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# 52011SC1434

**COMMISSION STAFF WORKING PAPER EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENTIntegrating ex-ante evaluation requirements /\* SEC/2011/1434 final \*/**

  

1.
Background

The EIT was set up to fill a gap in the
European landscape and with a clear objective: promote innovation via the full
integration of the knowledge triangle (research, innovation and education). The
EIT is a novel initiative at EU level that explicitly links the full innovation
cycle from education and knowledge creation to new market opportunities and
business creation. The EIT is characterized by two main principles: an
independent EIT organisation, (neither the Commission nor representatives
from the Member States are members of the EIT Governing Board) which organizes
the selection process of KICs, coordinates them with a flexible framework and
disseminates best governance and funding models from the KICs; and
autonomous KICs, which define their internal organisation, composition,
agendas and working methods.

As an agency and in contrast to programs,
the EIT does not have actions but implements its activities notably via the
KICs which are integrated, long-term partnerships, set for a period between
7-15 years, spanning over various financial frameworks. KIC have legal status.
The first three KICs have been selected in the fields of climate change
adaptation and mitigation (ClimateKIC), future information and communication
society (ICT Labs) and sustainable energy (InnoEnergy). The KICs are presented
in more detail in the Annexes.

The EIT has a EU budgetary contribution of
€309m for the period 2008-13. The EIT has fully absorbed the amounts allocated
in 2009 and 2010 (5,6 million and 26 million respectively) and is expected to
fully commit the 55 millions allocated in 2011. This is an important milestone,
considering the large volume of carry-overs and cancellations of operational
appropriations of EU agencies especially in during their first years of
existence (cf. Report of the Court of Auditors).

The EIT is
reflected in the EU2020 and in key flagships and initiatives such as:

·
The Innovation Union Communication

·
The Youth on the Move Communication

·
Modernisation of the Higher Education Agenda

·
The Commission's Regional Policy communication
on smart growth

2.
Problem definition

Innovation has been put at the top of the EU
policy agenda for a good reason. A number of challenges and barriers continue
to inhibit the innovation capacity in Europe and its ability to tackle complex
societal challenges in a sustainable way. This has implications for the
continued competitiveness of firms, Higher Education Institutions and Research
Institutes across the EU and, ultimately for the employment, social,
environmental and economic well-being of citizens of the EU. The EIT has been
set up to support addressing these challenges. Building on the Horizon 2020
challenges, the first EIT Impact Assessment and the positioning of the EIT
within the innovation landscape, the following underlying drivers have been
identified:

·
a poor record of developing, attracting and
retaining talented individuals;

·
a fragmented innovation system;

·
the underutilisation of existing research
strengths in terms of realising economic or social value;

·
a low level of entrepreneurial activity,
particularly in establishing potential high-growth businesses and capturing the
value of research and innovation outputs.

The talent challenge is
characterised by the fact that Europe faces serious problems in attracting,
retaining and developing qualified human resources. This is aggravated by the
fact that global competition for postgraduate student and researchers is
increasing since the emerging economies play an ever more important role.

The European Commission's Innovation Union
highlights the need to get more value for money and tackle fragmentation.
EU and national research & innovation systems need to be better linked up
with each other and their performance improved.

There is excellent potential within the
European research and innovation structure, provided by a series of centres of
excellence that have emerged. There is, however, scope for improving the
utilisation of this excellence.

Europe lacks the generally
entrepreneurial culture that characterises the US or the emerging Asian
economies. A major reason for this might be the different attitudes to risk,
seen as a defining factor of entrepreneurship. Also, in Europe the concept of
entrepreneurial thinking is largely confined to business schools and economics
courses.

The EIT's
independent evaluation confirmed the EIT concept and general objectives but
referred to some issues related to the implementation of the EIT following its
launch. In assessing how far the EIT achieved its overall objective of
increasing the innovation capacity of Member States, the evaluation found that
the impact of EIT in structuring innovation across Europe is limited due to
factors such as lack of critical mass, administrative inefficiencies and
limited economies of scale related to a limited scope of activities. It is
important to underline that all of these issues are related to the
implementation of the EIT.

