On 17 July, Commission Executive Vice-President Teresa Ribera, alongside Climate Commissioner Wopke Hoekstra and Energy Commissioner Dan Jørgensen, unveiled two proposals at once: the reform of the carbon market (ETS) and the Electrification Action Plan. That timing was no accident. Both are bets on the same idea, that clean energy should be cheaper than fossil energy for households and businesses alike. But there's a catch: electrification tries to close that price gap by cutting taxes on electricity, while the ETS reopens it from the other side, making it a little easier to keep polluting for longer. Two moves meant to work together end up partly cancelling each other out. Here's why.

Electrification: the good news, with three catches

Only 23% of the energy Europe uses today, for heating, transport, industry, comes from electricity. The rest is fossil fuel burned on the spot: the gas boiler, the petrol engine, the gas-fired blast furnace. The Commission wants to push that electric share to 46% by 2040.

Electrification matters because it's the one lever that can actually get us off fossil fuels for good. A petrol engine will always burn petrol, however cleverly designed; you can make it more efficient, never clean. Electricity is different: its footprint depends entirely on how it's generated, and that can be changed at the power station. Swap a gas plant for a wind farm and everything plugged into the grid gets cleaner overnight, no need to touch a single appliance. Electrifying and cleaning up the grid aren't two separate jobs, in other words, they're the same job. There's a bonus, too: electric motors and heat pumps waste far less energy than their fossil equivalents, a heat pump turns one unit of electricity into three or four units of heat, a gas boiler produces at best one, so electrifying also means using less energy overall, not just cleaner energy.

Is any of this realistic? In Italy, Confindustria and others insist the timeline is too tight. But it's worth asking whether that's really about physics, or about a political class still struggling to imagine a world without fossil fuels. The evidence points the other way: battery costs have fallen more than 90% since 2010, global storage capacity has grown tenfold since 2021, and Italy's own grid operator, Terna, closed its latest storage auctions (MACSE) under budget. The shift is already happening elsewhere: California, which leaned on gas to get through evening demand peaks just three years ago, now covers most of them with solar power stored earlier in the day.

None of it works, though, unless electricity actually becomes cheaper than gas, and today it isn't, least of all in Italy. The Commission's own plan admits as much: electricity costs businesses almost three times what gas does, and households two and a half times, rising to 4.5 times once tax alone is counted (a Trinomics study commissioned by the Commission). The obvious fix, the Energy Taxation Directive, has been stuck for five years because it needs unanimous approval and some governments won't give up their fossil fuel tax breaks. So Brussels is taking a different route: amending the Electricity Market Regulation instead, which only needs a qualified majority, to force electricity to always be taxed less than gas. Whether that majority actually materialises is another question.

Even so, three serious gaps remain, and they're flagged  by the plan's own supporters.

First, the target is “technology neutral”: it says nothing about where the electricity should come from. Fifteen governments have already asked for a “clean energy target” that would put nuclear on equal footing with renewables. But nuclear is neither renewable nor, strictly speaking, clean: it emits no CO2, yet it leaves behind waste that lasts millennia and carries real risks. New reactors cost far more than renewables, half of the EU's nuclear fuel still comes from Russia and its allies, and small modular reactors remain more of a pitch deck than a product. The danger is that public money flows there, while renewables and efficiency, options that already work and are already cheaper, lose ground for political and ideological reasons rather than technological or availability ones.

Second, electrifying without asking who's actually consuming the power can backfire. A data centre doesn't generate electricity, it devours it. Ireland tops Europe's electrification league table, but not because of heat pumps or EVs: data centres alone already swallow a quarter of the country's electricity. On an already strained grid, that extra demand often gets met with new gas turbines rather than renewables. Ireland wins the statistic and loses on the thing the statistic was supposed to measure.

Third, a single national number can hide enormous imbalances between sectors. A country could hit its target by electrifying homes and transport while its industry stays hooked on gas, or the other way round. What's needed are separate targets for buildings, transport and industry, not one blended average. And the money to get there isn't on the table yet: Europe is €36bn short of what's needed to hit its 2030 heat-pump target (I4CE), and electrifying transport alone will require €198bn a year.

One more number worth remembering: the Commission's own 2024 Impact Assessment found that 50% electrification by 2040 was what climate neutrality by 2050 actually required. The final proposal settled for 46%, and even that only as an “indicative” figure, not a binding one. Binding status is meant to arrive with the post-2030 Energy package due later this year, though nothing guarantees it will.

ETS: heading the other way?

The ETS forces big industrial plants and power stations to buy a permit for every tonne of CO2 they emit, under a cap that shrinks every year. It has already cut emissions in the sectors it covers by half since 2005. It's worth remembering, too, that its reach extends well beyond industry: the €38bn Innovation Fund it feeds bankrolls clean technology across the whole economy, and its benefits go further still, cleaner air, a Social Climate Fund that from 2027 will help the most vulnerable households, less gas bought from abroad. These aren't side effects to wave away.

Electrification only really works if the carbon price is genuinely pushing fossil fuels out of the picture. And this is where the ETS reform, unveiled the very same day, risks pulling in the opposite direction.

