE ModEl To pASS ACRoSS ThE "VAllEY o dEATh"

o Te need or n integrted strtegy or KETs develoment

The HLG KET sectorial analysis highlighted three specicities o KETs within an European context. Firstly, KETs, ingeneral, are only diferentiated by their degree o maturity. Secondly, KETs are ubiquitous in both new and traditionalproducts. Thirdly, there is a signicant interdependency o KETs in the development o advanced products. Allthese acts underline the need or the European Commission to stimulate and develop an integrated KET approachcovering the spectrum o all six KETs.

The HLG analysis also clearly showed that it is the same key stages that determine the development o all KETs. Anintegrated approach to KETs is thereore perectly possible and enables common solutions and actions, each owhich can then achieve a more signicant critical mass, efectiveness, visibility and impact.

It is primarily the degree o maturity along the development process o each KET, which diferentiates each o

29. US Dept o Energy SSL Initiative, http://www1.eere.energy.gov/buildings/ssl/about.html

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them. This degree o maturity depends mainly on their order in the history o emergence o technologies, withtwo extremities, that o microelectronics which emerged in the 1950s and nanotechnology which emerged in the1980s, which represent the most and least mature respectively o the six KETs currently considered. The knowledgeacquired throughout the maturation process o a KET enables innovation ecosystems and industries to acceleratethe development o new KETs. An integrated approach to KETs will thereore allow the use o the know-how andeedback o experience o the more mature KETs to accelerate the development o more recent KETs. Such anintegrated approach would thereore benet rom an overall pull-along efect or all KETs.

In addition, it has been demonstrated that the most innovative products incorporate not only a single KET butseveral KETS simultaneously. Each KET brings a part o the technological innovation but the accumulated benetrom a number o KETs constitutes a signicantly more important technological leap-orward. All the more so, asmastering the development o diferent KETs all along the chain enables one to be innovative in the way to integratethem and develop new products. This holistic approach assures greater product competitiveness and in turn, asignicantly higher barrier to copying. To propose a global approach to the development o KETs thereore makesparticular sense given their highly interdisciplinary nature.

The HLG thus decided to ocus on an integrated industrial and political approach to the development and deploymento KETs in Europe. This strategy is described in the ollowing sections o this chapter and constitutes the rameworkor the subsequent analysis and recommendations rom the High level Group detailed in Chapter 4.

o a Euroen tree-illr bridge to ss cross te "vlley o det"

Crossing the valley o death in the key enabling technologies in Europe requires the delivery o solutions to thethree successive stages implicit in this crossing.

Te rst stae, cae Tecica researcconsists o taking best advantage o European scientic excellencein transorming the ideas arising rom undamental research into technologies competitive at world level. Theseshould be both shown through proos o concept and be proprietary, that is protected by patents. It is these patentsthat will guarantee both the uture reedom to exploit these technologies by European industry and their capacityto resist countereits and copying. From a more general perspective, an IPR strategy or global markets along with asingle and ecient European system or IP protection and enorcement are urgently needed.

Te sec stae, cae pruct emstrati allows the use and exploitation o these KETs to makeinnovative and perorming European process and product prototypes competitive at world level. This requires rstlyputting in place pilot lines having both the KETs technology prototyping acilities to enable the abrication o asignicant quantity o innovative product prototypes arising rom these KETs. Secondly, establishing the prototypeproduct validation in terms o its user perormance requires both demonstration and deployment operations atappropriate scale on European sites, protecting the technological advance achieved. In both cases, the objectiveis to make a demonstration at real scale o the relevance in terms o user value and the competitiveness o newproduct prototypes containing one or several KETs.

Te tir stae, cae Cmetitive mauacturi should allow, starting rom product prototypes dulyvalidated during the demonstration phase to create and maintain in Europe attractive economic environmentsin EU regions based on strong eco-systems and globally competitive industries. In particular, production acilitiescompetitive with their US and Asian equivalents in terms o production volumes and thereore price o products.

This will allow urther strengthening o the capabilities o EU industry to more successully deploy KETs-basedproducts, ace international competition and master solutions to tackle grand societal challenges. In act, in KETswhere economies o scale are o importance, only advanced manuacturing based on the latest technologies and ata signicant level will allow:

- The acceleration o the learning curve on new manuacturing technologies, processes and products in orderto arrive amongst the rst on non-mature markets with a high probability o penetration.