3.
Synergies, complementarities and EU Added
Value

In its Common Strategic Framework for
Research and Innovation (Horizon 2020), the Commission identified three
complementary and interlinked pillars: Excellence in the science; Tackling
societal challenges; Creating industrial leadership and Competitive frameworks.
The promotion of innovative education and entrepreneurial mindsets is a
particularly unique dimension and the main contribution of the EIT across the
three pillars of Horizon 2020. As part of Horizon 2020, the EIT has been framed
within the pillar "Tackling societal challenges", through its
innovation activities and knowledge triangle integration. However, given its
integrated, cross–cutting nature, synergies should also be sought with other
pillars, in particular the "competitiveness" pillar. Linkages are
being developed at KIC level with other initiatives, which materialise in a
variety of ways, from KIC to KIC and challenge to challenge.

As Horizon 2020
does not cover education activities beyond the EIT, the EIT has a particular
contribution to make to the objectives of Horizon 2020 via innovative,
entrepreneurial education, playing an important bridging role between the Research
and Innovation Framework and education policies and programmes. In this
context, the EIT will contribute to achievements of the European Higher
Education Area. In particular, through new, trans/interdisciplinary
EIT-labelled degrees, the EIT is leading a collaborative effort towards
education for innovation with clear spill over effects on the broader European
agenda for the modernisation of higher education institutions.

Moreover, the
EIT can contribute to the Cohesion Framework by addressing the linkages between
the local and global aspects of innovation. Co-location centres provide for
cross-border collaboration within and outside of the KIC networks and are well
positioned to capitalise and benefit from various funding schemes from their
respective regions. Via the co-location centres, the EIT and KICs have a strong
territorial impact and offer an important element of European added value next
to the development of smart specialisation and clusters.

The
European nature of the EIT offers a strong element of EU added value. At
present, the EIT is the only EU initiative that explicitly links the full
innovation cycle from education and knowledge creation to new market
opportunities and business creation. This is beginning to demonstrate a number
of potential efficiency gains, as has been suggested by the external evaluation
of the EIT.[1]
Other EU initiatives also do not have the same institutional dimension.

The EIT specifically aims to brings added
value at EU level by:

·
Building up new innovation models via
world-class long-term integrated partnerships;

·
Overcoming fragmentation and connecting
excellence across the EU;

·
Fostering entrepreneurship through knowledge
triangle integration;

·
Nurturing talent across borders;

·
Operating according to a results-oriented
approach;

·
Experimental character;

·
Leverage on private investment.

4.
Objectives

The external evaluation of the EIT
validated the concept of the EIT and its goals of contributing to improving the
innovation capacity of the EU by involving partner organisations in integrated
innovation, research and education activities at the highest standards. EIT's
ambition of becoming a model for the integrated European Innovation Research
and Education area by generating innovations in areas of key economic or
societal interest remains appropriate. Since the introduction of the EIT, the
importance of EU support for tackling societal challenges has increased in
significance. The rationale for public intervention is strong given the levels
of market failure present and the missing incentives for firms to engage in
innovation addressing societal challenges.

In full alignment with other EU initiatives
the general objectives of the EIT are to

·
Contribute to reinforcing the innovation
capacity of Member States and the EU by promoting the
formation of integrated and co-located partnerships which combine innovation,
research and education activities and act as globally
recognized flagships for new models of innovation;

·
Deliver actions which tackle key societal
challenges through developing new products, processes and services of the highest international standards.

Some
more specific objectives underpin the general objectives outlined above:

·
Integration of the knowledge triangle (of
research, innovation and education) to create economic and social value and to
enhance the returns from greater levels of collaboration and co-operation.

·
Enhancement of the attractiveness and commercial
relevance of post-graduate education; opportunities to attract, develop and
retain appropriate skills;

·
Exploitation of the underutilised potential of
the EU’s research strengths to deliver greater returns in the product and
labour markets;

·
Development of effective collaborative linkages
between centres of excellence to create a critical mass for advanced innovation
and education;

·
Promotion of the development of innovative
products and processes where market failures lead to a sub-optimal provision;

·
Strengthening the capacity for entrepreneurship
across the EU to create new business activity and increased realisation of the
potential value of research and educational outputs;

·
Strengthening existing and potential centres of
research, innovation and educational excellence in the EU to produce globally
competitive centres of activity with global reputations for excellence;

·
Addressing disparities in innovation capacity
across the EU by developing and sharing the knowledge of the returns to the new
models of innovation practices and governance.

