Non-fossil sources now account for 70 per cent of electricity generation, compared with only around 16 per cent for other energy sources. Electricity is therefore not only less harmful to the climate but also helps make the EU more independent. Yet it covers just a quarter of total energy consumption, with the remainder largely supplied by imported oil and natural gas. As noted in the Commission’s press release, progress in electrifying Europe’s energy demand has recently stalled. To address this, the Commission plans to propose an indicative electrification target in the fourth quarter of 2026 as part of the revision of the legal framework for the Energy Union for the period after 2030. According to Commission estimates, reaching a 46 per cent electrification rate by 2040 could cut the EU’s annual fossil fuel import costs by 260 billion euros. That would currently amount to about 10 percent of imports from third countries.

The Electrification Action Plan

Electrifying the energy system is essential for decarbonisation, and electricity-based technologies are often much more efficient, whether in transport or space heating. Yet their uptake remains too slow for a range of reasons. The EU Commission’s Action Plan seeks to address this by narrowing the cost gap between electricity and fossil fuels and by encouraging the wider use of proven electric technologies, including heat pumps, electric vehicles and batteries.

The aim is to encourage Member States to reduce network charges and taxes for certain categories of electricity consumers. Moreover, the Commission wishes to ensure that, in future, electricity is no longer taxed at a higher rate than gas. Consumers are also set to benefit from the faster roll-out of smart meters. The purchase of electric solutions is to become more affordable, for example through social leasing schemes, such as those already established in France for the purchase of electric vehicles, but also through further measures, including those under the Social Climate Fund.  In general, however, the introduction of innovative electrification solutions affects the entire value chain. The report also emphasises the need to prepare the workforce through training and further education. A key focus remains on the expansion of the electricity grid, where hopes are once again pinned on a swift conclusion to the negotiations on the Grids Package.

Revision of the EU Emissions Trading Scheme: more flexibility for industry

Since its launch in 2005, the EU Emissions Trading Scheme (ETS) has helped cut emissions in sectors covered by 50 per cent, especially in electricity generation. At the same time, industry representatives have long pushed for a slower reduction path than the Green Deal envisaged. Following April’s proposal on the Market Stability Reserve (MSR) and the expansion of allowance volumes, the EU is now setting a new course in line with the 2040 interim target set out in the revised European Climate Law, the European Council conclusions of June 2026 and the Clean Industrial Deal.

Adjusting the linear reduction factor (LRF) would significantly ease the reduction pathway. In line with the 2040 target, the proposal would also allow international CO₂ credits to cover up to 2 per cent of emissions between 2036 and 2040, creating greater flexibility, alongside measures for permanent carbon removal. Free allowances for industry would be extended and increased, while being tied more closely to decarbonisation investments. Under the proposal, sectors covered by the Carbon Border Adjustment Mechanism (CBAM) would benefit from a longer phase-out of allowances until 2038. The Market Stability Reserve would also be reformed more comprehensively to limit excessive price volatility.

Conditions for other sectors, however, are set to tighten. On the one hand, the proposal would bring international flights up to a certain distance into the emissions trading scheme and, on the other hand, require waste management companies to purchase allowances for waste incineration. Investment is also a central focus: the Industrial Decarbonisation Bank would support European industry’s decarbonisation efforts with 100 billion euros in funding, while the Modernisation Fund for lower-income Member States and the Innovation Fund would continue. Member States would also be required to reserve half of their national ETS revenues for decarbonising ETS sectors.

Initial assessment and next steps

It remains to be seen how the EU can still meet its unchanged climate neutrality target by 2050. If ambition for industry is reduced, sectors such as transport, buildings and agriculture will need to compensate. The inclusion of waste-to-energy plants shows that households are expected to take on greater obligations – a problematic development from a consumer perspective, given these plants’ role in waste disposal as well as electricity and district heating supply. Although future free allowances for industry would be conditional, the Commission’s proposals still make no reference to employment guarantees.

The next steps now lie with the EU Parliament and the Council, where the Commission’s proposals are expected to receive priority attention. However, not all political groups are likely to fully support industry’s positions or their incorporation into EU law. The future direction of the EU ETS will therefore be shaped over the coming months.

Further information

EU Commission: Commission boosts Europe's competitiveness, decarbonisation and independence
AK EUROPA: Fossil energy crisis. The EU Commission is focusing on coordination, short-term price relief and the energy transition
AK EUROPA: 2040 climate target. Flexibility to dispel scepticism and enable political compromise
AK EUROPA: REPowerEU. A new roadmap for complete independence from Russian energy
AK EUROPA: ETS II and Social Climate Plans. Where do we stand?
AK EUROPA: Industry, energy and automotive. New plans for the transformation
A&W-Blog: EU-Emissionshandel als Zielscheibe von Industrievertretern  (German only)