RPT-ROI-Europe policymakers set for make or break decisions on industrial heat: Maguire

Repeats story published earlier. The opinions expressed here are those of the author, a columnist for Reuters.

By Gavin Maguire

LITTLETON, Colorado, Feb 27 (Reuters) - European lawmakers are soon expected to unveil new policies on the forms of heat used by industry, which could determine if the region can maintain viable and competitive businesses or will experience a further hollowing out of its industrial base.

Chemical plants, steel mills, car assembly lines, food processors and electronics production facilities all yield different outputs, but share a critical input they can't do without: industrial heat.

Industry accounts for around a quarter of Europe's total energy consumption, and heat applications account for around half of total industry power needs, data from the International Energy Agency $(IEA)$ shows.

Historically, most of Europe's industries used gas-fired boilers to generate the heat they need, but a jump in local gas prices since Russia's invasion of Ukraine in 2022 has caused costs to balloon and pushed many facilities into the red.

Indeed, output of chemicals, plastics and fertilizers in Germany - Europe's top manufacturer and economy - has slumped to historic lows as high energy costs and an unclear policy roadmap stifled industrial activity and dragged on economic growth.

To help provide greater regulatory certainty and attempt to drive energy costs lower, Europe's policy makers are set to release new measures this spring aimed at rapidly scaling up electric industrial heat technologies to serve the needs of businesses without fossil fuels.

UP TO THE CHALLENGE?

Such steps could help reduce Europe's collective fossil fuel import bill - which runs to several hundred billion dollars a year - while also cutting industrial emissions.

Yet crafting a set of workable measures that meet the needs of industries spanning from Lisbon to Warsaw will be fiendishly challenging, especially during a period of increased tensions among European Union member states.

That said, maintaining the current mishmash of half measures while industry remains reliant on expensive and volatile fossil fuel imports will be viewed as totally unacceptable by key policymakers in the region.

On top of mounting job losses, governments across Europe are also dealing with declining tax revenues from stunted businesses that are draining both treasury coffers and the political clout needed to set a new and workable course for industry.

That means EU lawmakers and industry advisers are under intense pressure to come up with a bold and effective roadmap that speedily steers European industry onto a new course underpinned by ever cheaper and cleaner electricity which boosts both regional energy security and industrial competitiveness.

FINAL PUSH

In the run-up to the much-anticipated 2026 EU Electrification Action Plan, several major European think tanks are weighing in with suggestions on the best ways to electrify industrial heat and help businesses return to growth.

One set of proposals that features input from the Fraunhofer Institute - which specialises in applied research for industry - focused mainly on the potential for electrifying low and medium temperature industrial process heat.

A key finding in that report shows that currently available electric heat pumps could help drive operating costs in the food and beverage sector 20% lower compared to gas-fired heating systems even if electricity prices remain up to three times higher than regional gas costs.

The higher efficiency levels of electric pumps compared to gas units mean that companies can cook, pasteurise, sterilize and dry greater volumes of various foods using electricity rather than gas.

Other key findings show that both the paper and chemical industries can accomplish a large swath of key tasks that are currently powered by gas by using high-end electric heat pumps instead.

That said, significant changes to current taxation conditions will be required to provide key incentives so that businesses make the necessary shifts.

Think tanks are proposing cuts to taxes and levies on electricity consumption while raising taxes on gas use through consistent increases in carbon prices.

There are also recommendations for more favourable depreciation schedules on new electric equipment, so that companies gain tax breaks on new capital expenditures tied to electrification.

Quicker permitting for new clean electricity generation and speedier integration of new electricity demand sources onto electric grids will also be vital if industries are to electrify at speed.

And greater public-private financing options must also be deployed so that businesses can afford to make the necessary investments as quickly as possible.

Accomplishing all of those goals on an accelerated time frame across multiple countries will be one of the toughest challenges ever faced by European policymakers and businesses.

But failure to equip what remains of Europe's industry with the means to regain a competitive edge could result in the collapse of entire businesses and a profound and enduring economic shock for the entire region.

The opinions expressed here are those of the author, a columnist for Reuters.

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(Reporting by Gavin Maguire; Editing by Shri Navaratnam)

((gavin.maguire@thomsonreuters.com; +720 295 6101;))