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- To absorb the enormous xed costs o quality production on a volume suciently important to attainproduction costs in line with those o international competitors, notably Asian.

- To retain the production know-how at the top level, this is the only guarantee o a complete mastery o allthese crucial KETs steps on European soil.

- To develop an industry or advanced manuacturing generating a source o export revenues, and supportthe downstream producers o machinery capable to produce the most advanced manuacturing

technologies in Europe (machinery, sotware, services, etc.), as well as the development and improvement omanuacturing systems (technology and processes) in order to build ecient, modern and high technologymanuacturing acilities in Europe.

- To master the whole product lie cycle, rom resource ecient and energy saving production to recyclingprocesses.

The role o globally competitive abrication acilities at large volumes where economy o scale is required is thereorevery important to nourish economic eco-systems, in particular with regard to SMEs, which act as sub-contractorsand suppliers to downstream industry users. Only signicant abrication acilities will have the integrated capacityo technologies and product development to be able to react to the international competition and ollow the rapidrenewal dynamics in the eld o KETs-based products. The improvement o ramework conditions or KETs will alsoencourage dynamic markets or KETs.

The crossing o the valley o death in the KETs can thereore be imagined in the ollowing manner in constructinga European bridge comprising three pillars:

- The technological research pillar based on technological acilities supported by research technology organisation;- The product development pillar based on pilot lines anddemonstrator supported by industria consortia;- The competitive manuaturing pillar based on globally competitive manuacturing acilities supported by

anchor companies.

This bridge, illustrated in Figure 13 opposite,would be supported at one end by the Europeanknowledge reservoir and would arrive at the

other end on worldwide global markets, thereorebecoming the bridge between knowledge andthe market.

This crossing o the "valley o death" presupposesappropriate ramework conditions; in particularthat current EC nancial, legal and commercialsupport measures would be adapted inorder that European technologies KETs couldbe successully developed, deployed andprotected, that enterprise and especially SMEscould develop, that local innovation ecosystems

could be born and grow, that the products couldbenet rom standardization activities, that

emerging markets could be privileged and that the rules o international commercial engagement could guaranteea air competition between producing nations at world level. It is thereore a complete political and regulatoryenvironment which needs to be put in place in order that the eforts made across the three pillars would be crownedby success. Recommendations leading to the creation o such an environment are detailed in Chapter 4.

Figure 13: A European integrated initiative to pass the KETs "Valley o Death"

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o Triggering virtuous cycle

The three pillar bridge will trigger a virtuous cycle o innovation and economic development. The ow romknowledge generation to market enables companies to successively pass:

- From basic science to technology by the technological research stage;- From technology to product by the product development stage;

- From products to large scale production stage by competitive manuacturing stage to have access to globalcompetitive markets.

The return ow rom market to knowledge generation closes a virtuous cycle leading to a competitive growth andin turn also acilitating a market pull.

In particular:

- It is only based on market experience eedback that one can acquire a true understanding o user needsand thereore the relevant specications o uture products. It is also this large volume production thatensures a signicant return on investment or Europe in terms o orders, employment and taxes, thusenabling a harmonious societal development.

- From this eedback loop, products arising rom the demonstration phase will have been correctly specied,they will naturally nd an optimal usage value which will in turn lead to a relevant demonstration. Thereturn on investment o this stage is thereore de-acto guaranteed.

- The product evolution expected by consumers having been identiied, it is thereore easier to identiythe technologies in gestation or to initiate the technological developments required to address thetechnological breakthrough needed. The level o relevance o the technology is in turn improved signicantlyalong with its chances o uture exploitation.

- Finally the technological developers can, in turn, identiy the most relevant ideas in the knowledge reservoirarising rom the European undamental research. This research base will thereore become more useableand more useul thereby ensuring a return on investment at its proper level.

- At the same time, early eedback rom the manuacturing community will allow European industry to

understand and identiy new possible product specications. This is only possible i these communitiesremain in Europe. Such a virtuous cycle constitutes a solid bridge which links the basic science to the globalmarket.

The combined KETs sectorial SWOT and value chain analysis identied a double condition or sustainability:technological capability and manuacturing capacity.

