By increasing efficiency, electrifying, and integrating industrial processes with existing technologies, the EU can decarbonize industry while increasing economic growth, innovation, and energy independence.
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European industry is facing challenges on multiple fronts. While decarbonization remains a central EU objective, competitiveness in global markets is waning and dependency on energy imports continues to burden the economy. Solving these challenges requires a new industrial strategy referred to in this paper as “competitive decarbonization” with focus on both utilizing and supporting Europe’s leading edge in select clean technologies. This approach aims to enhance energy resilience, drive technological innovation, and bolster competitiveness.
Analysis shows that collective investments of just EUR 100 billion in existing technology within energy efficiency, electrification, renewables, and energy system optimization could reduce the EU’s gas consumption by 27 billion cubic meters – roughly 80% of the EU’s total gas imports from Russia in 2024. With the right investments, Europe can significantly increase its energy resilience.
Even single energy efficiency technologies can provide major savings for industry. For example, in European industry, variable speed drives (VSD) could bring electricity savings of 121 TWh, and EUR 22.6 billion in electricity cost savings. This is as much as 10% of the EU’s 2030 energy efficiency goal. Similarly, retrofitting industrial hydraulic systems has the potential to achieve up to 50% energy savings at application level.
A Danfoss factory in Grodzisk, Poland, has already demonstrated the economic potential of competitive decarbonization. The facility saved EUR 420,000 and 1,800,000 kWh per year simply by implementing existing energy efficiency solutions. The project had a payback time of less than 2.5 years.
Sparking competitive decarbonization requires targeted policy action. European policymakers must focus on improving long-term predictability, simplifying regulatory processes, and incentivizing implementation of existing policies and technologies for energy efficiency and electrification. This includes funding, price incentives, and procurement rules that support European clean-tech manufacturing.
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Danfoss has a production site in Grodzisk, Poland, just outside of Warsaw. The factory is a shining example of how the three-step approach of ‘increase energy efficiency, electrify, and ensure sector integration’ results in a competitive way to decarbonize our own production. By switching off 80% of the machines not in use you increase efficiency without any additional cost; by installing new air handling units you use electric solutions to lower costs for heating and cooling; and by integrating systems in the factory, excess heat from some processes can be used to heat both air and water in other parts of the building, saving close to half a million euros a year.
European industry operates within a complex regulatory landscape, responding to legislation implemented at the EU, national, and local levels. Sudden changes in policies create uncertainty and unpredictability for companies, as witnessed by the uncertainty in heating schemes in Germany, which meant sales and renovation activities went down by 50% as private investors stopped all activities to wait for a new framework and funding. When the regulatory environment for energy or performance requirements, EVs, or heat pumps is uncertain, companies withhold investments in upgrading their technologies, particularly those with higher CAPEX costs. Stop-and-go policies are a killer for investor confidence.
To stimulate industrial appetite for investment and innovation, Europe needs a solid policy framework for industry which provides a clear outlook of at least 10 years. Policy helps set the direction and level of ambition. Setting a general target for electrification of 35% by 2030, as well as specific targets for sectors, will help build trust in policy development and put pressure on implementation. Politicians must also prioritize existing legislation, which has still yet to be sufficiently implemented. For example, there must be a rapid and harmonized implementation of legislation adopted in the last mandate, including of the Energy Efficiency Directive, the Energy Performance of Buildings Directive, and the Electricity Market Design reform.
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