Presentation
This report addresses three central questions. First, how significant are energy and electricity costs in explaining the competitiveness gap across different industrial sectors today, and how might this evolve in a more electrified industrial system? Second, what role can targeted power price support play in safeguarding European industry while enabling its transition towards climate neutrality and greater economic resilience? Third, which guiding principles can help align industrial policy instruments with competitiveness, resilience and decarbonisation objectives?
Associated content
Key Messages
- As Europe works to strengthen competitiveness, moving away from volatile fossil fuels is paramount. For industries that have not yet electrified their processes, power represents only up to 5 percent of total production costs, whereas fossil fuel expenses account for 30 to 80 percent. When considering energy costs, those sectors that strongly depend on fossil gas face most competitiveness challenges. Electrifying industrial processes with clean domestic energy would make Europe more resilient and cut the 380-billion-euro fossil fuel import bill.
- Electrification is unlocking new opportunities for industry, making affordable power prices increasingly decisive for competitiveness. Technologically feasible and in many cases economically viable, electrification will reshape energy consumption, even though large differences among industries will remain. Electricity will directly and indirectly account for 60 to 100 percent of total energy use in most sectors by 2035, with power costs representing 10 to 90 percent of production expenses, depending on the energy intensity of the process.
- By 2035, decarbonised sectors can be more competitive than today – provided the right conditions are in place. In many cases, like low-temperature heat and primary aluminium, effective carbon pricing through the EU Emissions Trading System (EU ETS) and Carbon Border Adjustment Mechanism (CBAM) could ensure cost-competitiveness. For other sectors, targeted power price support may be needed but should be conditional on clean investment. Across all sectors, further industrial policies will likely be necessary to address non-energy barriers.
- The EU needs a coherent industrial strategy aligned with energy and climate policy. To avoid policy fragmentation, the Electrification Action Plan should establish a unified framework to cut power system costs and ensure stable, competitive electricity prices, notably via contracts for difference (CfDs) and power purchase agreements (PPAs). Combining it with carbon pricing and Clean Industrial Deal policies such as lead markets would help build a resilient, climate-neutral European industry.
