Times of change for European space institutions: competing responsibilities and adjustment of the European Space Agency’s geographical return

 Dr Andreas Lenz

HEUKING, Cologne

a.lenz@heuking.de

Introduction

Europe has a long history of multinational space activities,[1] primarily carried out by the European Space Agency (ESA) and the European Union Agency for the Space Programme (EUSPA, collectively the ‘Institutions’.) The longstanding European cooperation in space through these Institutions serves not only as an international model for cooperative innovation, but is also essential in regard to the costly, hazardous and innovation-driven domain of space.

The macroeconomic factors that have influenced space activities over the past several years[2] have not only secured significant budgets for the Institutions but have also raised fundamental questions about the organisation of their respective activities. This has resulted in a steady expansion of the EUSPA’s scope of activities and has influenced an ongoing discussion about potential modifications to the ESA’s geographical return[3] (known as the ‘Geo-return’) policy.

The evolving scope of responsibilities of the Institutions and the discussions regarding the ESA’s Geo-return policy are significant not only for policymakers, but also for all space-related stakeholders operating in Europe. This is particularly true for the space industry, which relies on long-term projects and is accustomed to the specific principles applied by the Institutions. It is also relevant for entrepreneurs, who must monitor the landscape not only for contracts, but also for the changing priorities of the Institutions.

The ESA

Overview

The ESA is a multi-state organisation with 22 members. The ESA receives most of its funding (approximately €7.79bn for 2024) from its members. However, the largest overall contribution to the ESA’s budget comes from the EU.[4] The latter is not self-evident. Not all ESA participants are EU Member States (eg, the UK, Norway and Switzerland). Conversely, not all of the 27 EU Member States are members of the ESA.[5]

Fields of activity

The ESA’s activities traditionally concern the following four pillars:

• science and exploration;
• space safety;
• space-related applications; and
• enabling and support for space-related activities.

These activities include not only scientific and technological innovation, but also practical solutions and services, such as navigation, human and robotic space exploration, Earth observation and space transportation.[6] Notably, the ESA is responsible for the development and launch of many of Europe’s most significant space missions, such as the Mars Express space exploration mission, the launch of the Rosetta space probe, the Copernicus Earth observation programme and, notably, the development and maintenance of Europe’s primary space launch capabilities. In addition, the ESA contributes significantly to the development of space start-ups and facilitates an ecosystem for commercial space services.[7]

The EUSPA

History

The EUSPA is an EU agency founded by the EU. The EUSPA was established in its current form in 2021, succeeding the European Global Navigation Satellite System Agency (GSA), which was primarily focused on managing the EU’s Galileo and European Geostationary Navigation Overlay Service (EGNOS) satellite navigation systems.

Fields of activity

Since 2021, the EUSPA’s mandate has been significantly expanded to include the responsibility for implementing the EU’s space programme and the EU’s space policy. The EUSPA’s activities involve services and applications derived from space technologies, including ensuring the security of the EU’s space assets, fostering the use of space data across various sectors and promoting the development of downstream applications that benefit European citizens and industries.

As part of this, the EUSPA’s responsibilities have included the operational aspects of the EU’s Copernicus Earth observation programme, the planned secure connectivity initiative called Infrastructure for Resilience, Interconnectivity and Security by Satellite that is more commonly known as IRIS², and the operational implementation of the EGNOS and Galileo satellite navigation systems.[8]

As a result of its responsibility for implementing the EU space programme, the EUSPA is directly linked to the EU’s space strategy and EU policies regarding space. This connection can lead to overlaps with the ESA’s priorities and can also cause divergences.

Development of cooperation between the ESA and EUSPA

Overlap and competition

The delineation of the roles between the ESA and the EUSPA is not always clear cut. For example, while the ESA may lead the development of systems (such as regarding Galileo satellites), the EUSPA is responsible for the system’s operations and security.

This division can result in disagreements over decision-making authority and funding responsibility, particularly when it comes to prioritising technical specifications versus operational requirements. Another example is in the fields of education, capacity building and commercialisation, which are within the scope of activity of both Institutions.

The Institutions have and can maintain defined specialisations within the broader scope of their capacities and economic development. However, it appears, that combining the existing expertise and resources for general technical and economic facilitation would, in theory, result in efficiency gains.

Convergence of the Institutions and the challenges

Despite the possible efficiency gains, the author finds it difficult to imagine the full integration of both Institutions into a single ‘EUSA’[9] institution anytime soon. It is also questionable, aside from any political aspects, whether such integration would even be desirable or helpful.

However, since the EU already provides significant funding to the ESA, the Institutions cooperate in many areas and should be largely aligned in regard to their overall goals. Therefore, one may ask, why not at least push for deeper operational integration in adjacent or overlapping fields of activity, or at least establish formal cooperation, with clear roles?

