Europe’s plan to double down on electricity will require a more robust ETS

Europe has not been doing enough to electrify industry, buildings and mobility, leaving the continent over reliant on volatile and expensive fossil fuels. The European Commission wants to change that. Its Electrification Action Plan out today aims to double the share of electricity in Europe's energy mix to 46% by 2040. The plan rightly identifies electrification as Europe's fastest route to greater competitiveness, lower energy bills and energy security. But the reform of the Emissions Trading System, also out today, risks undermining these efforts by slowing decarbonisation and failing to channel billions in ETS revenues to industrial electrification.

Today the European Commission presented its Electrification Action Plan alongside a revision of the EU's Emissions Trading System (ETS). The Electrification Action Plan proposes an electrification target: doubling the share of electricity in the EU energy mix from 23% today to 46% by 2040. Delivering that would reduce the EU's oil use by half and gas use by two-thirds, significantly boosting Europe's resilience to geopolitically driven energy shocks.

The Electrification Action Plan calls on national Governments to cut VAT on electric vehicles and heat pumps, proposes to phase out fossil fuel subsidies, and to boost the deployment of renewables by fully implementing the Renewable Energy Directive.

Crucially, the plan comes with a new legislative proposal to future-proof the electricity system. The new Directive would ensure electricity is no longer taxed higher than gas. It would address speculative grid connection requests which clog up the system. And would ensure grid levies support the cost-efficient running of the electricity system.

WindEurope CEO Tinne Van der Straeten comments: "Doubling the share of electricity in our energy mix by 2040 is the right call. It'll make Europe more competitive, resilient and energy secure. Now we need to focus ruthlessly on this. Priority number one? Getting the ETS to send a strong carbon price signal, and gear revenues at industrial electrification."

ETS and Electrification Action Plan must work hand in hand

By putting a price on carbon emissions, the ETS generates tens of billions of euros every year, revenues meant to fund the green transition. Yet only around 5% of reported ETS revenues are actually spent on industrial decarbonisation.

Today's ETS revision failed to adequately address this issue. Allowing industry to emit CO₂ well into the 2040s and giving a longer window for free allowances, risks undermining the rationale to invest in electrification. As well as penalising early movers.

The proposed ETS revision also fails to prioritise industrial electrification in the ETS-linked Innovation Fund and Industrial Decarbonisation Bank.

"Now the EU must put its money where its mouth is. You say electrification is central to energy security and competitiveness? Then use ETS revenues to boost industrial electrification with readily available technologies.", says Tinne van der Straeten, and adds: "The Electrification Action Plan and Emission Trading System must work hand in hand. The Electrification Action Plan has identified where electrification can happen fastest. The Innovation Fund and Industrial Decarbonization Bank must provide the investment support to make those projects happen."

WindEurope calls on the European Parliament and the Council to ensure full policy coherence by leveraging the ETS to make industrial electrification bankable, and boost the competitiveness and resilience of European industry.

This will require setting the right mandate for the EU Innovation Fund. Electrification and decarbonization is not about funding breakthrough innovation. It's about making electrification bankable, and scaling up key delivering technologies: renewables on the supply side, industrial heat pumps, e-boilers, and thermal energy storage on the demand side.

Today's technology can already electrify 930 TWh of industrial process heat below 500°C, in sectors like food and beverage, paper and pulp, and pharma. This is a clear opportunity for Europe to make quick, meaningful progress with available resources.