Thereore, KETs competitiveness improvement must ollow twocombined routes within the overall KETs integrated strategy asshown in Figure 14 :

- improving technology capability mainly supported bypublic investment;

- improving manuacturing capacity primarily supportedby private investment. Returns on investment in Europedue to the increasing manuacturing capacity o existingcompanies and the attraction o international investment,will ensure the sustainability o the actions.

27

Figure 14: How to improve the competitiveness o

European KETs


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CHAPTER 4:

RecoMMenDaTIons

foR THe DeVeloPMenT

anD DePloyMenT

of KeTs In eURoPeTowaRDs

a coMPeTITIVe

eURoPean InDUsTRy

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There is a common understanding among the HLG and EU stakeholders that KETs are o crucial

importance to the European economy, its uture competitiveness and its capability to ace grand

societal challenges. As demonstrated by the HLG, they underpin European value chains in strategic

areas and accelerate innovation in our industrial base.

The HLG has examined the major policy areas which inuence the successul implementation o

the three pillar bridge strategy. Whilst many policy areas reviewed in this KETs exercise impact theKETs landscape in Europe, the High Level Group has decided to ocus on a small number o areas

which require specifc and urgent attention HLG. The recommendations are grouped under the

ollowing headings:

4.1. A single KETs and ully-edged innovation policy at EU level

4.2. A comprehensive strategic approach to a KETs policy at EU level

4.3. Combined fnancing to promote RDI investments in KETs

4.4. Globally competitive IP Policy

4.5. Education and skills

4.6. Follow up

4.1. A SInglE And UllY-lEdgEd KETS InnoVATIon polICY AT EU lEVEl

o an integrted KETs olicy t EU-level

For Europe to succeed in the deployment o KETs in EU industries, to maintain its global technological leadershipin the coming years, a single integrated KETs policy has to be implemented, that supports the development andexplotation o KETs accross the value chain rom science to market deployment and which recognises the importanceo acilitating the integration o KETs, which in essential to create technology-based products and services.

For such a policy to succeed, it is vital to position KETs as a technological priority or Europe and to align the EU'smain political and nancial instruments in the next nancial perspective consistently with the goals o EU 2020 to

achieve this goal. In particular this must be reected in the upcoming Common Strategic Framework or Researchand Innovation Financing, Horizon 2020 (CSF), the instruments related to the EU's Regional Policy and the policies othe European Investment Bank group.

Such policy coordination would reverse current trends and make the EU attractive or KETs industry and investors incompetitive manuacturing acilities, generating growth and jobs or Europe.

More precisely, the ollowing should be envisaged:

- A distinct KETs box should be established within the CSF Competitiveness Programme, to enable commonand integrated calls or all KETs with KETs specic rules in the calls, such as value chain correctness, etc. ;

- KETs should be identied as a clear investment priority or regions within the ESF and the ERDF Research andInnovation category notably in the context o the concept o smart specialisation;

- The EIB/EIF should pro-actively support KETs-related projects through its nancial instruments and clearlyidentiy such RDI and manuacturing projects, with a KETs label, in line with Commission policy.

Recommendation n1: Make KETs a technological priority or Europe

The High Level Group recommends that an integrated KETs policy should be implemented, that KETs should

be visibly prioritised in EU policies and fnancial instruments and that the European Investment Bank group

should pro-actively support KETs initiatives in Europe.

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o Imlementtion o te tree-illr-bridge

The High Level Group has identied three priority recommendations to address the implementation o the threepillar bridge strategy:

- A ull and simultaneous implementation along the innovation chain30 applying the TRL chart;- Adaptation and clarication o the R&D denition to take into account the explicit inclusion and systematic

application o Pillar 1 and 2 R&D activities;- Rebalancing o EU RDI unding programmes towards Innovation activities, in particular in the CSFprogramme.

o alying te tecnology rediness levels (TRL)

The internationally recognised and industrially applied concept o "Technology Readiness Levels" (TRL) outlines indetail the diferent research and deployment steps, which support the innovation and industrialisation process otechnologies to transorm ideas to the market.