While addressing its specific objectives,
the EIT operational objectives are guided by the need to achieve critical mass
of KICs through consolidation and expansion; enhance administrative efficiency
and capacity through providing support functions for the KIC, simplification
measures, targeted services and outreach strategy including internationalisation;
improve and extend the EIT activities including dissemination with view of
achieving economies of scale.

5.
Policy options

A number of options for the development of
the EIT were considered prior to its launch in 2009 and were subject to an
impact assessment[2]. There has been no significant change in the context to warrant the
reinstatement of those options which were rejected and so the current IA does
not consider those rejected options further[3].
Instead the Options presented build upon the experience gained in the first two
years of the EIT’s activities. The Options are guided by the objectives outlined
above.

Three Options have been analysed:

Option 1. Closure

One Option for the EIT would be to wind up
its activities. This forms the ‘stop option’ and all activities of the EIT are
assumed to cease. Any prolongation of the activities of the KICs would be
dependent upon their ability to secure funds to replace those lost from the
winding-up of the EIT. It is considered unlikely that the three KICs would be
able to continue activities as the evaluation of the EIT found that they were
not yet financially self-sufficient. Some residual activity might be maintained
and assumptions to this effect are built into the assessment exercise. No other
existing initiative at EU level can support the long-term integration of
excellent research, education and innovation to address specific societal
challenges. Moreover, the role to be played by the EIT in dissemination of good
practices of innovation would remain unfulfilled.

Option 2. Baseline

Continuing with the existing 3 KICs would
enable the EIT to consolidate its activities and focus upon a limited number of
priority fields. Under this baseline scenario, the existing pattern of activity
of EIT and the KICs is assumed to continue on a similar pattern and scale. The
Option would not involve any expansion of funds to the EIT but would continue
its existing budget. Any expansion of activity by the KICs would be as a result
of their ability to secure additional funding.

Activities of the EIT would continue at the
present (planned) level. This includes activities related to entrepreneurship
and workshops bringing together KIC participants. Under this Option new KICs
could only be established once an existing KIC had ceased to receive funding
from the EIT. This would maintain a constant budget and retain the operation of
three EU-supported KICs. The EIT's and KICs imprint on European innovation will
be limited due to lack of critical mass to make a noticeable impact (cf.
although there is no consensus as to what constitutes critical mass, most
respondents believed that somewhere between 6 and 10 KICs would be an
appropriate scale for the future) .

Option 3. Progressive Growth and
extended activities

Under this Option a number of new KICs
would be launched by the EIT, and thus a greater number of priority fields
would be covered. The budget for each newly-launched KIC would be the
approximately same as that currently applied to existing KICs. Based upon the
analysis of the supporting study to this impact assessment regarding economies
of scale and the EIT proposals for the future it is considered that the total
number of KICs could eventually rise to up to 9 by 2020. This will enable the
EIT to achieve its expected impact on innovation, research and education and is
based on the assumption that each KIC is composed between 5 to 6 centres of
excellence (co-location centres), and that the very same centres may
participate in more than one KIC, hence leading up to approximately a critical
mass of 50 centres of excellence across the EU. A further expansion beyond the
9 KICs may compromise the principle of world-class excellence, which is a
cornerstone of the EIT model.

Current and planned activities of the EIT
would continue and expand in order to consolidate the EIT as a learning
organisation in its own right. This would include developing dissemination and
outreach strategies as well as the ‘internationalisation’ agenda of the EIT
regarding its relationships with 3rd countries. Furthermore, this option
implies that the EIT starts additional activities in order to extend the
benefits gained through the KICs to audiences beyond those directly involved in
the KICs. The EIT would operate additional activities which would serve to link
firms, research institutes, Higher Education Institutions and public
authorities located in areas where innovation capacity is weaker. The EIT would
seek to promote the development of innovation capacity in these areas. This
would not involve a dilution of the ‘excellence’ criteria applied to the
selection of KICs but would constitute a deepening of the role of the EIT.

