EU Regulatory Updates

 

 

On 27 November, the European Commission published a proposal to introduce a buffer mechanism to prevent sharp price fluctuations in the forthcoming Emissions Trading System for buildings and road transport (ETS2). ETS2 is a new extension of the EU Emissions Trading System (ETS), the EU’s cap-and-trade scheme that limits total emissions and requires companies to buy allowances for each ton of CO₂ emitted. By gradually reducing the cap and allowing trading of allowances, the ETS creates a carbon price intended to incentivize emissions reductions at the lowest cost. ETS2 will apply this model specifically to heating fuels and road transport, meaning fuel suppliers will be obliged to purchase allowances and pass costs through to consumers.

 

The Commission’s new proposal introduces a “top-up mechanism” to stabilize prices in the early years of ETS2. If the carbon price exceeds €45 per ton of CO₂, the number of allowances released into the market would automatically double, increasing supply and dampening potential price spikes. The measure is part of a broader package announced by Climate Commissioner Wopke Hoekstra in October to address Member State concerns about the impact of ETS2 on consumer bills and business costs. EU governments have also agreed to postpone the start of ETS2 by one year to 2028 as part of the wider negotiations on the 2040 climate target. Commissioner Hoekstra said the proposed mechanism would help maintain affordability and provide predictability as the EU transitions to a low-carbon economy. The proposal will now move to the European Parliament and the Council for negotiation and approval.

 

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On 19 November, the European Commission announced that it had finalized a €1 billion pilot auction to support industrial heat decarbonization across the EU. The IF25 Heat Auction, funded through the EU Innovation Fund, will provide fixed-premium subsidies for projects that electrify industrial heat processes or deploy direct renewable heat technologies. The bidding window opened on 4 December and will close on 19 February 2026.

 

The auction targets hard-to-abate sectors such as chemicals, steel and cement, supporting technologies including heat pumps, induction heating, plasma torches, solar-thermal, geothermal heat and hybrid solutions. Eligible projects across the European Economic Area will compete within three categories that share the €1 billion budget:

Award caps are set at €100 million for the first two categories and €250 million for high-temperature projects. Successful bidders will receive a fixed premium subsidy per tonne of direct CO₂ emissions abated, paid for up to five years following entry into operation.

 

Projects must reach financial close within two years of signing the grant agreement and enter into operation within four years. According to the Commission, the mechanism is intended to de-risk innovative heat-decarbonization pathways, strengthen industrial competitiveness, support EU energy security and reduce greenhouse gas emissions.

 

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On 10 December, the European Commission published its European Grids Package, a comprehensive initiative aimed at accelerating the modernization, expansion, and integration of the EU’s electricity grid infrastructure as part of the Union’s broader strategy to support decarbonization and electrification. The package builds on previous grid action plans and addresses persistent bottlenecks in permitting, planning, and cross-border interconnections that currently hinder the transition to a more electrified energy system.

 

Although the package’s primary focus is on electricity networks, it directly relates to the decarbonization of heating and cooling by seeking to ensure that grid infrastructure can meet rapidly rising electricity demand from electrified end-uses, including heat pumps, district heating electrification and other low-carbon heating technologies. The Commission emphasizes that robust, flexible and interconnected grids are essential to support the electrification of sectors historically reliant on fossil fuels, with heating and cooling among the largest energy consumers in buildings and industry. The Commission’s initiative now proceeds to the European Parliament and the Council for legislative consideration.

 

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On 28 November, the European Heat Pump Association (EHPA) published a position paper analyzing how taxation and levies shape the electricity-to-gas price ratio across the EU, a key determinant of heat pump affordability and uptake. EHPA reiterates that electricity should not exceed twice the price of gas, yet many Member States continue to impose disproportionately high taxes on electricity, resulting in ratios above three or four and significantly slowing heat pump deployment. A clear correlation is shown between higher electricity taxation and lower heat pump sales.

 

The paper contrasts national approaches: Sweden and the Netherlands have aligned fiscal policy with decarbonization by taxing gas more heavily and keeping electricity taxation low, supporting strong heat pump growth. Conversely, Belgium and Germany maintain high electricity taxes relative to gas, contributing to persistently low adoption despite subsidies and prompting forthcoming reforms to rebalance energy taxation.

 

EHPA recommends a suite of fiscal measures, including reducing VAT on heat pumps, minimizing electricity taxation, and rebalancing tax structures between electricity and fossil fuels.

 

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United Kingdom National Updates

 

 

On 18 November, the UK Government published plans to expand the Boiler Upgrade Scheme (BUS) to include a £2,500 discount for the installation of air-to-air heat pumps. This marks the first time that government funding has been made available for air-conditioning-capable systems, which can provide both heating in winter and cooling in summer. The measure sits alongside the existing £7,500 grants for air-source and ground-source heat pumps.

 

The extension forms part of the Government’s forthcoming £13.2bn Warm Homes Plan, expected to be fully presented in next week’s Budget, aimed at lowering energy bills for around five million homes. With average installation costs for air-to-air systems at roughly £4,500 for smaller properties, the new grant will cover more than half the upfront cost. Households will also be eligible for £2,500 support toward heat-battery systems capable of storing heat overnight for daytime use.

 

According to the Government, 2025 saw record domestic heat pump activity, with September registering the highest number of BUS applications to date. In parallel, ministers launched a consultation on alternative low-carbon heating options, such as storage heaters, infrared panels, and renewable liquid fuels, to broaden the range of viable decarbonization pathways for households.

 

The announcement comes alongside wider workforce measures from the Department for Energy Security and Net Zero (DESNZ), which confirmed that 18,000 workers will be upskilled to meet growing demand for home retrofits and low-carbon heating technologies. Through the Warm Home Schemes Program, 9,000 training places will be offered across England, while the Heat Training Grant will receive an additional £5m to support 5,500 heat-pump installers and 3,500 heat-network professionals.

 

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Events

 

 

On 21 January 2026, the High Temperature Heat Pump (HTHP) Symposium will bring together leading experts from industry, research, and policy to explore the latest developments in high-temperature heat pumps and their role in industrial decarbonization in Copenhagen, Denmark.

 

More information is available here.

 

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On 14 April 2026, the 4th International Sustainable Energy Conference (ISEC 2026) will gather industry stakeholders to discuss how Europe’s energy sovereignty can be achieved within a time horizon dictated by climate change and defined by politics, in Graz, Austria.

 

More information is available here.

 

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Glossary