The feasibility of integration depends on the specific activity concerned. Each space programme and activity has its own unique challenges. However, in addition to the usual forces of perseverance, any form of deeper cooperation needs to address at least the following challenges:

• divergent priorities;
• divergent organisational approaches;
• coordination challenges;
• principles like the ESA’s Geo-return (see below); and
• political and legal implementation.

Commercialisation and capacity building

Given the foregoing, areas where deeper integration appears to be feasible are education, capacity building and commercialisation. Both, capacity building and commercialisation are generally based on organisational and facilitation expertise, data regarding project status and resources, the ability to operate onsite and, of course, financial resources not only for implementation of projects, but also for grants and investment/financing. Integrating efforts in this field could avoid overlaps, better utilise expertise and create a more comprehensive database.

It may be seen as a step in the right direction, although only a starting point, that the EU Commission and the ESA have recently signed a collaboration agreement regarding the use of three dedicated ESA accelerators by the EU Commission/EUSPA.[10] In turn, this step can be seen as a blueprint for an unbiased approach by the Institutions to join forces, wherever it makes sense.

The ESA’s Geo-return policy

The Geo-return policy aims to ensure that the ESA’s members receive economic benefits via contracts with companies in the respective states, which are proportional to their financial contributions to the ESA. The goal is to sustainably reward ongoing financial support, secure political backing for ESA programmes and foster capacity and expertise across Europe to accelerate the innovation process in space.

The Geo-return policy is specific to the ESA. Some view it as being fundamentally in conflict with EU competition/procurement principles.[11] However, the idea of a fair return principle is not exclusive to the ESA but is also applied to varying extents in other international programmes[12] to foster sustainable cooperation and capacity development.

The ESA’s Geo-return sometimes faces harsh criticism for alleged inefficiencies, market distortions, negative impacts on innovation and strategic resource allocation and administrative burdens. In order to develop an informed opinion on whether and how the Geo-return policy should evolve it is essential to understand how it is applied in practice.

An overview of the mechanics

The ESA’s Geo-return policy operates through several key mechanisms and already includes built-in adjustment mechanisms, as follows:

• the calculation of a geographic return coefficient;
• differentiation between targeted and non-targeted programmes;
• special measures for less-developed countries; and
• monitoring and adjustment processes.

In addition, on a more detailed level, certain business aspects are weighted, supply chains and research are considered, disparities in member states’ capacities are addressed and various other complex considerations and instruments are applied and already built in.

The ESA Geo-return is based on the ESA’s Geo-return coefficient, which represents the ratio of the value of contracts awarded to a state versus the financial contributions made by that state to ESA programmes over, roughly, a five-year period. However, the ESA’s Geo-return does not blindly target a coefficient of 1/1. Instead, it considers a goal of around 0.93. Thus, a buffer is already built in and the value of the contract is considered over a period and not year by year.

The ESA’s Geo-return distinguishes between targeted and non-targeted programmes. Only targeted programmes take the ESA’s Geo-return into account.

Special measures for countries with less-developed industries are taken into consideration, leading to the application of an adjusted Geo-return coefficient, effectively ensuring that these countries receive a higher proportion of contracts relative to their financial contributions.

The ESA may create tailored contracting opportunities designed to match the specific strengths and capabilities of less-developed members.

The ESA Convention also allows for exemptions, as was prominently evident in regard to the Ariane 6 programme.

The discussed modifications

To address the challenges associated with the current system, various modifications are currently being discussed, including:

• a flexible Geo-return over longer periods;
• a performance-based geographical return;
• a lower cap on Geo-return obligations;
• incentives for cross-border collaboration;
• a timely phased reduction to the geographical return (out-phasing);
• the implementation of mechanisms to account for supply chains and prioritisation of;
• incentives for small and medium-sized enterprises and young companies; and
• substitution of the Geo-return with capacity training and acceleration support for countries with less-developed industries.

Considerations

It is not surprising that some of the established main contractors of ESA Tenders are among the critics of the ESA’s Geo-return policy. Much of the additional costs, time and complexity burden of applying the ESA’s Geo-return falls on those who have assumed material responsibilities or are required to engage with smaller, and sometimes less experienced, partners. A modification to the ESA’s Geo-return policy, if aiming to encourage innovation-driven competition and a ‘best may win’ outcome, is however, certainly not intended to restrict competition and hinder the growth of future competitors.

Another argument in this debate is the need to ‘avoid fragmentation’ in strategic areas to be better equipped for world-wide competition rather than competition only within Europe. This argument, while sounding very much like building ‘European champions’, has surely some justification regarding strategic areas. There is, however, a fine line between avoiding fragmentation in an area requiring long-term investments on one hand and fostering competition by supporting innovative competitors on the other hand.

Final remarks

Overall, it can be stated that a transformation process towards the more agile organisation of space activities between the Institutions involved has not only begun in Europe but is in full swing. With the first EU space law still planned for 2025 and an ESA Council meeting at the ministerial level also scheduled for 2025, Europe clearly faces times of change ahead.