6.
Assessment of impacts

The EIT is intended to boost the innovation
capacity of the EU and Member States in order to increase the competitiveness
of the EU economy and to develop innovations addressing societal challenges.
The EIT has the potential to bring about strong diffusion and institutional
effects by identifying and disseminating best practice governance and funding
models from the KICs, making sure that knowledge from the KICs is captured,
valorised and capitalised across the Union and beyond.

6.1.
Most relevant economic, social and environmental
impacts

Economic effects: The strongest effects are found around research and innovation
activity and the influence on investment flows. The distributed model adopted
for the EIT encourages cross-border flows and contributes to the development of
a single European area for education, research and innovation.

Social effects: Welfare benefits accrue owing to the development of innovations
addressing societal challenges. The Options will also support the modernisation
of Higher Education stimulating additional social benefits.

Environmental effects: They are - at worst - neutral, at best, particular fields of
activity may promote the development of innovations which provide positive
environmental benefits.

6.2.
Qualitative assessment of significant impacts

Innovation and research. Each Option will promote stronger levels of research and innovation,
and improve the efficiency of the innovation effort. This will be done through
providing investment in innovation activity. In addition, Option 3 will provide
positive benefits also indirectly through supporting the generation and
dissemination of better practices in innovation promotion and innovation
governance.

Education systems. Options 2 and 3 will both improve the quality of education
provision, particularly with regards to business involvement, and the provision
of entrepreneurial education. Option 3 will also provide some positive impacts
through raising awareness of good practice in those parts of the EU which are
not directly participating in the EIT.

Internal market and competition. There is a potential positive impact
for the EIT, through the KICs, on the movement of workers, the flow of capital
and on better consumer choices. The impacts will be stronger under Option 3
than under Option 2 owing to the greater scale of activity under this Option.
Option 1 will have some positive residual impact but this is unlikely to
significantly affect market conditions.

Competitiveness,
trade and investment. The effect of the EIT, through the KICs, on productivity is likely
to be positive under all Options. The scale of the impact will be greatest
under Option 3 and least significant under Option 1. Options 2 and 3 are also
likely to deliver gains in the global competitiveness of firms and institutions
involved. The activity of the EIT will also provoke cross-border investment
flows through the relocation of economic activity.

Consumers and
households. Options 2 and 3 are likely to have positive, albeit modest, impact
on consumers and households by providing new goods and services.

Specific sectors and regions. Owing to the multi- and
cross-disciplinary approaches adopted in the KICs, many sectors will
potentially engage with the EIT. The regional impacts of the EIT are likely to
be more significant. Regions and Member States which are the site for
co-location centres will have opportunities for positive benefits through
economies of agglomeration and the reaping of positive externalities. This is
only valid for Options 2 and 3. Moreover, Option 3, in seeking to extend the
coverage of the EIT to generate new models of innovation governance across the
EU has the potential to generate positive benefits in all EU regions.

Third
countries/international relations. Options 2 and 3 are considered to have the potential to affect
investment flows between the EU and third countries through creating a more
conducive environment for that investment. Both Options may also act to attract
flows of students and researchers from 3rd countries.

Macro-economic environment. All options will have a positive
impact on economic growth. This will occur both through demand-side effects and
positive improvements to the supply-side. The scale of the impact will be
greatest under Option 3 and least significant under Option 1.

Employment and labour markets. All options facilitate new job creation and support
entrepreneurship. The scale of the impact will be greatest under Option 3 and
least significant under Option 1. Options 2 and 3 will also support the
functioning of labour markets in the EU through encouraging the temporary
mobility of labour to engage in knowledge exchange activities.

Environmental
impacts. Options 2 and 3 will have positive impacts on climate; transport
and energy use; air quality; renewable and non-renewable resources, and
environmental consequences of firms and consumers.