The TRL concept ully applies to the three-pillar-bridge approach. As indicated in the above graphic, level 1 concernsbasic research, levels 2 - 4 describe the activities o technological research (pillar 1), and levels 5 - 8, productdevelpoment (i.e. process technology development in pilot lines, prototyping, and demonstrators actions - pillar 2). Theuture KETs programme in the CSF should include an "integration initiative" or these platorms to create European-

added value through coordinated access or external stakeholders and collaborative development support actions.The deployment o KETs with manuacturing activities starts at level 9. The uture KETs programme in the CSFshould ully and simultaneously support all these activities up to and including level 8 along with the supportinginrastructures (technological platorms and pilot lines along with rst-in-kind equipment and acilities).

o More dted liction o R&D defnitions

The OECD has provided authoritative denitions or R&D and Innovation in the Frascati and Oslo Manuals31. In the

30. Innovtion cin: a term used in various political debates to describe the way rom research to innovation up to competitive manuac-turing with players such as academia, RTOs, industry, public sector. This is actually synonymous to the KET Bridge across the valley o death.

31. An agreed taxonomy or classiying public investment in research and innovation, to enable efective international data gathering andcomparison. These denitions orm the basis o WTO and EU rules on subsidies.

Recommendation n2: The EU should apply the TRL scale R&D defnition

The High Level Group recommends the EU to align its RDI activities on the TRL scale in line with the OECD

defnition. The Commission should also systematically apply this defnition in order to include technological

research, product development and demonstration activities within its RDI portolio.

31

Figure 15: Technology Readiness Levels Scale


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context o these reerences, a ully-edged denition o R&D has to cover three aspects that can be related to thethree pillar bridge model proposed by the HLG KET:

- Fundamental research, knowledge science, required to rmly anchor the bridge;- Technology development, strengthening Pillar 1;- Product development including process, technology, and prototype development strengthening Pillar 2.

A denition or these three aspects o R&D can easily be ormulated by paraphrasing existing denitions as outlinedin the Frascati Manual:

- Experimental and/or theoretical work undertaken to acquire new knowledge o the underlying oundationo phenomena and observable acts, either as a goal in its own right or directed towards a specic practicalaim or objective.

- Systematic work that translates acquired knowledge into technology and that is directed towards developingnew materials, products, processes or services.

- The urther elaboration o the thus developed technologies and methods to achieve stable processes yieldingreproducible prototype products and/or value adding and allowing the design o state-o-the-artequipment. (Note however that projects that have a signicant market impact and generate substantial

revenue are not covered.)

o Reblncing o EU RDI unding rogrmmes

In order to implement a ully-edged EU programme on KETs, nancial resources need to be re-allocated. Currently,

the largest part o unding within the 7th Research Framework Programme (FP7) in the area o KETs is dedicated tobasic research projects the resources or applied and development research are notably insucient. Within theCompetitiveness and Innovation Programme (CIP) only a very small budget and number o projects are dedicatedto product demonstration activities or KETs. This should be signicantly increased.

Europe's main trading partners in North America and East Asia, have shited the ocus o their resources towardsapplied research and product development activities (urther details in chapter 2). The HLG considers that in thenext nancial perspective the EU should prioritise its unding in the area o KETs or pillar 1 (technological research)and pillar 2 (product development including pilot lines, prototypes and demonstrator activities).

Pilot line activities are approximately 5 to 10 times more expensive than other R&D activities, depending on therespective KETs domain. The re-balancing in the EU resource allocation thereore has to be signicant, not only to

take account o the new ocus but also because high costs o prototypes and pilot lines.

4.2. A CoMpREhEnSIVE STRATEgIC AppRoACh To A KETS polICY AT EU lEVEl

Recommendation n3: Fully exploit the scope o relevant R&D defnitions

The High Level Group recommends that the EU should apply R&D defnitions in its programmes which support

the ull and simultaneous implementation o the three pillar bridge model along the innovation chain,

rom basic research, through technological research, product development and prototyping up to globally

competitive manuacturing.

Recommendation n4: Rebalancing o EU RDI unding programmes

The High Level Group recommends that the EU and Member States frmly rebalance their RDI unding

in KETs-related programmes towards technological research, product development (including pilot

lines, prototypes, frst-in-kind equipment and acilities and demonstrator activities). In particular in the

uture CSF, the EU should set indicative targets or the percentage o unding dedicated to basic research,

technological research and development activities.

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4.2. A CoMpREhEnSIVE STRATEgIC AppRoACh To A KETS polICY AT EU lEVEl

The EU KETs policy should be orward-looking and driven in a long-term perspective. It concerns the innovationcapabilities o EU industries in the next decade and beyond. Such a policy needs a ull strategy involving allstakeholders - private and public - at European, national and regional level, and must encompass all relevant policyinstruments.

