Will the European Union’s emission trading system drive industrial steam electrification?

Estibalitz Ruiz Irusta and Ivan Pavić

Energy Policy, 2025, vol. 206, issue C

Abstract: Driven by the European Union’s climate-neutral ambitions, industries are being urged to electrify fossil fuel-based technologies. Historically, fossil fuels were the preferred choice due to their lower cost compared to electricity. However, as carbon allowance prices under the European Union’s Emission Trading System continue to rise, industries are experiencing a substantial increase in their energy costs. The European Union anticipates that if these prices increase sufficiently, the cost gap between fossil fuels and electricity will close, encouraging a shift toward full electrification. In this paper, based on the consumption profiles of two large plastic manufacturing companies, we demonstrate that projected carbon prices will be insufficient to achieve the European Union’s targeted 55 % of CO2 reduction by 2030. Instead, we estimate a reduction of only 34 %. Moreover, we calculate that full electrification can be incentivized by 2050, but only if carbon allowance prices reach 237.2 €/t CO2, on average. Nevertheless, this shift would significantly increase the energy costs for industrial companies. Even when participating in balancing markets, results indicate a net energy cost increase of 6.7 %, compared to their current costs. These findings highlight the need for policy measures beyond carbon pricing to protect industrial competitiveness and achieve decarbonization goals.

Keywords: Industry; Electrification; Flexibility; CO2 reduction (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:206:y:2025:i:c:s0301421525002666

DOI: 10.1016/j.enpol.2025.114759

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