6.3.
Budgetary assumptions and assessment of cost effectiveness

In order to assess the impacts of the
various options assumptions are made as to the possible income and expenditure
of the EIT and the KICs. Overall levels of impacts will vary depending upon the
budgets available and the type of expenditure. The budget estimates are based
on the KIC lifecycle[4]
and on the principle that a KIC will be financed on average for up to 25% of
its global expenditure for the whole life-cycle (15 years). The assumptions are
as follows:

Option 1: No
EU expenditure on EIT HQ or KICs. The own income and expenditure of KICs from
2014-2020 is assumed to be around one third of total KIC activity in 2013.
Expenditure is thus strongest in early years and trending to zero by 2020. No
income or expenditure by EIT HQ.

Option 2: EU
income and expenditure by 3 KICs 2014-2020 to total €1,800m. This figure is
based on assumptions of the budget required to consolidate existing KICs and a
budget for the EIT for outreach and dissemination, cross-cutting support to the
KICs and EIT administrative expenditures. During the 2014-2020 period, the EIT
contribution to the three KICs will cover the last years of their
"development phase", and "achieving sustainability phase".
KICs own resource expenditure to total some €4,000m. EIT HQ to have income and
expenditure in same period of some €55m.

Option 3: EU
income and expenditure by 9 KICs 2014-2020 to total €2,800m. This figure is
based on assumptions of the budget required to consolidate existing KICs, a
gradual development towards new KICs (three new KICs by 2015 and 2018 each) and
a budget for the EIT for outreach and dissemination, cross-cutting support to
the KICs and EIT administrative expenditures. The budget reflects the different
stages of development of the 9 KICs. Expenditure will be strongest in later
years as KICs profiled to come on stream in a staggered manner. KICs own
resource expenditure to total
some €6,100m. EIT HQ to have income and expenditure in same period of some
€100m.

7.
Comparing the options

Based on the assessment
of impacts (DG-internal and by an external consultant), conclusions have been made
with regard to the strengths and weaknesses of the individual options and their
ability to achieve the objectives outlined further above. The different options
have also been compared with regard to their effectiveness,
efficiency and coherence. Finally, some possible risks associated with the different
options have been examined. The results are the following:

Option 1 does not deliver against the objectives of the EIT in comparison to
the baseline. Its main beneficial feature is that it involves no EU
expenditure, whilst still reaping the benefits of past investments in the KICs.
These benefits will decay over the period of the coming Multiannual Financial
Framework. Were there evidence of significant government failure with respect
to the EIT, such as deadweight, crowding-out of investment or misdirected
investments then Option 1 would offer additional benefits. However, the
external evaluation of the EIT did not find any evidence of such failures.          
The administrative costs of this option will decrease significantly as the
activities of the EIT are assumed to cease. The costs of administrative
expenditure, covering necessary staff, administrative, infrastructure and
operational expenses until the wind up of the EIT activities will not exceed 1
% of the EIT Budget.

Options 2 and 3 meet the objectives of the EIT most strongly. The impact of Option
3 is greater than that of Option 2 owing to its greater scale. The scale of
Option 3 provides a further benefit in that it is less affected by the
potential weakness of privileging existing networks. This weakness is
relatively greater for Option 2. The cost-effectiveness of Option 2 is
stronger than Option 1 because the EIT will maintain the scale of operation.
Implementation costs will also be proportionately reduced as they will be
spread across the actual number of KICs. The administrative costs of the option
will not increase significantly. The costs of administrative expenditure,
covering necessary staff, administrative, infrastructure and operational
expenses, will not exceed 2 % of the EIT Budget.

Option 3 scores positively in terms of raising the international profile of
the EIT, and, most significantly, in sharing the knowledge generated within the
EIT with external actors and agents. In particular, Option 3 offers a means to mitigate
some of the territorial imbalances associated with Option 2. The
cost-effectiveness of Option 3 is stronger than Option 2 because the EIT has
reached a more efficient scale of operation. Implementation costs will also be
proportionately reduced as they will be spread across a greater number of KICs.
The costs of administrative expenditure, covering necessary staff,
administrative, infrastructure and operational expenses, will not exceed 2.16%
of the EIT Budget.

