In October 2025, the European Commission formalised the Terms and Conditions (T&Cs) for its inaugural EU-wide auction dedicated to decarbonising industrial process heat, committing €1 billion from the Innovation Fund to support clean heat technologies. This pilot auction (known as IF25 Heat) aims to stimulate electrification, renewable heat, and hybrid solutions across all industrial sectors to help displace fossil-fuel heat and advance the EU’s climate neutrality goals.
Context and Strategic Purpose
Industrial process heat—used in sectors like steel, cement, chemicals, glass, and food processing—is responsible for a large share of industrial GHG emissions. In the EU, about 75 % of this heat is currently derived from fossil fuels, while only around 4 % is supplied electrically. The Innovation Fund, financed by revenues from the EU Emissions Trading System (EU ETS), is designed to accelerate deployment of clean technologies through competitive funding mechanisms.
The logic behind the pilot auction is to close the cost gap between clean process heat alternatives and incumbent fossil-based systems, de-risk investments in electrification and renewable heat, and generate market signals around the cost of decarbonising process heat. It also lays the groundwork for the planned Industrial Decarbonisation Bank, an envisioned instrument that could mobilise up to €100 billion for industrial transformation.
Core Design Elements of the Auction
The auction’s architecture is built around several key features:
1. Scope & eligible technologies
Projects that electrify process heat (e.g. heat pumps, resistance heating, plasma), deploy direct renewable heat (solar thermal, geothermal), or combine these in hybrid solutions are eligible.
2. Subsidy model and ranking
Successful bidders receive a fixed premium per tonne of CO₂ abated, awarded for a maximum of five years. Bids are ranked by cost per tonne of abatement (i.e. lowest cost first) in a pay-as-bid format.
3. Auction “baskets” by temperature and size
The budget is divided into three “baskets,” corresponding to different temperature bands and plant sizes:
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Medium temperature (100–400 °C) for capacity 3–5 MWth
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Medium temperature ≥5 MWth
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High temperature (> 400 °C)
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Each basket has a dedicated budget slice (e.g. €150 million, €350 million, €500 million).
4. Flexibility and indirect emissions constraints
To discourage inefficient electricity use during grid peaks, subsidies are limited by default to 70 % of hours annually. Projects offering flexibility, energy storage, or demand response can be eligible for up to 80 %.
5. Compliance, monitoring, and obligations
Projects must meet qualification criteria (technical, financial, legal). They must deliver financial close within 2 years and be fully operational within 4 years after grant signature. Monitoring, reporting, and verification (MRV) of heat output and CO₂ abatement are mandatory, and misuse or failure to decommission fossil capacity can trigger clawbacks.
6. Auction-as-a-Service (AaaS) mechanism
Member States may top up national funding within the same auction process via an “Auction-as-a-Service” scheme, enabling use of EU auction infrastructure for national projects.
What This Could Mean
This pilot initiative signals a meaningful shift in EU climate policy: it treats industrial heat—long neglected in decarbonisation efforts—as a first-class target. If successful, it could:
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Trigger investment in clean heat technologies, especially in sectors with high-temperature demands.
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Reveal real world cost benchmarks for abatement in process heat, aiding future policy design.
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Strengthen the business case for electrification and renewables in industry, helping avoid stranded fossil assets.
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Serve as a blueprint for the larger Industrial Decarbonisation Bank.
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At the same time, execution, uptake, and fair participation across Member States will determine whether this auction becomes a catalyst for transformation or a limited experiment.
