Electricity, Gas, Steam and Air Conditioning Supply

Sector Scope and Strategic Importance

​

The Electricity, Gas, Steam and Air Conditioning Supply sector corresponds to NACE Rev. 2 Section D and covers the provision of electric power, natural gas, steam, hot water and similar energy services through permanent infrastructure networks. In the European sustainability context, this sector is strategically critical because it directly determines the carbon intensity of electricity, heating, cooling, industrial energy use, buildings, transport electrification and digital infrastructure. 

​

The sector is also one of the main pillars of the EU climate transition. Electricity and heat production are covered by the EU Emissions Trading System, which applies to electricity and heat generation, industrial manufacturing and aviation, and accounts for around 40% of EU greenhouse gas emissions. 

​

Emissions Profile and Decarbonisation Performance

​

The sector has historically been one of the largest sources of greenhouse gas emissions in Europe, mainly due to coal, lignite and natural gas combustion in electricity and heat generation. However, it has also achieved one of the strongest emission reductions among all EU economic activities. According to Eurostat, EU greenhouse gas emissions from electricity, gas, steam and air conditioning supply fell by almost 50% between 2013 and 2024, mainly because electricity and heat production shifted away from carbon-intensive solid fossil fuels toward renewable energy sources, especially wind and photovoltaics. 

​

In 2024, the sector emitted approximately 531 million tonnes of CO₂ equivalent in the EU, ranking behind manufacturing and households after having been the largest emitting activity until 2018. 

​

The European Environment Agency reported that greenhouse gas emissions from electricity and heat production fell by 58% between 1990 and 2024, reflecting fuel switching, efficiency improvements, growth in renewables and the impact of the EU ETS. 

​

Electricity Mix and Renewable Energy Transition

​

The sustainability performance of the sector is increasingly shaped by the rapid expansion of renewable electricity. Eurostat reported that renewable energy sources accounted for 47.5% of EU gross electricity consumption in 2024, up from 15.9% in 2004 and 28.6% in 2014. 

​

The European Environment Agency estimated that the EU electricity sector was 62% less greenhouse-gas-intensive in 2024 than in 1990 and 9% less intensive than in 2023. This improvement was driven by higher hydro generation, continued growth in solar and wind power, increased nuclear generation from low 2022–2023 levels, and the continued decline of coal generation. 

​

The IEA’s Renewables 2024 report projects that global renewable capacity will increase by more than 5,520 GW between 2024 and 2030, with solar PV accounting for almost 80% of renewable electricity expansion. Although this is a global forecast, it is highly relevant for Europe because EU electricity-market decarbonisation depends heavily on solar, wind, storage, grids and electrification. 

​

Key Sustainability Issues

​

The sector’s first and most material sustainability issue is climate impact. Fossil-based electricity and heat generation still create substantial Scope 1 emissions, while purchased electricity and heat influence Scope 2 emissions across all other sectors. This means that decarbonising Section D has a multiplier effect across manufacturing, transport, buildings, digital services and households.

​

The second major issue is energy security and affordability. The 2022 energy crisis demonstrated Europe’s vulnerability to fossil gas supply shocks, and the sector now faces the challenge of simultaneously reducing fossil dependence, maintaining supply security and limiting price volatility. The European Commission noted that EU gas and electricity markets showed improved resilience in 2024 due to integration, security-of-supply measures and renewables deployment. 

The third issue is grid capacity and flexibility. Renewable electricity expansion requires transmission grids, distribution grids, storage, demand response and cross-border interconnection. ENTSO-E’s TYNDP 2024 states that Europe will only reach its decarbonisation objective and integrate increasing volumes of variable renewables if adequate investments enable market integration, competitive prices and secure electricity access. 

​

The fourth issue is market design and congestion management. ACER reported that congestion management costs in the EU power grid reached €4 billion in 2023, and emphasised the importance of increasing cross-zonal capacity for electricity trade. 

​

Environmental Sustainability Assessment

​

From an environmental perspective, the sector is improving rapidly but remains transition-critical. The strongest progress is visible in reduced carbon intensity, coal phase-down and the expansion of renewable electricity. However, material risks remain in fossil gas dependency, methane leakage in gas supply chains, residual coal and lignite capacity, biomass sustainability, nuclear waste management, water use in thermal power plants, land-use impacts from renewables, and end-of-life management of solar panels, batteries and wind turbine components.

