EC Unveils Electrification Action Plan and ETS Review

The European Commission presented an Electrification Action Plan to make Europe the first electro-powered continent. The goal is also to create a stronger carbon market to support the EU industry in the clean transition and electrification.

Europe's reliance on imported fossil fuels has repeatedly exposed it to geopolitical shocks. These have driven up energy prices for both households and companies, and dragged down our competitiveness. While 70% of EU electricity is now generated from homegrown clean energy sources, the electrification rate of energy demand has stalled at 23% over the past decade. EU therefore needs to accelerate the electrification of energy-using sectors, notably industry, transport, and buildings.

To support this ambition, an indicative electrification target of 46% by 2040 will be assessed by the EC as part of the post-2030 Energy Union package. Reaching this goal could cut the EU fossil fuel import bill by €260 billion per year by 2040. Electrification comes with substantial benefits for the EU economy, businesses and citizens in terms of lower energy prices and competitiveness, stronger energy security and resilience. To help European manufacturers benefit and lead industrial decarbonisation and electrification efforts - to make the switch- the EU needs investment at scale, the EC said.

Since its launch in 2005, the EU Emissions Trading System (ETS) has generated more than €270 billion in revenues that were reinvested in innovation, industrial decarbonisation and the modernisation of Europe's energy system. All the while helping Europe cut emissions by 50% in the sectors it covers.  This market-based system ensures predictability across all EU countries. However, the geopolitical and economic context has changed, and EU industry is under increased pressure.

“The best way to reduce Europe's fossil energy dependency is to power our economy with electricity from clean, homegrown sources. Today we are proposing to make Europe the world's first electro-powered continent. From lowering electricity prices to adapting our carbon market to the changing global realities, this is also an investment and independence plan. To keep the clean transition on track, bring relief to our industry, and support decarbonisation. Let's switch it on,“ said Ursula von der Leyen, President of the European Commission.

The revised ETS will have a strong focus on investments. The Industrial Decarbonisation Bank will have €100 billion in funding going towards industrial decarbonisation across Europe at scale. The ETS Investment Booster will be available before 2030 as the first phase of the Bank. The EU ETS Innovation Fund will continue to support first commercial applications of innovative clean technologies in a wide range of sectors.

Member States will be required to spend 50% of their national ETS revenues on investments to decarbonise ETS sectors. This adds up to more than €100 billion in investments before 2030. Solidarity remains at the core of the ETS. The Modernisation Fund will continue to support lower-income Member States to upgrade energy systems and industrial transformation.

The benefits of electrification for European consumers are clear: driving a battery-electric vehicle can save up to 78% compared to an equivalent fossil-fuelled car. Switching from gas boilers to heat pumps cuts the average EU household heating bill by up to 60%, while providing important co-benefits for climate adaptation. However, barriers to widespread adoption remain.

The Plan focuses on reducing the price gap between electricity and fossil energy costs and on incentivising the uptake of cleaner, electricity-based technologies such as heat pumps, electric vehicles and batteries, among others, across Europe. The Action Plan seeks to level the playing field between electricity and gas. Their price differential often discourages the shift to cleaner options such as heat pumps, electric vehicles and electric industrial processes.