The Commission, in cooperation with Member States, should design such a KETs-strategy with a vision o the EU'suture position in a global context. Such a strategic policy approach can only reinorce the Europe 2020 strategy.

In the context o the ongoing reections on the uture EU programmes and nancial perspectives, the HLG hasdeliberately not elaborated a comprehensive set o recommendations or implementing a ully-edged strategy, inparticular with regard to the role o Member States. Rather it has ocused its reections on the uture CSF and theregional aid instruments (ERDF, ESF), given the urgency o such input to the EU discussions. In this regard the HLGbelieves that a strategic and industry-driven approach should be ollowed in the CSF including :

- A new political approach and governance that simultaneously incentivises innovation and cooperation,both through rameworks policies and unding, at crucial stages o European value chains;

- The governance o KETs programmes should prioritise projects involving diferent KETs;

- The involvement o industry in the design o the programmes and evaluation procedures o projectsshould be strengthened to reach a minimum 50% participation in the respective committees;

- The implementation o KETs-programmes should be done by tender-like calls with detailed specicationsand exible unding combinations whilst requesting specic industrial commitments;

- All current RDI programs and instruments should be reviewed and tested according to their uturesuitability to actually support the goal o enhancing innovation in the European Union.

A wide range o public policies have an impact on the competitive position o the EU, and inuence the level anddirection o innovation and technology development, and the scale and operation o markets or these products. Ithe EU is to remain a globally competitive location or the development and commercial exploitation o KETs, and to

capture a signicant part o the value chain related to these, it will need to develop mechanisms that can efectivelyco-ordinate a range o key policy areas or KETs. These include:

- Ensuring that regulation does not prove a barrier to KETs, and using uture-ocused regulation andregulatory approaches (e.g. to support projects such as the implementation o smart grids in the EU, or inthe area o environmental standards and waste recycling or new materials) to encourage the developmentand adoption o KET-based products and services;

- Better integrating standardisation and research in order to use standards to drive markets and buildconsumer condence;

- Making greater use o public procurement mechanisms to support demonstration projects and or thepublic sector to act as a rst customer or KET-based products (e.g. Solid State Lighting);

- Ensuring a air access to raw materials through uid and transparent international markets and developingadequate strategies or systainable production and use o critical raw materials.

- Using multilateral and bilateral trade negotiations to open markets or EU companies, to reduce unairsubsidies, and using trade deence mechanisms to protect EU companies rom unair trade practices.


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o Te imlementtion rules o te CSFThese rules are o key importance to the design, governance and evaluation o KETs programmes and policies andto select the appropriate projects, that maximise their impact on European value and innovation chains, have themost potential market relevance and increase industry participation. A new criterion on "value chain correctness"should thereore be introduced.

Vaue cai crrectess

The tender applicant should propose a business model with an analysis o the value chain, showcasing theexploitation o the project result. The consortium should consequently include partners rom upstream and/ordownstream industries utilising instruments similar to the current Coordinated Support Actions (CSAs), to initiatebroader cooperation along the value chain. Critical parts o the value chain sectors (upstream and/or downstream)

have to be actively engaged in the governance o the programmes/projects to ensure engagement along the valuechain. This engagement needs to be continuously monitored by public authorities throughout the project (not justupront in the planning stage).

Criteria r iustria it ies a emstrati rjects

Regarding research and development activities in pilot l ines o the innovation chain, where decisions are targetedat higher investment in specic locations, the European added value should be guided by the smart specialisationpolicy. With regard to KETs pilot line projects specic criteria should be included in the selection process o calls,taking into account their proximity to the market and the willingness to ampliy impacts. A proposal or such criteriaand stakeholder commitments is made in Annex 6.

The attractiveness o the CSF, notably or SMEs, will depend on costs or project applicants. Firstly, or the success

o KET pilot l ines and KET demonstrator projects, ast processing o proposals is needed; "Time-to-contract" shouldbe reduced to no more than 6 months. Project implementation could be simplied and made more exible bydening perormance indicators or diferent stages o projects, as currently practised with the reward system o theEU's Marco Polo programme. Such a system would make undertaking each stage conditional on the success o theprevious one in order to acilitate the re-orientation o projects during their development, or their abandonment atan early stage, i required.

