Effect of the European Union Emission Trading System on promoting industrial electrification

The European Union designed the Emission Trading System (EU-ETS) aiming to achieve climate neutrality by 2050. Theoretically, this mechanism should incentivize consumers to emit less CO<inf xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">2</inf> and invest in green technologies. While there is evidence that it helped reduce CO<inf xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">2</inf> emissions, it is unclear whether it helped promote green investments. This paper answers such a question based on a large European industry. We demonstrate that historical EU-ETS prices have not been incentive enough for this industry to transition from gas to electricity to produce steam. Our calculations show that companies would have to pay at least 30,57% more for operational costs when using only electricity for heat generation compared to natural gas, even with the addition of EU-ETS prices. We argue that using both conventional and green technologies might be the way to proceed since such a hybrid solution can reduce energy costs by up to 1,68% and CO<inf xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">2</inf> emissions by 16,23%. These savings could pay back the electric boiler’s investment until the gas boiler’s lifetime is terminated. Nevertheless, even with the addition of the EU-ETS cost, the operational cost of the electric boiler in 2030 is expected to be higher than gas unless electricity spot prices are controlled.