Amongst the EU27, the buildings sector is responsible for 40% of emissions. To reach the EU’s climate targets, decarbonising this sector will be crucial. In response, the European Commission published the ‘Fit for 55’ Climate Package in July, aiming to reduce emissions by 55% by 2030 and get the EU on track for climate-neutrality by 2050. It contains various proposals, notably on emissions trading, and aiming to reduce the climate impact of the transport and buildings sectors. A second part the ‘Fit for 55’ package is expected on 14 December. What will be important for the buildings sector will be the Commission’s proposal to update to the Energy Performance of Buildings Directive (EPBD).
The buildings sector in ‘Fit for 55’ so far
‘Fit for 55’ sets out a common emissions reduction target of 43% by 2030 for the transport and buildings sector, compared to 2005 levels. The 13 proposals presented last summer aim to reduce emissions from space heating and cooling, as well as tackle poor home insulation. Given that the broader aim of societal decarbonisation requires a comprehensive approach, ‘Fit for 55’ address the challenge from several angles:
The impact of such an approach will mean that fuels used to heat houses, such as coal, natural gas and heating oil will become significantly more expensive. According to the Commission, this should encourage a reduction in consumption and make investments in sustainable alternatives more attractive. The Commission is looking to further promote the insulation of buildings, while also promoting alternatives to natural gas through investment in (hybrid) electric heat pumps. All these changes will increase fixed costs for utilities and will require significant investment.
A glaring concern for Member States is the impact of these price increases on vulnerable and energy poor households, the consequences of which could generate public outcry against national and EU climate objectives. To address these concerns, the Commission has proposed a Social Climate Fund, which aims to help financially support households when insulating their homes or purchasing an electric vehicle.
The Energy Performance of Buildings Directive: Taking it one step further
While the above proposals are now up for discussion within the European Parliament and the Council, the Commission has already set its sights on its next proposal – the revision of the Energy Performance of Buildings Directive (EPBD) – on 14 December.
At its core, the EPBD seeks to achieve a highly energy efficient and decarbonised building stock by 2050, provide investment stability, and empower both consumers and businesses to understand how to cut energy consumption and save money. In force since 2010, the EPBD was slated for revision under the Commission’s ‘Renovation Wave’ strategy, with provisions to be strengthened to meet the higher climate ambitions under the European Green Deal, notably climate neutrality by 2050.
An expected key change is an increase in the national annual renovation rate to 3%, requiring Member States to significantly step-up renovation efforts. Besides increasing the pace, the EPBD may also mandate a higher quality of building stock be built. Alongside this, the Commission is considering expanding Energy Performance Certificates to include stricter rules on the availability and accessibility of databases, as well as new minimum energy performance standards. These standards could go beyond the current nZEB (nearly zero-energy buildings) definition, by raising standards for 2025 and promoting a life-cycle approach by 2030. Aspects such as the production and transport of building materials would therefore be taken into account under such an approach.
Finally, the EPBD is expected to play an important role in promoting the transition to e-mobility. Recently, the European Parliament’s Transport (TRAN) Committee pointed out in its draft opinion on the parliamentary implementation report about the existing EPBD that minimum requirements for private charging infrastructure in buildings could help promote the uptake of electric vehicles. Given that private charging infrastructure is not addressed in the Commission’s recent proposal for an Alternative Fuels Infrastructure Regulation (AFIR), the EDPD revision is expected to set out new requirements for private charging infrastructure, ranging from building and building blocks to hotels and even parking garages.
Major challenges to overcome
A 3% annual renovation rate under the new EPBD, in addition to the already proposed 3% annual renovation rate for the public sector under the EED, creates a significant logistical challenge both for Member States and for housing corporations. Housing corporations tend to have a natural flow in which each house in their buildings stock can be renovated as part of a 10–20-year renovation plan, allowing the necessary renovations needed to enhance the energy performance of buildings well in time before 2050. However, increasing the existing pace of renovation would require a significant rethink on their current approach.
Moving from house-by-house renovation towards comprehensive street- or neighbourhood-level renovation would still face workforce challenges, ranging from a broader shortage of workers to a shortage of workers with the specific skills needed to install sustainable solutions, such as heat pumps. The construction sector is expected to play a role in overcoming these challenges, transforming supply chains to promote results on the ground and reduce construction and renovation costs. Potential solutions include advanced insulation materials, more efficient integration of buildings within energy systems, building automation, and prefabricated systems for the retrofitting of buildings.
From a social perspective, improving the energy performance of buildings requires significant up-front investment. Even though tenants and house owners should get a return on investment over time thanks to lower energy bills, it is critical to introduce effective financing tools to support low-income households overcome the prohibitive short-term renovation costs. This issue is only being made worse in light of skilled labour shortages and record-high material costs driving up prices.
To tackle investment challenges, financial assistance will likely be mobilised through several instruments. At the EU level, the central avenue is the Social Climate Fund, which is expected to reinvest a portion of EU ETS revenues earmarked to support vulnerable households. The distribution of those funds would be left to Member State authorities through Social Climate Plans, which are to be submitted alongside the 2023 and 2024 updates to National Energy and Climate Plans (NECPs), both to be submitted to the Commission. Alongside this, Member States are investing money from the EU’s COVID-19 Recovery Fund into renovation, with different EU energy laws also providing for opportunities to help households, such as through exempting households from energy taxation on heating fuels. The Commission’s new Sustainable Finance Strategy, published last summer, also seeks to improve citizens’ access to green loans for relevant projects, such as improving home insultation.
What creates an additional challenge for European policy makers are the expected differences between North and South, and East and West, driven by regional historic and economic contexts. How proposed decarbonisation solutions can be tailored to different national contexts will be crucial.
Next steps and outlook
The Commission’s proposal for the EPBD revision is scheduled for publication on the 14 December 2021, with the first reading in the European Parliament and the Council of the EU likely beginning in early 2022. As has been the case with the other ‘Fit for 55’ proposals, the European Commission may also open a public consultation on the final proposed text.
Given the EU’s growing role in guiding the decarbonisation efforts across its Member States, Brussels will be increasingly centre stage for those seeking to have their voice heard.
Cicero/amo’s EU Green Deal Team
We hope this article gave you more insights into the challenges that the buildings sector will be facing during the energy transition. If you would like to hear about the implications of ‘Fit for 55’ for your business, or would like to strategically prepare your organisation in anticipation of the publication of the EPBD revision, please feel free to reach out.
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