Funding yesterday’s success: How Germany’s mid‑tech trap holds back green chemistry

Germany’s R&D problem: not just “how much”, but “what for”

According to figures discussed in the Handelsblatt Morning Briefing and based on an EY analysis, Germany’s largest companies are not standing still – but they are moving much more slowly than some of their peers.

The five largest US tech companies increased their R&D spending by 21% in a single year, to 260.7 billion euros. By comparison, the 31 German companies that make it into the global top-500 R&D ranking together reached 83.3 billion euros, with growth of just 3%.

KfW Research adds another important point: when adjusted for inflation, Germany’s R&D expenditure has been largely flat since 2019, while other economies have continued to expand. This is not only a story of “more” versus “less”. It is also a story of direction.

The US tech giants that dominate global markets are using rising R&D budgets to push into new fields like AI, cloud, quantum and biotech. In contrast, a significant share of German R&D still flows into technologies whose growth potential is limited: classic automotive, conventional machinery, and incremental improvements in established process chains.

This is what many researchers and commentators now describe as a mid-tech trap: an economy continues to invest heavily in technologies that were extremely successful in the past, while committing only cautiously to the next wave. On paper, R&D spending looks solid. In practice, the portfolio is skewed toward yesterday’s successes.

For the chemical industry, this is not an abstract macro story. It shapes which routes get developed, which plants get upgraded, and which technologies reach industrial scale.

What the mid-tech trap looks like in chemicals

Within chemicals and pharmaceuticals, the mid-tech trap becomes visible in everyday decisions.

There are substantial budgets for:

• product line extensions and reformulations,

• incremental process optimisation within existing routes,

• compliance projects triggered by new regulations.

By contrast, there is far less systematic investment in things like:

• completely new synthesis routes,

• electrified processes that can run on renewable electricity,

• continuous manufacturing, flow chemistry and intensified processes,

• solvent-free or low-solvent methods that could radically improve footprints.

Many large-volume processes in use today were developed decades ago. Changing them is hard: it requires new development work, regulatory re-approval, and often modifications to plant hardware. On the spreadsheet, a project that adds a few percentage points of efficiency to a well-understood process usually looks safer than a project that rewrites the process from scratch.

From an industrial green chemistry perspective, this is exactly how the trap operates. It decides whether:

• Europe manages to unlock cleaner, more efficient routes in its existing plants, or

• those assets slowly drift toward being stranded, while new, greener capacity is built elsewhere.

It also decides whether new green processes become part of Europe’s industrial backbone, or remain in pilots and press releases.

Capital and ideas are not the bottleneck

The frustrating part is that Germany does not lack potential.

On the capital side, startup funding statistics show that investors are still willing to back ambitious technology plays. EY’s Startup Barometer Germany and related reporting showed around 8.4 billion euros in startup funding in 2025 – one of the strongest years on record. In the first quarter of 2026, funding ticked up again, with the majority of new capital flowing into AI-related business models.

On the ideas side, Europe has deep scientific strengths in exactly the areas that industrial green chemistry needs: catalysis, electrochemistry, mechanochemistry, flow chemistry, process intensification and more. Many early-stage companies are already working on industrially relevant solutions.

What is missing is the connection between these two worlds and the industrial base:

• R&D budgets in established companies often stay focused on the existing product and process portfolio.

• Public funding programmes treat certain technologies as “strategic”, but rarely put industrial green chemistry in that category.

• AI and deep-tech investors mostly meet software and platform founders – not teams trying to redesign chemical routes and plants.

The result is a misalignment: new capital and new ideas are available, but they do not reliably flow into the industrial technologies that actually reduce emissions and secure production.

Green chemistry as a strategic technology – not a side topic

Industrial green chemistry sits at the intersection of several policy goals:

• cutting emissions in hard-to-abate sectors,

• keeping industrial production in Europe,

• and strengthening resilience in key value chains such as pharmaceuticals and materials.

It does this through tangible, technical levers:

• cleaner synthesis routes with less waste and less hazardous reagents,

• electrified and catalysis-driven processes that can integrate renewable power,

• continuous and intensified processes that make better use of equipment and sites,

• retrofit-friendly approaches that can upgrade existing plants instead of replacing them entirely.

Despite this, green chemistry is often treated as a cross-cutting theme rather than a clearly defined strategic technology. Initiatives such as STEP highlight biotech, chips and certain digital fields, but process innovation and advanced chemistry rarely get the same prominence.

Reframing industrial green chemistry as a strategic technology would mean:

• recognising new synthesis and process technologies as critical to industrial sovereignty,

• opening access to the same financial and regulatory tools that other strategic fields enjoy,

• and making sure that not all industrial transformation bets are placed on biotech alone.

Three shifts to escape the trap

From the viewpoint of industrial green chemistry, three shifts would substantially improve the situation.

1. Name green chemistry, green engineering and green pharmacy explicitly as strategic

The first shift is conceptual but has concrete consequences.

European and national strategies should name green chemistry, green engineering and green pharmacy explicitly as strategic technologies – in industrial policy roadmaps, climate investment plans and key programme descriptions.

This affects:

• which topics are eligible for major funding instruments,

• which communities are invited into strategic alliances and dialogues,

• and which projects are seen as “core to the mission” rather than peripheral.

Without explicit naming, industrial green chemistry tends to fall between the cracks: too chemical for digital programmes, too process-focused for classic biotech, and not visible enough in high-level lists of priorities.

2. Protect budgets for process and production innovation

The second shift is financial and organisational.

Funding instruments – both public and corporate – should reserve explicit room for process and production innovation in chemicals and pharmaceuticals, rather than letting these projects compete on equal terms with product tweaks and digital add-ons.

That could include:

• calls that specifically target greener synthesis routes, electrified processes and continuous manufacturing,

• support schemes that make it easier to retrofit existing plants with new technologies,

• evaluation criteria that weigh long-term resilience and emissions reduction alongside short-term ROI.

Within companies, similar principles can be applied internally: for example by earmarking a defined share of R&D spend for new routes and processes, so that they do not disappear from the portfolio whenever budgets tighten.

3. Build bridges between AI / deep tech and industrial chemistry

The third shift is about ecosystems and collaboration.

Given how much funding is now flowing into AI and deep tech, Europe should deliberately connect this wave to industrial production challenges. That can mean:

• programmes that focus specifically on AI×GreenChem or Materials×Automation use cases,

• shared pilots where chemical producers, green-chemistry startups and AI teams work together on real plants and processes,

• event formats where industry leaders, founders and researchers discuss not just “AI in general”, but AI in the context of new chemical processes and green production.

At a minimum, it should become normal for industrial green chemistry startups to appear on the same panels and in the same funding rounds as other deep-tech companies when industrial transformation is on the agenda.

From mid-tech to next-tech

Germany’s mid-tech trap is not inevitable. The country still has world-class chemical expertise, a dense industrial base and a startup ecosystem with a clear appetite for deep-tech ventures.

What is needed now is a shift from funding yesterday’s success to building tomorrow’s industrial backbone:

• by naming industrial green chemistry as a strategic technology,

• by protecting space for process and production innovation,

• and by connecting green chemistry to the capital, talent and attention that are already flowing into AI and deep tech.

The question is no longer whether Germany spends “enough” on R&D. It is whether we are willing to move a meaningful share of that spending away from optimising the last industrial era – and towards the hard, but necessary work of building the next industrial chemistry generation.