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EU Unveils Electrification Strategy, Overhauls Carbon Market to Boost Industry

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The European Union on Friday unveiled plans to accelerate the bloc's shift to electricity while overhauling its carbon market, aiming to cut its reliance on imported fossil fuels, lower energy costs, and strengthen industrial competitiveness.

The European Commission proposed an Electrification Action Plan that sets an indicative target for electricity to account for 46% of the EU's final energy demand by 2040, up from about 23% currently.

The target will be assessed as part of the bloc's post-2030 Energy Union package.

The EU's executive arm said faster electrification could reduce the EU's annual fossil fuel import bill by up to 260 billion euros ($320.3 billion) by 2040, while shielding households and businesses from volatile energy prices linked to geopolitical tensions.

"Today we are proposing to make Europe the world's first electro-powered continent," European Commission President Ursula von der Leyen said.

She added that the package is an investment plan aimed at reducing fossil fuel dependence, supporting industrial decarbonization and maintaining the clean energy transition.

Together with the electrification strategy, the Commission proposed reforms to the EU Emissions Trading System, seeking to preserve the bloc's flagship carbon market while easing pressure on industry and encouraging investment in decarbonization.

The proposed review would make the post-2030 emissions reduction trajectory more gradual by adjusting the system's Linear Reduction Factor and would allow companies to use up to 2% of high-quality international carbon credits between 2036 and 2040.

The EU's executive arm said that the changes would provide flexibility while remaining consistent with the EU Climate Law.

The reforms also envisage over 100 billion euros in funding for industrial decarbonization before 2030 through the proposed Industrial Decarbonization Bank and a requirement that member states reinvest 50% of national ETS revenues in decarbonization projects.

The EU, under the electrification plan, proposed measures to narrow the price gap between electricity and natural gas, including allowing member states to reduce electricity network charges and taxes for selected consumer groups and energy-intensive industries.

The bloc also aims to accelerate smart meter deployment and ensure that electricity is not taxed more heavily than gas.

The Commission said electricity currently often costs about three times as much as gas, discouraging households and companies from switching to electric technologies such as heat pumps, electric vehicles and industrial processes.

It requires member states to work towards reducing electricity prices to no more than 2.5 times the cost of gas for households and twice the cost for industry by 2030.

The EU also plans to accelerate grid expansion, promote energy storage and demand-response technologies, support the manufacturing of clean energy technologies and develop sector-specific electrification roadmaps for industry.

It said electrification could already be applied to about 60% of industrial energy demand currently met by fossil fuels.

The Commission said Europe's dependence on imported fossil fuels had left the bloc vulnerable to geopolitical shocks, while noting that the Middle East conflict has added over 50 billion euros to Europe's fossil fuel import bill.

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