POLICY SNAPSHOT – Electrification Action Plan and EU ETS review

07 September 2026

The EU sets an indicative target of 46% electrification by 2040, to be assessed as part of the post-2030 Energy Union package. This is expected to reduce gas imports by more than 70% and crude oil imports by 40%, cutting the EU’s fossil-fuel import bill by around €260 billion annually by 2040. By 2030, the plan also aims to support affordable electricity, deploy 400,000 zero-emission trucks, and increase heat-pump installations to 4 million per year.

To support the preparation of the action plan, the Commission launched a call for evidence and a public consultation from 28 August until 9 October and 20 November 2025 respectively. The consultation aimed to collect feedback on the role of electrification in the transport sector, industry and buildings, on key barriers and on policy areas where action is needed to accelerate the transition.

Reducing the gap between electricity and fossil energy costs

• Progressively phase out fossil fuel subsidies as part of the post-2030 Energy Union
• Making electricity bills more future-proof by empowering Member States to reduce network charges for certain consumer groups and taxes for energy intensive businesses.
• Address the tax differential between electricity and

Boosting innovation and investment

• Work on Small Modular Reactors (SMRs) with the European Industrial Alliance aiming for the first operational SMR projects in Europe by early 2030s.
• Update the EU Hydrogen Strategy to ensure the decarbonisation of industrial processes where direct electrification is not yet feasible or cost-effective.
• Harness the Strategic Energy Technology (SET) Plan to accelerate the uptake of clean energy

Leading clean electrification globally

• With Electrify Now Initiative, support the global objective of 35% electrification by 2035 promoted by the COP31 presidency.
• Triple renewables and doubling energy efficiency globally by 2030 following COP28
• New guidance under the Net-Zero Industry Act on auctions and permitting for net-zero technologies to make EU a global leader in clean tech.

Industry

• Support investments in industrial electrification via a revised ETS framework and the Industrial Decarbonisation Bank and the €30 billion ETS Investment
• Launch a second industrial heat auction under the Innovation Fund to support the rollout of electrified and renewable heat solutions.
• Develop sector-specific electrification roadmaps.
• Lower charges and taxes.

Transport

• Boost the uptake of zero emission vehicles through a review of the Clean Vehicles Directive and recommendations on demand-side incentives.
• Support an accelerated roll-out of charging infrastructure for e-vehicles.
• Access to Social Climate Fund and ETS revenues to social leasing schemes for Electric Vehicles.

Buildings

• Explore introducing a clean heat market mechanism to incentivise rising share of heat pump sales from manufacturers.
• Accelerate the deployment of heat pumps including by mobilising the Heat Pump Accelerator platform and the Energy Efficiency Financing Accelerator.
• Adopt a Cooling and Heating Action Plan to address the growing need of efficient cooling needs.

ETS REVIEW

On the same day the Commission presented this plan, it also announced a review of the EU Emissions Trading System (ETS), the EU’s main decarbonisation policy. This review, along with the action plan are part of the EU’s wider efforts to boost Europe’s competitiveness, decarbonisation and independence.

The review updates the Linear Reduction Factor (LRF) to 3.7% for 2031–2035 and 1.7% for 2036–2040, aligning the emissions trajectory with domestic climate ambitions, while integrating permanent carbon removals into the EU ETS to provide hard-to-abate sectors with extra flexibility and support technology scaling.

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.

Member States will be required to spend 50% of their national ETS revenues on investments to decarbonise ETS sectors, adding up to more than €100bn in investments before 2030.

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 Industrial Decarbonisation Bank¹ aims at EUR 100 billion in funding based on funds in the Innovation Fund, additional revenues resulting from parts of the ETS as well as the revision of InvestEU. The Bank will be placed within the governance of the future Competitiveness Fund. Prior to the revision of the ETS Directive in 2026, the Commission will launch in 2025 a pilot with a EUR 1 billion auction on the decarbonisation of key industrial processes across various sectors supporting industrial decarbonisation and electrification, using a combination of existing resources under the Innovation Fund and auctions-as-a-service.