4.3. CoMbInEd InAnCIng To pRoMoTE RdI InVESTMEnTS In KETS

In times where public resources are under severe constraint, it is all the more important to exploit synergies betweendiferent unding mechanisms to allow or their most ecient use. Typical pilot line expenditures in the KETs domainrange rom 10 million to several hundreds millions o EUROS, including both investments (Capex) and operatingcosts (Opex) and even higher or microelectronics. Such very high costs require the establishment o mechanisms,

Recommendation n6: Establish an appropriate set o rules to implement KETs programmes

The High Level Group recommends that the European Commission adapts its selection criteria and

implementation rules in the CSF programme to maximise its impact on the value and innovation chains. In

particular, a "value chain correctness" criterion should be added.

Recommendation n5: A strategic approach to KETs programmes

The High Level Group recommends that the European Commission defnes and implements a strategic,

industry driven and coordinated approach to KETs programmes and related policies across EC RDI unding

programmes and instruments (CSF, ERDF).

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which combine unding rom diferent resources, i.e. rom public and private actors as well as rom diferent publicunds (European, national and regional). Currently, no tripartite unding mechanism ofers the exibility and theeciency required to meet industrial needs in the EU. Such a tripartite approach is thus necessary.

Some basic principles with regard to tripartite unding mechanisms should be respected:

- The outcome should be jointly dened by all partners;- The commitment to und should be made simultaneously by all partners through ast decision making

process on a case by case basis, or each project;- In return or public support, industry should apart rom adequate private nancing make commitments

such as, or example to create jobs, involve EU lead customers and/or suppliers (preerentially SMEs) to ensureEuropean added value, use o pilot line or appropriate skills / education training, install pilot lines and establishmanuacturing acilities in Europe;

- Public support costs (rom the taxpayers point o view) should be compared with expected economic return.

With regard to combined EU unding mechanisms, the HLG also draws attention to the need to allow, whereappropriate, the combining o unds rom diferent EU sources (e.g. CSF and ERDF) as long as the maximum stateaid levels are respected. This reers notably to Art. 54 (5) ERDF that should be adapted to allow the combining ocontributions rom various EU unds.

The Commission should consider how all Member State unding could be recognised as a contribution to a project.

For the KETs strategy, it is o great importance to ensure that all actors, including SMEs and large enterprises as wellas research organisations, along the value chain are covered through the eligibility criteria or uture EU unds.

o adted liction o stte id rules

KETs are by nature technology and skill-intensive. The innovation chains bridging the gap between the scienticknowledge and the market are complex and risky. Their enabling nature leads to positive externalities that cannotbe captured by private stake holders. Their strong contribution to the competitiveness o regions has lead to ocusedpolicies and strategies by competing world regions (notably the US and Asia) based on public support which impactsthe global level playing eld and may create competitive disadvantages or EU companies.

Competition-distorting state aids must primarily be addressed in the international context o the WTO rameworks,other international institutions such as the OECD and G20 as well as in the bilateral ree-trade agreements. However,a long time may pass beore efective implementation o such standards. Furthermore procedures under theseagreements can be time-consuming and no interim legal protection exists. In this context, public support, notably

state aids, are required in the EU. Without changing the current practice o the EU state aids policy, the HLG considersthat the KETs specicity require some adaptation o these rules.

Matci cause

A matching clause, analogous to that contained in the EU Framework or State Aid or Research and Developmentand Innovation, should be introduced in the general EU state aid rules to allow Member States to match unding up

Recommendation n7: Combined unding mechanisms

The High Level Group recommends that the EU should introduce a tripartite fnancing approach based on

combined unding mechanisms involving Industry, Commission, and national authorities (Member States and

local government), when required by the high costs o the KETs RDI projects, and put in place the appropriate

program management and mechanisms to allow the combination o EU unding (CSF, structural unds), to

enable the optimum investment in signifcant KET pilot line and manuacturing acilities across Europe.

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to the maximum levels o support provided elsewhere or product development and manuacturing activities whilerespecting WTO rules. Such clauses may not serve to balance diferences in general economic conditions betweencountries but rather to counter signicantly higher state aids by third countries resulting in an unair distortion ointernational competition. The introduction o matching clauses could also be considered at the occasion o theprolongation o the relevant state aid rameworks or regional and environmental state aid which are due to expireat the end o 2013 and 2014 respectively.