The emissions cap will now shrink more slowly: the annual reduction rate drops from 4.3% today to 3.7% between 2031 and 2035, and to just 1.7% from 2036 to 2040. On the old path, permitted emissions would have hit zero in 2039; now that won't happen until 2046-48, nearly a decade later. That's more lenient than the seven-country “ETS-friendly” bloc wanted (they asked for 4.4%), but tougher than the Italy-Poland camp was pushing for (2-2.4%). The Commission's own modelling puts the cost of this concession at 911 million extra tonnes of CO2 by 2040 compared with sticking to current law, its own figure, not an outside estimate. And that only covers 2040. An independent analysis published on 19 July, tracing the new trajectory all the way to zero in 2046-48, puts the total extra allowances released over the cap's entire lifespan at roughly 2.4 billion tonnes, a number no Commission document has spelled out.

Free allowances now come with genuine strings attached, though there's a loophole. Companies get 80% only after submitting a verified investment plan, and the remaining 20% only at the end of the period, once the investment is actually delivered. But the most efficient 10% of installations in every sector are let off this requirement entirely. At the same time, the Commission is reinstating 15% of the free allowances that had already been withdrawn from CBAM-covered sectors, pushing their phase-out back to 2038, meaning the very sectors due to shift from internal protection to border protection get to keep both for longer. A CE Delft study for Carbon Market Watch found that free allocation handed European industry €26-46bn in windfall profits between 2008 and 2019, not investment, just margin pocketed outright; steel alone accounted for €16bn. Confindustria's complaints about an ETS that “condemns industry” are worth weighing against those numbers.

A change that's easy to miss but hard to overstate: the Market Stability Reserve. Until now, any surplus of allowances above a set threshold was permanently cancelled, wiped from the system for good; 3.2 billion allowances had been cancelled this way by the end of 2024, more than double everything the ETS covers in a single year. The new proposal stops the cancellations and halves the annual withdrawal rate, from 24% to 12%. More allowances stay in play just as the cap is supposed to be tightening.

There is, to be fair, a genuine safeguard built in: up to 260 million tonnes of international credits can be used to offset the domestic cap, but a review is scheduled for 2033, and if high-quality credits fall short, the pace automatically snaps back to a stricter 2.7% from 2036 onward.

On how the money gets spent: the law already requires all ETS revenue to go toward climate and energy purposes, but the category is so loosely defined that member states can do almost anything with it. Italy collected €2.59bn in 2025 and handed back just €600m to energy-intensive firms. What's new in the proposal is a tighter list of eligible uses, with at least 50% ring-fenced for specific priorities and mandatory public reporting, though still no penalties for falling short. What that 50% figure leaves out, though, is a separate channel of industrial support entirely: the ETS Directive has long allowed governments to use up to 25% of revenue to compensate energy-intensive firms for the higher electricity costs that carbon pricing causes. On 20 July, just three days after the reform was unveiled, the Commission approved a bigger Italian scheme of exactly this kind, raising it from €1.5bn to €3.6bn overall and lifting the annual cap from €140m to €600m. That's not Italy going rogue, it's simply catching up with EU guidelines the Commission itself widened back in December 2025 (Italy has historically used this tool less than Germany or France, if anything). But the underlying point stands: energy-intensive industry is already covered by at least three layers of protection at once, free allowances, CBAM, and compensation for indirect costs, and none of the three counts toward that 50% meant for the transition. Anyone still complaining that industry is being left exposed might want to take that into account.

One clearly good move, to end on: bringing waste incinerators into the ETS between 2031 and 2034, up to full coverage by 2034. The logic holds up: burning waste currently escapes any real carbon cost almost everywhere, which tilts the playing field against recycling. The revenue raised is earmarked for local authorities to invest in reduction and recycling. Even the EEB, otherwise sharply critical of the reform, welcomes this piece, though it could still be watered down as the legislation moves forward.

The real fight starts now

This isn't a climate “disaster,” and it certainly isn't the “condemnation of industry” Confindustria describes. But we're in the middle of a climate emergency, and every step back carries a real cost. More than anything, the two proposals contradict each other in two precise, identifiable ways.

First: electrification is trying to make gas more expensive than electricity by law, through taxation. The ETS is trying to make gas more expensive because it pollutes, but with a slower cap and more allowances left in circulation, the price of carbon, and with it the price of gas, will stay low for longer than the electrification plan assumes it will.

Second: the electrification plan is built around a 2040 deadline for the 46% target, but the ETS itself won't hit zero emissions until 2046-48. The carbon price signal that's supposed to accompany the transition keeps arriving late, consistently, relative to the goals it's meant to support. CAN Europe makes a related point: a looser LRF also pushes more of the burden onto sectors the ETS doesn't cover, agriculture among them. And there's an even more basic risk than any of this: these targets may simply not be met. The post-2030 Energy package due later this year, which is meant to reset targets for efficiency and renewables and finally make the electrification target binding, is already under strain. The same pro-nuclear coalition of governments that tried to sideline renewables back in June is now pushing for a “clean energy target” broad enough to fold in CCS and “low-emission” gas, diluting the goal with technologies that are both costlier and less effective. And energy efficiency, the fastest, cheapest lever available, risks once again being the thing that gets sacrificed once good intentions have to be written into binding law.

The proposal now heads into codecision between Parliament and Council, with the goal of reaching a deal by the first quarter of 2027 and having it in force by 2028. The next six to nine months will decide whether the system survives as a workable compromise or gets picked apart piece by piece.