​

For electricity producers, the most important sustainability indicators are greenhouse gas intensity of generation, renewable electricity share, coal and gas dependency, methane leakage, energy efficiency, water withdrawal and consumption per MWh, waste generation, hazardous waste management, biodiversity impacts of assets, and decommissioning plans. For gas networks, methane leakage, network readiness for biomethane and hydrogen, safety performance and transition planning are especially material.

​

Social Sustainability Assessment

​

The sector has direct social importance because electricity, heating and cooling are essential services. Social sustainability therefore includes affordability, universal access, consumer protection, energy poverty reduction, occupational health and safety, just transition for workers in fossil-fuel-dependent regions, and community acceptance of energy infrastructure.

The clean-energy transition creates new employment opportunities in renewables, grids, digital energy services and storage, but it also creates transition risks for workers and regions dependent on coal, gas infrastructure and conventional power generation. A credible sustainability strategy should therefore include workforce reskilling, social dialogue, local employment planning and community benefit mechanisms for renewable and grid projects.

​

Governance and Regulatory Sustainability

​

Governance quality is central in this sector because electricity and gas systems are heavily regulated, capital-intensive and strategically linked to national security. Strong governance requires transparent investment planning, climate-aligned capital allocation, science-based transition targets, board-level oversight of climate risks, anti-corruption controls in infrastructure procurement, cybersecurity governance and clear separation between regulated network activities and competitive market activities.

​

The EU ETS remains the central regulatory driver for power-sector decarbonisation. The European Commission’s 2025 Carbon Market Report stated that the EU ETS continued to drive emissions reductions in the power sector and industry in 2024, while generating revenues to support clean-transition investment. 

​

Main Risks

​

The sector faces five major sustainability risks. The first is transition risk from tightening climate regulation, higher carbon costs and fossil asset stranding. The second is physical climate risk, including drought impacts on hydropower and cooling water availability, heatwaves affecting demand and grid stability, storms damaging networks, and wildfire risks to transmission infrastructure. The third is market risk from volatile gas prices and intermittent renewable output. The fourth is infrastructure risk from delayed grid investment, permitting constraints and insufficient storage. The fifth is social and political risk from energy affordability, local opposition to infrastructure and unequal distribution of transition costs.

 

Opportunities

​

The sector also has very strong sustainability opportunities. These include renewable electricity growth, electrification of transport and heating, district heating decarbonisation, heat pumps, energy storage, green hydrogen, biomethane, demand-side flexibility, smart grids, digital energy management and cross-border market integration. Companies that can combine low-carbon generation, resilient networks, customer flexibility and transparent governance are likely to be better positioned under EU climate and energy policy.

​

Recommended Sustainability KPIs

​

Key indicators for this sector should include: Scope 1 emissions, Scope 2 emissions, Scope 3 emissions where relevant, CO₂e intensity per MWh generated, renewable electricity share, fossil fuel share, coal phase-out timeline, methane leakage rate, electricity losses in transmission and distribution, grid outage duration, water withdrawal per MWh, water consumption per MWh, share of recycled or recovered waste, biodiversity management coverage, occupational accident frequency rate, energy poverty support measures, customer complaints, cybersecurity incidents, climate-aligned capital expenditure share and EU Taxonomy-aligned revenue/capex/opex.

​

Overall Sustainability Outlook

​

The Electricity, Gas, Steam and Air Conditioning Supply sector is one of Europe’s most important sustainability transition sectors. Its emissions have fallen substantially, renewable electricity has reached nearly half of EU gross electricity consumption, and the carbon intensity of electricity generation continues to decline. However, the sector is not yet fully sustainable. Its future performance will depend on the speed of fossil fuel phase-down, grid expansion, storage deployment, methane control, affordability measures, resilience to climate impacts and governance quality.

Overall, the sector should be assessed as high-impact and transition-positive, but still materially exposed to climate, infrastructure, affordability and regulatory risks. Its sustainability performance is improving faster than many other sectors, yet the scale of investment and system transformation required remains very high.