Europe’s new energy strategy centers on electrons. The European Commission has presented an action plan for the electrification of the economy and a revision of the European Emissions Trading System (ETS) with a twofold objective: to reduce dependence on imported fossil fuels and to give a new boost to industrial competitiveness.
The strategy is based on a statistic that highlights a contradiction in Europe’s path toward climate neutrality: Today, about 70% of the electricity consumed in the European Union is generated from domestic renewable energy sources, but the share of energy used in the form of electricity across various economic sectors has remained stagnant at 23% for about ten years.
According to Brussels, this percentage is expected to rise to 46% by 2040. The expected result is a reduction in European spending on fossil fuel imports estimated at 260 billion euros per year.
From Energy Security to Industrial Transformation
The plan also stems from the pressure exerted in recent years by energy and geopolitical crises. Rising gas prices have exposed the vulnerability of a system that remains heavily reliant on imports, while many European companies have had to contend with higher energy costs than their international competitors.
The Commission therefore proposes to accelerate the transition to electric technologies in the sectors with the highest energy consumption: industry, transportation, and buildings. “The best way to reduce Europe’s energy dependence on fossil fuels is to power our economy with electricity from clean, domestic sources,” said European Commission President Ursula von der Leyen, explaining that the plan also represents “a plan for investment and independence.”
Among the planned measures is the reduction of economic barriers that are currently hindering electrification. In many European countries, in fact, the price of electricity remains higher than that of natural gas, making it less cost-effective for households and businesses to switch to heat pumps, electric vehicles, or electrically powered industrial processes.
The Issue of Networks and Costs
However, the transition requires adequate infrastructure. The Commission emphasizes that the long wait times for new grid connections and the still-insufficient capacity to accommodate new demand represent one of the main obstacles to the transition.
The plan also focuses on increasing the adoption of smart meters, allowing Member States to reduce certain network tariffs for specific categories of consumers, and revising energy taxation, with the aim of ensuring that electricity is not penalized relative to natural gas.
In the residential sector, Brussels highlights several potential economic benefits: According to estimates in the plan, switching from a gas furnace to a heat pump could reduce the average cost of heating for European households by up to 60%, while a battery-powered electric car can deliver savings of up to 78% compared to an equivalent vehicle powered by fossil fuels.
The New Phase of the ETS
Alongside electrification, the Commission is taking action on the main European instrument for reducing industrial emissions: the ETS, which has been in operation since 2005.
To date, the European CO₂ market has generated more than 270 billion euros in revenue, contributing—according to Brussels—to a 50% reduction in emissions in the sectors involved. The proposed revision aims to further transform it into an investment tool for industrial decarbonization.
The new framework calls for a more gradual reduction in available quotas, with a linear reduction rate of 3.7% between 2031 and 2035 and 1.7% between 2036 and 2040. It also provides for the option to use up to 2% of high-quality international credits during the 2036–2040 period.
The financial aspect is key: the future Industrial Decarbonization Bank is expected to mobilize 100 billion euros to support large-scale industrial projects, while the ETS Innovation Fund will continue to finance clean technologies in the early commercial stages. Member States will also be required to allocate at least 50% of their national ETS revenues to decarbonization investments.
“The EU ETS has proven that setting a price on carbon works,” said European Commissioner for Climate Wopke Hoekstra. “Today’s proposal brings together three key objectives: climate action, competitiveness, and independence.”
The challenge is to turn ads into industrial capacity
The European plan sets a clear direction: to gradually shift the economy’s energy focus from imported fossil fuels to domestically produced electricity, primarily from renewable sources.
The decisive step, however, will lie in the ability to build infrastructure, increase the production of clean technologies, and support businesses through their transformation processes. Electrification requires investments, expertise, and industrial timelines that are compatible with climate goals.
For Brussels, the energy transition thus also becomes an industrial policy. Reducing emissions depends on Europe’s ability to produce, distribute, and use renewable energy on a large scale, without losing ground in global competition.
