The Commission has unveiled a new electrification action plan aimed at speeding up the shift from fossil fuels to electricity in Europe across industry, transport and buildings. The goal is to make Europe the world’s first “electro-powered” continent by aiming to increase electrification from today’s 23% of energy use to 46% by 2040. By reaching this goal, the EU could save €260 billion per year in fossil fuel imports.
The benefits of moving to electrification include
- reducing dependence on imported fossil fuels, which will make Europe more independent and competitive, and reduce vulnerability to geopolitical shocks
- modernising and decarbonising Europe’s energy system, which will help accelerate the green transition
- bringing benefits for European consumers: 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’s heating bill by up to 60%.
However, several challenges still need to be addressed. Electricity often costs three times more than gas. Grid connections can take years. Too many innovative technologies never reach commercial scale. Companies have too little incentive to make the switch from fossil fuels to electricity.
The new plan address all of these challenges. It does so by proposing a series of measures that will help reduce the price gap between electricity and fossil energy costs and by incentivising the uptake of cleaner, electricity-based technologies such as heat pumps, electric vehicles and batteries, among others. Measures in the plan include
- future-proofing electricity bills in the EU by empowering EU countries to reduce network charges for certain consumer groups and taxes for energy-intensive businesses
- encouraging faster deployment of smart meters, which will make it easier for consumers to save on their energy bills
- lowering upfront costs of electrification technologies across key demand sectors. This will be achieved by mobilising tools such as social leasing schemes, the Emissions Trading System (ETS) financial instrument and the Social Climate Fund.
- speeding up the deployment of European electricity grids through the grids package
- accelerating the uptake of innovative electrification solutions
- investing in skills and jobs in electrification, with the potential of creating hundreds of thousands of quality jobs
On the same day the Commission presented this plan, it also announced a review of the EU ETS, the EU’s main decarbonisation policy. A changing geopolitical and economic context means that also this policy requires modernising. This review, along with the action plan are part of the EU’s wider efforts to boost Europe’s competitiveness, decarbonisation and independence.
This has been sourced from the official website of European Commission and can be accessed here
The ETS Review: an investment engine fit for 2040 goals
The review will bring relief to industry, while preserving the essential role of the ETS in the climate and energy transition, in line with the EU Climate Law. It updates the Linear Reduction Factor (LRF) of 3.7% for 2031-2035 and 1.7% for 2036-2040, making the trajectory more gradual and aligned with domestic climate ambition level. Up to 2% high-quality international credits will allow to finance decarbonisation projects abroad and provide breathing space in 2036-2040 when the emission reduction in Europe will become more challenging.
The revised ETS will have a strong focus on investments. The Industrial Decarbonisation Bank will have €100bn 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. And 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 €100bn 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.
Free allocation for companies will continue beyond 2030, and will be more closely linked to investments in decarbonisation in Europe. National ETS revenues should be reinvested in ETS sectors. The principle is clear: contributions by industry should flow back to industry. This approach encourages and rewards those that invest in the clean transition – and incentivises those who struggle to catch up.
The proposal also integrates permanent carbon removals into the EU ETS. This will give additional flexibility for the hardest-to-abate sectors and will at the same time support the scale-up of these technologies.
A separate proposal on benchmarks aims to increase free allocation to industry worth €6 billion for the period 2026-2030. For sectors that are covered by the Carbon Border Adjustment Mechanism (CBAM), the reduction of free allocation will be slowed and the phase-out extended until 2038.
The Commission also proposes a reform of the Market Stability Reserve (MSR) to further strengthen market stability and predictability for investments, maintain liquidity and reduce excessive price volatility. This complements the Commission’s proposal of April to stop the automatic invalidation of allowances held in the Reserve.
The proposal strengthens EU ETS for aviation and maritime sectors and extends it to waste incineration. Across these sectors, the review is creating new business opportunities, addresses risks of circumvention and levels the playing field. It also provides coherence with international developments.
This extract has been sourced from the official website of European Commission and can be accessed here