Option 3 has two weaknesses. Firstly, its very scale may begin to introduce
market distortions. This will not be the case in Option 1 and is less likely
under Option 2. Secondly, it strengthens existing centres of excellence and
risks reinforcing prevailing disparities in relative innovation performance
between regions of the EU. However, it is believed that the EIT will be able to
mitigate these effects by taking appropriate action.

On the basis of the evidence available, Option
3 is the preferred option.

8.
Monitoring and evaluation

The EIT evaluation[5] made a number of strong
recommendations regarding the monitoring and evaluation of the EIT and the
Commission is to follow up on these in its Evaluation Action Plan. The
recommendations stressed the importance of establishing robust monitoring
procedures in association with the KICs, that the EIT should act as a
challenging partner to the KICs, and that the EIT should adopt a culture of
‘openness’. The EIT should seek to develop a culture of continuous evaluation
across the EIT. This should seek to evaluate the innovative practices being
implemented within and across the KICs and to identify the returns being
achieved from investments made. The EIT should seek to work with the KICs to
continuously improve performance and should seek to make available the lessons
it has learnt to help improve performance elsewhere in the EU.

In response to
its responsibility, the Commission is fully committed to support the EIT in
establishing a sound and solid results-oriented monitoring system while fully
respecting the contractual relations between the EIT and the KICs. In doing so,
it is important to design and implement the monitoring system around with EIT
with view of at least four key determining factors:

·
The European policy level: The need for an
interface between the EIT and the overarching Horizon 2020 monitoring system
and the Innovation Union monitoring.

·
The EIT-Institute level: A set of indicators
measuring the progress of the EIT own processes and activities such as
dissemination, outreach, human resources development. The indicators should
correspond to the objectives of an efficient and effective institution.

·
The cross-KIC-level: A common set of SMART indicators applicable across all KICs, for
example via a further development of the EIT Scoreboard to be managed and
applied by the EIT. The SMART indicators should correspond to the objectives of
the EIT.

·
The individual KIC level: KIC have different
business models and markets and thus different industrial KPIs. The KIC own
KPIs shall be taken into account by the EIT in measuring the progress achieved
against the objectives set in the annual Business Plans. The KIC own KPI should
correspond to the objectives of the KIC.

[1]               http://ec.europa.eu/dgs/education\_culture/evalreports/index\_en.htm#educationHeader

[2]               http://eit.europa.eu/fileadmin/Content/Downloads/PDF/Official\_documents/impact\_en.pdf

[3]               Five options were debated: 1) the Centralized EIT
being a centrally governed institution performing directly research, education
and innovation activities and directly responsible for the KIC management ; 2)
the Distributed EIT where the EIT is a funding body but KIC are autonomous and
perform directly education, research and innovation activities; 3) the
Integrated EIT which is a combination of Options 1) and 2) and where the EIT
Governing Board sets the overall strategy, selects, evaluates and monitors the
KIC but KIC are autonomous to organise their activities; 4) the
Funding-Labelling EIT where the EIT acts as a funding body and awards the EIT
label based on excellence; 5) the Status-quo (a ‘no EIT’ option). Two options
were also excluded during this first assessment process, namely; a) The single
green field institution and b) The network of organizations. Policy option 3
emerged as the preferred option. The Impact Assessment exercise states that
“This option aims at finding a balance between option 1 and 2 keeping the
benefits of both while avoiding their drawbacks” (p.32).

[4]               The KIC life cycle phases cover the following phases:

a) a "setting-up" phase of
2 years: it is a time for a KIC to get organised, set up necessary financial
and legal structures as well as recruit crucial staff. The implementation of
the real KIC activities will start notably on the second year of
implementation.

b) "development" phase of 3
years: it is assumed that the KIC has been already established and begun
implementing its core activities, however still dynamically expanding in terms
of the scope of activities and the number of partners. This would lead to a
substantial increase of the KIC budgets.

c) "cruising speed" phase
of 6 years: the KIC has a stable structure with clearly defined scope of
activities. d) "achieving sustainability" phase of 4 years: the KIC
activities are similar to cruising speed phase while the EIT contribution will
gradually decrease requiring a KIC to assure other sources of revenues.

[5]               http://ec.europa.eu/dgs/education\_culture/evalreports/index\_en.htm#educationHeader

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