EU Unveils Electrification Plan and ETS Reforms to Accelerate Industrial Decarbonisation

The European Commission has unveiled a new Electrification Action Plan alongside a review of the European Union's Emissions Trading System (EU ETS), aiming to accelerate Europe's clean-energy transition while strengthening industrial competitiveness. The measures seek to increase the use of electricity across buildings, transport and industry while reducing dependence on imported fossil fuels.

A central target of the Electrification Action Plan is to increase electricity's share of Europe's total energy consumption from around 23% today to 46% by 2040. The Commission is also targeting around 4 million heat-pump installations annually by 2030, compared with approximately 2.4 million in 2025, alongside expanded grid connections and charging infrastructure for heavy-duty electric vehicles.

The proposed ETS reforms would adjust the pace of emissions reductions while linking continued access to free carbon allowances with industrial decarbonisation investment. For sectors covered by the Carbon Border Adjustment Mechanism (CBAM), the phase-out of free allowances would be extended to 2038, while companies receiving the majority of these allowances would need to demonstrate progress on decarbonisation investments.

The Commission also proposes using the ETS framework to mobilise significant funding for climate investment. Member States would be required to direct at least half of their national ETS revenues towards climate-priority investments, while an ETS Investment Booster would form the first phase of the planned €100 billion Industrial Decarbonisation Bank. The package also proposes measures to improve carbon-market stability and investment predictability.

Together, the initiatives represent a shift towards making electrification a central pillar of Europe's energy and industrial strategy. By expanding electric solutions, strengthening grids and directing carbon-market revenues towards decarbonisation, the European Commission aims to reduce fossil-fuel dependence while creating conditions for greater investment in Europe's clean-energy transition.

Coupling electrification with ETS reform is where EU industrial-decarbonisation strategy gets genuinely coordinated, and it changes what corporates should plan for across capex, carbon-cost and disclosure narrative. Our climate-action and energy-transition teams help clients evaluate what these frameworks mean for industrial-decarbonisation planning.