Electrifying industrial heat can cut fossil-fuel combustion emissions while raising 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 are included in the applicable Carbon Border Adjustment Mechanism (CBAM) calculation.
The investment assessment needs to separate changes in direct emissions from changes in indirect electricity emissions. While electric heating reshapes the emissions profile of industrial production, the CBAM treatment varies based on the goods concerned and the rules for relevant heat inputs and precursors.
Equipment performance and utilisation also affect results. Comparisons between gas-fired and electric systems require equivalent useful heat delivery, consistent production output, and the relevant electricity emissions factor. Because of these dependencies, electrification cannot be evaluated using fuel combustion reductions alone.
Energy expenditure versus carbon value in an illustrative switch
An illustrative project replaces gas heating that uses 10,000 MWh of fuel energy annually at 90% efficiency to deliver 9,000 MWh of useful heat. Electric resistance heating at an assumed 98% efficiency would require about 9,184 MWh of electricity to provide the same useful heat output.
Under the scenario’s assumed energy prices, annual gas expenditure is €450,000 at €45/MWh. Electricity costs are estimated at €918,400 for consumption priced at €100/MWh. On that basis, the switch increases annual energy expenditure by about €468,400 before considering changes in maintenance, network charges and other costs.
The emissions calculation yields a different figure. With an assumed gas combustion factor of 0.202 tonnes of CO2 per MWh, replacing gas displaces 2,020 tonnes of direct CO2 emissions annually. At an assumed carbon price of €80/tCO2, that reduction corresponds to an unadjusted financial sensitivity of €161,600.
The illustrative carbon value does not offset the increase in energy expenditure. The figures are scenario assumptions rather than a market forecast or a calculation of final CBAM certificate obligations. Actual outcomes depend on fuel and electricity prices, technology selection, and whether the emissions reduction is eligible under applicable rules.
Heat technology choices and grid requirements for electrification
Electric resistance heating is not the only option. Heat pumps can deliver useful heat with lower electricity consumption where process temperatures and operating conditions allow such configurations.
Higher-temperature industrial applications may require different technical solutions. This makes process-specific feasibility assessments necessary before assigning any efficiency advantage to electrification.
Electrification can also require additional grid infrastructure. New electrical loads may involve investment in transformers, cables or connection capacity, which must be included in the project budget alongside heating equipment rather than treated as later additions.
The factory operating profile influences 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 additional plant demand.
Production volumes affect the investment case as well. Manufacturers are expected to test scenarios with high electricity prices, lower output and delayed grid connections, since projects relying on sustained high utilisation may face greater financing challenges when export orders fluctuate.
How CBAM treatment depends on goods and electricity emission accounting
For goods whose CBAM calculations include indirect emissions, manufacturers need to assess how added electricity consumption changes the reported emissions figure. A decrease in direct combustion emissions may translate into a smaller overall benefit if electricity-related emissions rise substantially.
The electricity supply arrangement matters where a qualifying lower-emissions route can be used under the applicable methodology. Any projected benefit must reflect eligibility requirements and supporting evidence rather than assume electrification automatically lowers the emissions figure used for CBAM.
For goods assessed on a direct-emissions basis, statutory CBAM calculations can differ from broader product carbon footprint results. Manufacturers may still need wider footprint calculations for customer requirements, but a fall in total product emissions should not automatically be described as a reduction in current CBAM obligation.
The emissions boundary needs to be set before assigning financial value to electrification. Direct combustion reductions, electricity-related emissions and emissions associated with relevant inputs must be evaluated according to the treatment applicable to exported goods.
Financing considerations tied to who captures emission-related value
Banks evaluating industrial electrification projects need to distinguish between statutory certificate obligations and commercial value available to manufacturers. The EU authorised CBAM declarant is responsible for certificate obligations, while exporters may seek to capture value through product pricing or customer retention.
Commercial benefits should not be recorded as assured revenue without a contractual commitment or another substantiated market basis. Investment models should separate 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 exported goods align. The investment case should be demonstrated under actual factory operating conditions, including its operating schedule, energy requirements and expected export volumes.