The publication of the European Commission’s Electrification Action Plan together with its review of the EU Emissions Trading System (ETS) marks an important milestone in Europe’s energy transition. For the first time, electrification is treated not simply as an energy objective but as a central pillar of industrial competitiveness, economic resilience and strategic autonomy.
The Electrification Action Plan represents a significant positive evolution in European policy thinking, even if the 46% target by 2040 remains indicative. In contrast, the ETS review, has been captured by vested interests and political cowardice hidden behind a veil of short-term competitiveness. This is cause for concern.
Earlier this year, together with Nafeez Ahmed, Divyesh Desai, Vicente López-Ibor Mayor and Gerard Reid, I co-authored Electrified Sovereignty as a Solution to the Iran War Energy Shock. Our paper argued that electrification should no longer be understood as one component of climate policy. It must become the organising principle for Europe’s next economic model, underpinning a swift fossil fuel phase out strategy.
Reading the Commission’s Electrification Action Plan, it is encouraging to see considerable convergence between our vision and the direction now being taken at European level. At the same time, there remain important differences regarding the scale of transformation required and, in particular, the financing architecture needed to deliver it.
Areas of convergence
Both the Commission’s Action Plan and our paper begin from the same premise: Europe can no longer rely on imported fossil fuels if it wishes to remain competitive, resilient and geopolitically secure.
Electrification is increasingly recognised as the foundation upon which industrial competitiveness, affordable energy and long-term prosperity will depend.
The Commission identifies accelerated electrification across transport, buildings and industry as a priority, alongside faster deployment of renewable electricity, investment in grids, greater system flexibility and stronger integration between sectors. These are all themes developed extensively in our paper.
Similarly, both documents recognise that electricity markets must evolve alongside technological change. Greater flexibility, digitalisation, demand-side participation and improved infrastructure are no longer optional additions but essential components of a functioning electrified economy.
There is also growing recognition that carbon pricing must evolve from being primarily a compliance instrument into a mechanism capable of supporting industrial transformation. The key is real transformation. At issue is the main mechanism for this transformation, the ETS, has just been weakened not strengthened, impacting ETS revenues directly and the speed and scale of transformation towards electrification alongside deeper industrial transformation.
Where the discussion must go further
While the Commission places electrification at the centre of Europe’s competitiveness agenda, even if the 46% target by 2030 remains indicative and not mandatory, our paper argues that electrification cannot succeed through technology deployment alone. It requires a systemic transformation of Europe’s economic and financial architecture .
This means treating electricity networks as strategic infrastructure, redesigning market incentives to reward flexibility and resilience rather than short-term returns, accelerating permitting and planning processes, optimising grid infrastructure and creating financing mechanisms capable of mobilising investment at the speed required.
Perhaps the greatest difference between our proposals and the Commission’s strategy concerns finance.
Private investment must be directed towards long-term system resilience rather than short-term financial optimisation. Regulatory frameworks need to reduce investment risk while encouraging innovation across grids, storage, digital infrastructure and demand management.
Electrification is ultimately a question of capital flows as much as engineering. The Commission acknowledges the need for increased investment but largely operates within existing financial structures.
Our financial analysis (to be released next month) suggests that the capital required to build this system exists but achieving genuine electrified sovereignty requires a far more fundamental shift in capital allocation.
First, public finance must become significantly more catalytic.
Second, we need the financing architecture to do so, and
Third, we need to bring citizens on the journey and give them agency.
Our proposal?
Establish a European Green Sovereign Bond Fund tapping into existing capital in particular pension funds. Pension funds hold over €10.3 trillion in assets (IPE Top 1000, 2025); combined with UK pension capital of £3.2 trillion, the total pool exceeds €14 trillion. The problem is structural: pension fund trustees, legally required to protect savers’ money, cannot accept the construction-phase, market and political risk that currently sits on unprotected clean energy equity.
