The European Commission has set out a new Electrification Action Plan and proposed changes to the EU’s Emissions Trading System as it pushes to expand the use of electricity in industry, transport and buildings and reshape the bloc’s carbon market.
Electricity already accounts for about 70% of EU power generation from “homegrown” clean energy sources, but the share of energy demand met by electricity has stayed at 23% for the past decade, the Commission informed in a statement on Friday.
An “indicative” target to raise electrification to 46% by 2040 will be assessed as part of a post-2030 Energy Union package.
The Commission said meeting that level could cut the EU’s fossil fuel import bill by €260 billion a year by 2040.
EU Commission President Ursula von der Leyen said the proposals were intended to reduce reliance on imported fossil fuels by powering more of the economy with electricity from clean sources.
Changes proposed for the EU carbon market
The Commission proposed an update to the EU Emissions Trading System — the bloc’s cap-and-trade scheme that makes companies buy permits for greenhouse gas emissions — including changes to the pace at which the emissions cap tightens.
It proposed a Linear Reduction Factor of 3.7% for 2031–2035 and 1.7% for 2036–2040.
The Commission also proposed allowing up to 2% “high-quality international credits” for 2036–2040, which would allow companies to finance emissions-cutting projects outside the EU.
As part of the ETS-related package, the Commission said an Industrial Decarbonisation Bank would have €100 billion in funding for industrial decarbonisation, with an “ETS Investment Booster” available before 2030 as a first phase.
Member states would be required to spend 50% of their national ETS revenues on investments to decarbonise sectors covered by the system, which the Commission said would amount to more than €100 billion in investments before 2030.
The Commission said free allocations of emissions permits for companies would continue beyond 2030, with a closer link to investments in decarbonisation in Europe.
It also proposed integrating “permanent carbon removals” into the ETS, referring to activities that take carbon dioxide out of the atmosphere and store it for the long term.
A separate proposal on benchmarks would increase free allocations to industry by €6 billion for 2026–2030.
For sectors covered by the Carbon Border Adjustment Mechanism — the EU’s levy on certain carbon-intensive imports — the Commission proposed slowing the reduction of free allocations and extending the phase-out to 2038.
The Commission also proposed reforms to the Market Stability Reserve, a mechanism used to manage the supply of emissions permits and limit sharp price swings.
It added that the ETS would be strengthened for aviation and maritime, and extended to waste incineration.
On electrification, the Commission said electricity often costs three times more than gas, grid connections can take years, and some technologies struggle to reach commercial scale.
Among the measures outlined, the Commission proposed “future-proofing” electricity bills by enabling member states to reduce network charges for certain consumer groups and cut taxes for energy-intensive businesses, while also pushing faster deployment of smart meters. It also said it wanted to ensure electricity is not taxed more heavily than gas.
The Commission stated that the plan also set out ways to lower upfront costs for technologies such as heat pumps, electric vehicles and batteries, including “social leasing schemes” and the use of EU funds such as the Social Climate Fund and the Industrial Decarbonisation Bank.
