European Commission pairs the EU Electrification Action Plan with an ETS overhaul to reach 46% by 2040

The European Commission released the EU Electrification Action Plan in Brussels on July 17, 2026, together with a revision of the EU Emissions Trading System (EU ETS). The plan sets an indicative target for electricity to reach 46% of the EU’s final energy consumption by 2040, double the current share of 23%, which has not moved in a decade. According to the Commission’s announcement, reaching that target could cut the EU’s fossil fuel import bill by up to €260 billion per year by 2040.

Energy Commissioner Dan Jørgensen presented the package alongside Climate Commissioner Wopke Hoekstra and Executive Vice-President Teresa Ribera. “The era of fossil fuels has come to an end,” Jørgensen stated, as reported by Eunews. Commission President Ursula von der Leyen said “the best way to reduce Europe’s dependence on fossil fuels is to power our economy with electricity from clean, domestic sources.”

What the EU Electrification Action Plan proposes

The EU Electrification Action Plan focuses on closing the price gap between electricity and fossil fuels, particularly gas. The Commission acknowledges that electricity today often costs up to three times as much as gas, which weakens the case for households and businesses to switch to heat pumps and electric vehicles. By 2030, member states should take measures to ensure electricity costs no more than 2.5 times the price of gas for households and no more than twice the price for industry, according to Eunews’ report on the package.

The plan also aims to speed up grid connections, roll out smart meters more widely, and allow member states to reduce electricity charges and taxes, particularly for energy-intensive industries. For buildings, the Commission wants to double the number of heat pump installations by 2030 compared with 2025 and is considering a European mechanism for the clean heating market. Around half of the EU’s gas consumption comes from buildings, Euronews reported, which makes the sector one of the largest electrification opportunities.

The Commission’s plan states that an electrification-led transition could stimulate the uptake of approximately 120 million battery electric vehicles, compared with 8 million today, and approximately 100 million heat pumps, compared with 30 million installed today. The EU has separately assessed whether electric vehicles are better for the environment across their full life cycle, a question that gains weight as the vehicle fleet electrifies.

Source: European Commission Electrification Action Plan and EU ETS review, July 17, 2026, as reported by Eunews and Euronews.

EU ETS review: slower cap decline, €100 billion for industry

The second pillar of the package reshapes the post-2030 carbon market. The emissions cap will fall more gradually than before: a linear reduction rate of 3.7% per year between 2031 and 2035, then 1.7% per year between 2036 and 2040, according to Eunews. Free emission allowances for industry will continue beyond 2030 but will be tied more closely to investments in decarbonisation, a design intended to prevent carbon leakage. “Contributions from industry should go back to industry,” the Commission’s press release states.

On the investment side, the Commission is launching an Industrial Decarbonisation Bank with €100 billion earmarked for the transition. A first phase, the ETS Investment Booster, is due to be operational from 2028 with around €30 billion in funding. Member states will also be required to allocate at least 50% of their ETS revenues to decarbonisation investments. Hoekstra noted that the ETS has generated over €270 billion since its inception.

The review also widens the system’s scope. The ETS would extend to international flights of up to 5,000 km, including stopovers in the Middle East but excluding the United States and China, and to ships of between 400 and 5,000 gross tonnes. Municipal waste incineration would be phased in from 2031 to 2034. International carbon credits of up to 2% would be allowed to fund decarbonisation projects outside Europe. The package builds on the earlier Fit for 55 package, which set the EU’s 2030 framework for emissions cuts.

Reactions: support for the target, doubts on the ETS

The World Resources Institute (WRI) welcomed the direction but flagged gaps. “Europe must electrify smarter, not just faster,” stated Clem Perry, Global Clean Energy Supply Lead at WRI’s Polsky Center for the Global Energy Transition, in the organisation’s statement on the package. WRI noted that the plan “still lacks a dedicated strategy for heating and cooling” and warned that extending free allowances and slowing the decline in emission permits must come with firm, enforceable investment conditions.

Christian Kjaer, executive director of SuperGrid Europe, called the request for member states to reduce electricity taxes below gas taxes “a bold move by the Commission,” while cautioning that the 46% target would lose value if used in isolation. Thomas Lewis of Climate Action Network Europe said the target signals an important direction for the energy transition, according to Euronews. German MEP Christian Ehler of the European People’s Party pointed to “promising measures on network codes, grid charges and flexibility.” The grid question remains central: without expanded and modernised electricity infrastructure, the plan’s demand growth cannot be absorbed, a challenge the EU has already confronted in the debate over whether renewable energy is really unreliable due to intermittency.

Background

The EU’s electrification rate has been stagnant at 23% for the past decade, despite the bloc’s progress in cleaning up power generation, and the remaining 77% of the economy still runs mostly on fossil fuels. The Commission had signalled its intentions in stages: Hoekstra outlined an easing of the ETS in May 2026, and a draft seen by Euronews in early July 2026 put potential import savings at €200 billion before the final figure of €260 billion was published. Euronews also reported that the loss of oil and gas flows through the Strait of Hormuz sharpened the EU’s focus on its dependence on imported fossil fuels. The Electrification Action Plan and the ETS review now move to the European Parliament and member states, where the balance between the 46% electrification target and the softened carbon-market trajectory will be negotiated.

Sources: European Commission; Eunews; Euronews; World Resources Institute

Featured image: photo by thorl5 on Pexels (free Pexels license).

For more on this topic, see our how home heat pumps work and what they cost.

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Figen Sekin

I specialize in sustainability education, curriculum co-creation, and early-stage project strategy. At WINSS, I craft articles on sustainability, transformative AI, and related topics. When I’m not writing, you’ll find me chasing the perfect sushi roll, exploring cities around the globe, or unwinding with my dog Puffy — the world’s most loyal sidekick.