Fuel switching as an option for medium-term emission reduction - A model-based analysis of reactions to price signals and regulatory action in German industry

The German federal government has set a target for German industry to reduce its GHG emissions by 49%-51% by 2030 compared to 1990. Fuel switching to electricity and biomass is a potential measure to meet this target. In this article, we simulate the contribution of fuel switching by applying economic incentives and regulatory measures. The policy instruments of a CO2 price and technology-specific subsidies are applied with varying intensity. In addition, we simulate accelerated stock replacement and a ban on new fossil-based steam generation systems. Results show that combining fuel switching and energy efficiency could achieve emission reductions of 50% by 2030 compared to 1990 only combined with considerable economic pressure (up to 300 e/tCO2) and financial support for electricity-based process heating. We observe that neither a CO2 price nor investment grants for electric process heating equipment are effective. Instead, substantial reductions of electricity prices and accelerated stock replacement are effective levers. Meeting the German emissions target for industry increases the modelled system costs by 20% compared to a case without additional policies. We conclude that an effective policy mix to incentivise fuel switching to electricity needs to address operating costs and stock replacement rather than capital expenditures.