Electrifying industrial heat can reduce fossil-fuel combustion emissions while increasing electricity consumption and operating expenditure. For manufacturers exporting to the European Union, the financial outcome depends on equipment efficiency, energy prices, production conditions and whether electricity-related emissions fall within the applicable Carbon Border Adjustment Mechanism (CBAM) calculation.
The investment assessment must distinguish between reductions in direct emissions and changes in indirect electricity emissions. Electric heating alters the emissions profile of the production process, but the resulting CBAM treatment varies according to the goods concerned and the applicable rules for relevant heat inputs and precursors.
Equipment performance and utilisation also determine the outcome. Comparisons between gas-fired and electric systems need to account for equivalent quantities of useful heat, consistent production output and the relevant electricity emissions factor. The effect of electrification therefore cannot be established through the reduction in fuel combustion alone.
Electricity prices can outweigh direct carbon savings
An illustrative industrial project replaces gas heating that consumes 10,000 MWh of fuel energy annually at 90% efficiency, delivering 9,000 MWh of useful heat. Electric resistance heating operating at an assumed 98% efficiency would require approximately 9,184 MWh of electricity to provide the same quantity of heat.
Under the scenario’s assumed energy prices, annual expenditure on gas would total €450,000, based on €45/MWh. Electricity consumption at €100/MWh would cost approximately €918,400. The switch would therefore increase annual energy expenditure by about €468,400, before accounting for changes in maintenance, network charges and other costs.
The emissions calculation produces a different result. Using an assumed gas combustion factor of 0.202 tonnes of CO₂ per MWh, replacing the gas supply would displace 2,020 tonnes of direct CO₂ emissions annually. At an assumed carbon price of €80/tCO₂, that reduction represents an unadjusted financial sensitivity of €161,600.
The illustrative carbon value would not offset the increase in energy expenditure. These figures are scenario assumptions rather than a market forecast or a calculation of the final CBAM certificate obligation. Actual outcomes depend on fuel and electricity prices, technology selection and the eligibility of the emissions reduction under the applicable rules.
Heating technology and grid capacity shape project economics
Electric resistance heating is not the only available option. Heat pumps can deliver useful heat with lower electricity consumption where process temperatures and operating conditions permit. Higher-temperature industrial applications may require different technical solutions, making process-specific feasibility assessments necessary before assigning an efficiency advantage.
Electrification can also require additional grid infrastructure. New electrical loads may necessitate investment in transformers, cables or connection capacity. These expenditures need to be included in the project budget alongside the heating equipment rather than treated as subsequent additions to the investment.
The factory’s operating profile will influence electricity procurement costs. Continuous electric heating can increase exposure to market prices during hours when on-site solar generation is limited. A power purchase agreement (PPA) may provide some price protection, but its generation profile and balancing costs must be assessed against the plant’s additional demand.
Production volumes also affect the investment case. Manufacturers should test scenarios involving high electricity prices, lower output and delayed grid connections. Projects dependent on sustained high utilisation may face greater financing challenges when export orders fluctuate.
CBAM treatment depends on the goods and electricity emissions
For goods whose CBAM calculations include indirect emissions, manufacturers need to examine how additional electricity consumption affects the reported emissions figure. A reduction in direct combustion emissions may deliver a smaller overall benefit if electricity-related emissions increase substantially.
The electricity supply arrangement is relevant where a qualifying lower-emissions route can be used under the applicable methodology. Any projected benefit must reflect the eligibility requirements and supporting evidence rather than assume that electrification automatically lowers the emissions figure used for CBAM.
For goods assessed on a direct-emissions basis, the statutory CBAM calculation and the broader product carbon footprint may produce different results. Manufacturers may still need to calculate the wider footprint to meet customer requirements, but a reduction in total product emissions should not automatically be described as a reduction in the current CBAM obligation.
The emissions boundary must therefore be established before the financial value of electrification is assessed. Direct combustion reductions, electricity-related emissions and emissions associated with relevant inputs need to be evaluated according to the treatment applicable to the exported goods.
Financing depends on who captures the emissions benefit
Banks assessing industrial electrification projects need to distinguish between the statutory certificate obligation and the commercial value available to the manufacturer. The EU authorised CBAM declarant is responsible for the applicable certificate obligations, while an exporter may seek to capture value through product pricing or customer retention.
That commercial benefit should not be recorded as assured revenue without a contractual commitment or another substantiated market basis. Investment models need to distinguish potential customer benefits from direct energy savings and eligible emissions-related effects.
Electrification can support industrial competitiveness when equipment performance, electricity costs and the emissions treatment of the goods align. The investment case must be demonstrated under the factory’s actual production conditions, including its operating schedule, energy requirements and expected export volumes.