Tress r ticatis

The costs o projects envisaged in the KETs policy may be signicantly higher than current FP7 projects. To reduceadministrative burdens, and avoid notications o too many projects, the current thresholds or project noticationsin the General Block Exemption Regulation (GBER) should be increased in particular or experimental developmentand industrial research to 20 million (in alignment with current thresholds or undamental research).

It would also be useul to align the existing denitions in the RDI ramework and consequently GBER, to the CSF inorder to take ull account o product development activities such as pilot lines and demonstrator programmes.

The current decalage system32, or scaling-down mechanism is an active disincentive or any larger-scale investmentsand should thereore be discussed with a view to its removal in the review o the regional state aid rules in 2013.

nticati rceures

A simplication and streamlining o the procedures relating to State Aids notications is also required to cut thetime or deciding cases and applying block exemption rules to projects within a programme. A ast decision-makingprocess is necessary to raise Europe's attractiveness or manuacturing investments. The aim would be to cut thedecision time to 2-3 months in most cases, notably by avoiding repetitive requests or inormation. To achieve thisobjective, an improvement o mutual understanding by all involved parties o required inormation is essential. Fromthe launch o the notication procedure, onwards all participants (European Commission, national and regionalauthorities and beneciaries o the support) should be involved in all stages o the negotiations.

Additionally and independently o the instruction o any cases, the business community needs to better understandthe data needed, the purpose o their use and the rationale o the compatibility assessment. This could be acilitatedthrough explanation meetings organised by the Commission and better alignment o concepts between the EU

authorities and the business world. The data to be provided by the proposed EU monitoring mechanism on KETsmay contribute to the assessment.

prject cmm Eurea iterest

The EU should consider how to use the rules o Article 107 (3)b TFEU to support large scale open-access technologydevelopment, testing and demonstration acilities, including pilot lines and demonstrators in KETs where thesewould make a signicant contribution to strengthening EU competitiveness (see box below).

32. Guidelines on national, regional aids or 2007 2013 (2006 / C 54/08)

project o common Euroen interest

Article 107 (3)b o the TFEU permits aid to promote the execution o an important project o common Europeaninterest or to remedy a serious disturbance in the economy o a Member State. This article allows projects to be

unded outside EU programmes and nancial limits in exceptional circumstances. However, projects unded viathis mechanism are still subject to WTO disciplines and could be made the subject o a WTO dispute. Projectsalso need political agreement amongst Member States. Thereore, this mechanism needs to be used sparingly,although it could be a means o supporting key projects that will build technology capability or help to createnew markets or products and services. For example, this could be a mechanism that could und large scaledemonstrators o new manuacturing technologies (e.g. pilot lines) or KET-based applications that would provethese technologies can be deployed on a large scale and thus create lead markets or these in the EU.

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4.4. globAllY CoMpETITIVE Ip polICY

Economic benets ow rom the wide adoption o innovation thereore eforts to increase the positive impact opublic investment should be a constant objective o policy. In the case o KETs, this could be achieved by ensuringthat project results are commercially exploited and trigger manuacturing within the EU.

Current EU programme rules (e.g. Annex 2 o general conditions relating to FP7) do not provide an adequate incentivein this regard. Indeed, the application o the various clauses o ECs general conditions, results in low level patentlings and licence agreements ater FP7 projects along with low percentage o exclusive licences: < 10%.

The HLG considers that the EU rules or participation in the CSF should be strengthened in order to better protectthe technological knowledge o the EU. Generally, the EU should clearly promote an "in Europe rst" IP policy. At thestart o any project, consortium partners should have to demonstrate in their proposal that they have a clear IP planor both the ownership and rst exploitation o IP resulting rom the project within the EU.

At the end o any project, rules should be implemented to avour the EU exploitation o the results o projects.- For example, the European Commission should have discretion over whether to allow a Public Research

Organisation or an industrial company to license such results to a non-EU party and to decide whetherreimbursement o all or part o the unding received or the R&D project was required within a reasonabletimerame. Moreover, it should not be possible to sublicense the access rights o industrial companies tothe results o the other partners o the consortium. The aliates denition should

high-level expert group on key enabling technologies -final report

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