Going Green: Will High Energy Prices Slow Europe’s Climate Goals?
Experts warn that high electricity costs are slowing Europe’s efforts to cut carbon emissions and making it harder for industries to compete globally.
Europe wants to shift to a low-carbon economy, focusing on electricity for transport, heating, and heavy industries. But the move is slower than planned. According to Morningstar’s latest Electrification Observer, high power prices are holding back both households and businesses from adopting clean energy.
Even with subsidies and ambitious targets, Europe is only expected to electrify about 25% of its energy use by 2030, below the 32% needed to meet climate goals.
“Europe is in a tough spot,” says Tancrede Fulop, a senior analyst at Morningstar. “It carries a heavy share of the global effort to reduce emissions, yet high electricity costs are slowing progress. Many households can’t afford technologies like heat pumps, and industries such as steel and chemicals are losing competitiveness compared to the US and China.”
Households and Industries Feeling the Pressure
Electricity prices in Europe are much higher than in the US or China, a gap made worse by energy market changes since 2021. Morningstar predicts EU electricity use will grow slowly, just 1.1% per year between 2024 and 2030, compared to 1.4% in the US.
High taxes and network fees are expected to keep prices high. This hurts traditional industries and slows the switch to clean electricity in homes, even with policies like EU carbon pricing for residential heating starting in 2027.
For example, Europe aims to install 60 million heat pumps by 2030, but Morningstar expects only 39 million will be added. Household electrification is projected to rise slightly from 26% in 2023 to 28% by 2030, cutting CO₂ emissions by just 1.7% per year—slower than in the past decade.
Data Centers and Electric Vehicles Offer Limited Gains
Data centers are a growing source of electricity demand, expected to use 182 terawatt-hours by 2030. Companies like Portugal’s EDP and Schneider Electric could benefit. However, most AI and large-scale computing will stay in the US because power is cheaper there.
Battery electric vehicles may make up 45% of European car sales by 2030, but overall transport electrification will reach only 5%, cutting road transport emissions by just 5%.
Chemicals and Green Hydrogen Face Challenges
Europe’s chemical industry is expected to shrink by 10% over the next five years due to high energy costs. Green hydrogen production is also falling far short of targets: just 0.6 megatonnes by 2030 versus the EU’s 10 Mt goal, because electricity is too expensive.
Still, some industrial companies remain attractive for investors. Efficiency-focused firms like Atlas Copco can benefit from high energy prices. Global chemicals companies with US operations, like Dow, could gain if Europe produces less. And Air Liquide is well-positioned in Europe’s push for industrial decarbonization, despite weak hydrogen growth.
Political and Policy Pressure is Growing
As Europe struggles to electrify enough of its economy, politicians are likely to face pressure to delay or weaken key climate rules. Morningstar points out two major issues: the 2026 end of free carbon allowances for industry and the 2027 carbon pricing for home heating.
Even the EU’s main emissions target — cutting 55% by 2030 compared to 1990 — now looks hard to reach. Morningstar predicts only a 43% reduction if current trends continue, because electrification is moving too slowly to make up for emissions in other areas.
“Europe is in a tricky spot: it faces the costs of cutting emissions but isn’t electrifying fast enough to see real growth,” Fulop said.
Different Progress Across Europe
Northern Europe, France, and the Iberian Peninsula are doing better in electrification. Lower electricity costs, strong grid capacity, and plenty of clean energy are helping attract data centers and green industrial projects.
But investor excitement may be too high. For example, Spanish utilities have performed very well in 2025, possibly beyond what is realistic.
Overall, Europe faces a tough reality: it is paying the high cost of decarbonization without fully reaping the benefits. With electricity prices likely to stay high, the continent risks being stuck in an expensive, politically sensitive transition — too costly to stop, but too slow to deliver results.
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