Study Analyzes the Relevance of Funding Instruments

August 10, 2026

Source: E & M powernews

A ZEW study shows that investment support is particularly relevant for market-ready green technologies. For new low-carbon processes, research grants are the primary focus.

The relevance of government funding for environmental innovations varies depending on the project. According to a study by ZEW Mannheim and Augsburg University of Applied Sciences, the key factor is whether companies are adopting existing green technologies or must first develop new solutions.

For this reason, general investment aid from state and federal governments plays an important role, particularly in the widespread adoption of available technologies. New processes for decarbonization—for example, in production—are initially dependent on grants for research and development.

The study distinguishes between seven types of environmental process innovations and four types of product-related environmental innovations. For 2024, the study shows that 26.8 percent of companies had introduced at least one environmental innovation with a significant environmental impact.

Product-related improvements in energy consumption or carbon footprint were particularly common, at 12.5 percent, as were process innovations to reduce energy use, at 10.5 percent. 10.3 percent of companies replaced fossil fuels with renewable sources. In 2020, the figure was 6.5 percent.

This shift to renewable energy is considered a typical example of diffusion-oriented innovation. Technologies such as solar cells or wind turbines are generally available but must be integrated into facilities and production processes. Such projects often require significant capital investment.

General funding instruments could therefore help alleviate financing bottlenecks. In the models, general regional aid is particularly linked to energy efficiency and the replacement of fossil fuels with renewable energy sources. General federal funding is also linked to energy efficiency, CO2 reduction, and renewable energy.

Reputation is a key driver

A different picture emerges when it comes to developing new production processes. Research grants are particularly relevant in cases where companies must develop their own technological solutions and bear higher technical risks. The study finds a particularly strong correlation between federal research funding and process innovations aimed at reducing CO2 emissions. For the replacement of fossil fuels with renewable sources, research and development (R&D) grants are less significant because this primarily involves the adoption of existing technology.

In 2024, 41.5 percent of environmentally innovative companies utilized at least one form of public funding. Federal R&D funding was the most commonly used, at 20.2 percent. General federal funding accounted for 17.8 percent, and general state funding for 12.7 percent. EU funds played a significantly smaller role, accounting for 4.1 percent of general funding and 3.5 percent of R&D grants. The authors found no significant preference for EU funds in individual environmental sectors.

A distinctive feature of the transition to renewable energy is also evident in the drivers. Here, public funding is positively correlated with innovations that have a significant environmental impact. Reputational concerns and public pressure, as well as high energy and raw material costs, are other relevant drivers. In contrast, no significant correlation was found for regulation, environmental taxes, or anticipated regulations.

The analysis is based on three waves of the Mannheim Innovation Panel for the reference years 2020, 2022, and 2024. The authors examined six forms of funding at the state, federal, and EU levels. Using so-called panel Probit models, they examine the statistical relationships between each type of subsidy and the respective environmental innovation. The authors therefore emphasize that the study examines statistical relationships, not the causal effectiveness of individual subsidy programs.

The study, titled “Which Government Subsidies are Relevant for Eco-Innovation? Empirical Evidence from Firm-Level Panel Data,” is available for download in English on the ZEW website.

Author: Fritz Wilhelm