2019 annual report on research and innovation

The experts' recommendations - energy, blockchain and start-ups

Higher taxes on carbon emissions, tax incentives for research and development in small and medium enterprises, more blockchain technology and start-ups – those were the recommendations that the Commission of Experts for Research and Innovation presented today to Chancellor Angela Merkel.

Chancellor Angela Merkel is presented with the report produced by the Commission of Experts for Research and Innovation (EFI) at the Federal Chancellery.

The Commission makes recommendations on technological and scientific matters important for the future

Photo: Bundesregierung/Eckel

"We need sustainable solutions in the field of mobility, heating and industry. These must be based on technological innovations, but equally innovations are needed in social, economic and regulatory fields," said Federal Research Minister Anja Karliczek when the 2019 annual report on research and innovation was presented to Chancellor Angela Merkel.

The Commission of Experts for Research and Innovation advises the German government on technological and scientific matters that are crucially important for the future. In its report it analyses Germany’s research and innovation system, as well as its technological performance, and makes recommendations on how to address current challenges. Once a year it presents a report to the German government.

"With projects like the Copernicus Project in the energy sector, the Federal Ministry of Education and Research (BMBF) is key in generating new impetus and new ideas within the German government. The government has made digital transformation the crux of its research and innovation policy," added Anja Karliczek in her speech.

CO2 tax to make new energy forms attractive

In order to foster innovation in moves to shift Germany’s energy mix and put it on a more sustainable footing, the Commission believes that a CO2-based tax reform is urgently needed. It also proposes combining the expansion of the use of renewables with energy savings and improved energy efficiency.

The German energy system cannot become more carbon neutral without innovative technologies, in the view of the Commission. This applies both to ensuring secure supplies and to the affordability of energy.

"The failure to put a realistic CO2 price on fuels results in a competitive disadvantage for climate-friendly innovative technologies and business models," said Professor Christoph Böhringer from the University of Oldenburg, who is one of the experts. This makes it more difficult to use green electricity generated using renewables in the transport and building sectors.

Climate-damaging impact should determine levies and charges

For the energy shift to carbon-neutral energy systems that is so urgently needed to mitigate climate change, it is not enough to replace conventional coal- and gas-fired power stations with renewables in the power generation sector. Action is urgently needed in other sectors, which are responsible for two thirds of climate-damaging greenhouse gas emissions in Germany: in buildings, in transport and in industry.

"Many of the technologies and business models considered important by the experts are already marketable today," writes the Commission. "To strengthen these innovative and climate-friendly technologies and business models, taxes, charges and levies on energy must be based on the degree to which they impact adversely on the climate or on the CO2 contents of fuels across all sectors of the economy," say the experts. A CO2-based tax reform must be socially acceptable in design.

Promoting research and development especially useful for small and medium enterprises

"Germany should use tax incentives to foster research and development in small and medium enterprises, as most industrialised states already do," declared the Chair of the Commission, Professor Dr Dietmar Harhoff from the Max Planck Institute for Innovation and Competition.

"The international scientific evidence of the positive impacts of these actions make it a must, and a way of complementing existing, tried and tested direct project promotion measures."

The Commission advocates introducing the tax incentives initially only for SMEs with workforces of up to 249. These businesses are particularly hard hit by financing problems and depend largely on tax breaks.

With a view to the costs of making R&D activities tax-deductible, Professor Harhoff stressed, "Every euro lost in tax revenue is more than offset by an average additional private-sector R&D spending of EUR 1.33, giving a positive overall impact."

Using the opportunities offered by blockchain

The experts underscore the special importance of blockchain technology in the unalterable and forgery-proof secure digital storage and transfer of data. The strategy planned for the summer should identify interfaces with other digital-policy strategies of the German government, like the Artificial Intelligence Strategy.

Blockchain is understood to mean a decentralised database in which a list of transaction datasets are extended chronologically on a linear basis, like a chain to which new elements are continually added (which is where the term "blockchain" comes from). This makes it possible to code and manage large volumes of data at a decentralised level, while cutting costs for IT infrastructure.

"Germany is in a promising position to help shape the development of blockchain technology and to realise its economic and societal potentials," said Professor Harhoff. This advantage should be used at political level as leverage to encourage the further development and use of blockchain technology in Germany.

Currently, there are already pilot projects in which blockchain technology is being used to handle financial transactions, organise electricity trading at decentralised level, manage digital identities, support the flow of information between public authorities, and make it easier for regulatory authorities and businesses to comply with reporting obligations.

Digitalising universities

The experts called on those involved in university policies to introduce a digitalisation flat rate payable to universities for every student, and to change salary regulations to allow universities to attract more IT specialists. The shortfall of skilled specialists is a major obstacle, they say, to digitalising German universities.

The Commission proposed that universities elaborate a digitalisation strategy with clearly defined objectives and a pertinent implementation plan. These should go hand in hand with the profile building that the Commission of Experts for Research and Innovation (EFI) have repeatedly called for at universities.

Further strengthening start-up ecosystems

Start-ups follow new business models and modernise the range of products and services available with their innovations. In the initial phase, start-ups often come from the realms of science and thus play an important role in transferring scientific findings and new technologies into practice.

Employee participation programmes are an important way for start-ups to attract and retain specialists. To enhance the legal certainty in the introduction of programmes of this sort, the experts advise start-up associations and federal authorities to develop as legally certain standard contracts as possible.

Start-ups not only create new jobs. They also generate impetus for innovation in established companies. Because they have problems raising risk capital, the Commission proposes introducing incentives for institutional investors to invest more in risk capital.

Strengthening the start-up culture

Start-ups develop particularly well where they find a properly functioning ecosystem with universities and non-university research facilities, established companies, investors and other start-up entrepreneurs.

For this reason the experts advise the German government to continue strengthening the start-up culture at all universities and to anchor start-up training in all degree courses. "If we want to strengthen Germany as a centre for innovation, we must continue to improve the framework for start-ups and for the growth of start-ups," writes the Commission.

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