The result is that pension capital flows on private-equity and private-debt terms into privately-owned assets – replicating the British North Sea outcome at continental scale, so that the citizens whose pension contributions built the assets receive none of their long-term returns. A Green Sovereign Bond Fund resolves this through a three-layer blended-finance structure.
Layer 1 – first-loss public equity. Crisis-period windfall tax revenues are channelled into a permanent public fund as first-loss capital—the layer at the bottom of the capital stack that absorbs losses before other investors are affected. EU fossil-energy profits run at €81.4 million per day; coordinated through the EU Energy Taxation Directive framework, the available revenue stream is substantial.
Layer 2 – mezzanine development finance. National public investment banks (KfW and equivalents) and the European Investment Bank provide below-market-rate capital sitting above the government equity layer, consistent with their existing climate and infrastructure mandates.
Layer 3 – senior bonds for pension capital. Inflation-linked, 20–30 year sovereign green bonds at real returns of 4–6 per cent—the asset class pension funds have been asking for. The two layers beneath transform the risk profile so that trustees’ fiduciary duty actively supports participation.
Beyond energy policy
Shifting from funding to strategy. The Commission rightly presents electrification as an instrument for decarbonisation and competitiveness. Our paper argues that its significance extends further.
Electrification has become an economic strategy, an industrial strategy and increasingly a security strategy.
Europe’s dependence on imported fossil fuels continues to expose households, businesses and governments to geopolitical volatility and price instability. At the same time, the rapid electrification strategies being pursued by other major economies demonstrate that clean electricity is becoming one of the defining competitive advantages of the twenty-first century.
Renewable energy infrastructure, electricity grids and digital energy systems should therefore be considered critical strategic assets in much the same way as transport, telecommunications or defence infrastructure.
From policy ambition to implementation
The publication of the Electrification Action Plan demonstrates that European institutions increasingly understand both the urgency and the direction of travel.
The challenge now lies in implementation and combatting the full force of the fossil fuel lobby and industrial incumbents as has played out on the ETS review. The backtracking shown on the ETS proposal already shows the strength of vested interests and EU policy contradictions.
Achieving electrified sovereignty will require coordinated action across climate policy, industrial policy, electricity market reform, financial regulation, digital infrastructure and public investment. Success will ultimately depend less on whether Europe has identified the right objectives than on whether it is prepared to mobilise the political will, public backing, institutional capacity and financial resources needed to deliver them.
Electrification has become central to Europe’s future prosperity, resilience and strategic autonomy. It should no longer be viewed solely through the lens of climate policy, but it cannot ignore it. Healthy climate legislation and targets are essential alongside broader industrial and economic policy links.
The Commission’s Action Plan represents an important step forward.
The task now is to ensure that the pace of implementation matches the scale of the challenge, that the indicative electrification target becomes mandatory and that the European Institutions and Member State show foresight and courage against vested interest from incumbents who are holding back the pace and scale of transformation required to truly reboot the European economy and compete at the global scale.
The system that must replace the incumbent fossil-fuel architecture is distributed, storage-rich, digitally managed and built around four mutually reinforcing pillars.
Electrify: shift power, heat, transport and feasible industry off fossil fuels – mass heat-pump deployment, EV adoption and charging, industrial electrification, deep building retrofit. A precondition is rebalancing policy levies that currently load disproportionate charges onto electricity relative to gas, distorting the running-cost comparison against the three-to-four-fold thermal efficiency advantage of heat pumps.
Renewabilise: designate and deploy wind, solar and storage as national security infrastructure. Offshore wind Contracts for Difference are already clearing at strike prices of £37–50/MWh against gas-fired generation costs of £80–120/MWh; the mechanism is proven, scalable, and requires only an expanded funding envelope. REPowerEU and equivalent national targets are deployment floors, not ceilings.
Digitalise: manage the electricity system as strategic digital infrastructure – smart grids with real-time visibility, modern power electronics, demand response from flexible loads, and locational signals. The European grid operates at approximately 20 percent average capacity utilisation; better digital management can dramatically improve that figure without proportional capital expenditure.
Decentralise: distributed generation and storage in homes, vehicles.
