Electrification of industrial heat is a key route to decarbonisation and modernisation, but, the high price of electricity compared to fossil gas remains a major barrier. Reducing taxes and levies on electricity can quickly and effectively improve incentives to electrify. Together with structural reforms aimed at building and operating the lowest cost electricity system, this will make electricity cheaper for industrial users.
Many countries apply policy costs, in the form of levies, and taxes disproportionally to electricity prices instead of fossil fuel prices. Putting high policy costs on electricity is not in line with electrification goals and disproportionate taxes per unit of energy compared to other energy carriers is no longer warranted as Europe’s electricity mix decarbonises at record pace.
RAP experts Sem Oxenaar and Tom Butler look at the state of electricity and gas prices for industry and the impact of reducing taxes and levies on electricity. Their findings conclude this would lead to strong improvements in the payback period for investments in electrified heat equipment in many European countries.
RAP recommends two actions for governments to consider to provide much needed cost-relief for industrial heat users. First, putting in place immediately a ‘Clean Heat Exemption’ reducing taxes and levies for very-efficient industrial heat pumps and system-serving flexible technologies. And as an extension, to start a process of taxes and levies reform to reduce prices for all industrial end-users.
Further analysis on making electricity cheaper may be found in these partner papers:
