Raising the Bar -EU sets more ambitious energy reduction targets for its residential sector
The building sector accounts for 40% of final energy consumption in the European Union and 36% of its energy related greenhouse gas emissions. Furthermore, 75% of the Union buildings were built before 2000 and are still energy-inefficient. As 85% to 95% of the buildings that exist today will still be standing in 2050, it has become imperative to improve the energy performance of buildings and to reduce their greenhouse gas emissions. As such, and as part of the ‘Fit for 55’ legislative package, the European Union recently approved the energy performance of buildings directive (EPBD), after years of negotiations and draft proposals (see here the adopted directive). In December 2021, the European Commission published a draft proposal of the EPBD, which has changed significantly when compared with the recently adopted directive. While one of the main goals of the previous directive was to promote the comparability of energy performance labels across the European Union, that seems to be no longer the focus. Nevertheless, the new targets set by the European Commission seem to be more ambitious than the previous ones, as they ask Member States to a larger and faster reduction of the average primary energy use of the entire building stock by 2035 already. Moreover, some novel articles were introduced to the first proposal. Firstly, there are now clear guidelines in order to incentivize Member States to deploy solar energy installations both in new and renovated buildings, and, secondly, Member States should also promote one-stop renovation shops, where all stakeholders can easily access and obtain information about the topic. The structure of this note follows as: in the first section we discuss the main changes between the draft proposal and the final directive. In the second section, we discuss the new articles introduced in the Directive. And, finally, we conclude with our assessment of the changes.
The European Commission has finally agreed and published the Energy Performance of Buildings Directive (EPBD) after years of negotiations and proposals
The final Directive made further changes to the 2021 recast proposal and earlier drafts
For instance, the Commission introduced some subjectivity to what should be considered a class-G building, likely hindering the harmonized and comparable energy performance scales across the Union. Ultimately, that changes the previous set targets
Now, all Member States need to reduce their residential buildings’ average primary energy use by at least 16% until 2030, and by 22% until 2035
According to our calculations, this new target is more ambitious than the previous 2021 draft proposal targets
Northern western European countries (e.g. Belgium, France) have larger investment needs when compared to southern European countries (e.g. Spain, Portugal), given their larger primary energy use at the moment
Regarding green bonds, we do not foresee any considerable impact
What has changed?
The most striking change regards the lack of harmonised and comparable energy performance scales across the Union. While in the previous proposal there were clear guidelines about what should be considered as a class A and class G buildings, in the approved Directive, there is only information about what should be considered as a class A building. For instance, according to the Directive, “the letter A shall correspond to zero-emission buildings, and the letter G shall correspond to the very worst-performing buildings in the national stock at the time of the introduction of the scale”. The previous proposal would qualify the worst 15% of the building stock as class-G, and would capture a larger cohort of weak buildings. As we had shown in Sustainaweekly last year, in the Netherlands, this would have downgraded to G every building up to the current label D. Furthermore, this change introduces some subjectivity to what Member States could consider as “worst performing buildings”. Although Member States have to use the same template across the Union to issue energy performance certificates, that does not guarantee that they perceive the different energy performance classes in the same way.
Furthermore, the validity of the EPC label is now of 10 years, while in the 2021 proposal, the validity was of five years.
There was another important change, which follows from the absence of comparable scales across the Union. Article 9 “Minimum energy performance standards for non-residential buildings and trajectories for progressive renovation of the residential building stock” (previously, “Minimum energy performance standards” or MEPS), sets targets for countries to reduce their building stock energy use. According to the final Directive, Member States need to guarantee that, by 2030, the average primary energy use of the entire (residential) building stock is reduced by at least 16% (when compared with the numbers of 2020). And this reduction needs to be of at least 22% by 2035. In the earlier draft, the MEPS were aimed to have the worst residential buildings to be renovated and improved to at least energy performance class F by 2030 and to at least class E by 2033.
Below (left), we plot the average primary energy use of the building stock per country, in kWh/(m2y).
Northern Western countries, also due to colder weather, tend to consume more energy, and, as such, be responsible for more emissions. For instance, Belgium residential registered an average primary energy use of 222 kWh/(m2y) in 2020, which compares to an average primary energy use of 96.9 kWh/(m2y) in Spain. As such, the investment and the changes that Belgium need to enact are much larger than those that Spain needs to do. The yellow column indicates how much this value should be by 2035, would Member States follow and comply with the targets. And, finally, the dark green markers regard the CRREM calculations, of how much should these countries’ residential building stock energy use be, were countries to achieve close to zero emissions, and comply with the Paris Agreement’s 1.5 degrees global warming target.
As expected, countries that start from a very high primary energy use, have to make a larger effort and investment than those who have a smaller energy use. For instance, were Belgium to achieve the 2035 target, it would still need to reduce energy use by, on average, 7%, yearly, between 2035 and 2050. That number is much smaller for Southern European countries, which start from a much more favourable point. For instance, were Spain to achieve the 2035 target, it would only need to reduce energy use by 3%, yearly in the following 15 years. A similar picture holds for Portugal and Italy.
Nevertheless, according to our calculations, these new targets seem to be more ambitious than the previous ones. For example, if we consider Belgium, the final Directive imposes that its residential building stock’s average energy use has to be reduced by 22% by 2035. On the contrary, if we consider the previous draft proposal, were Belgium to upgrade its class F buildings to class E (and all other classes ceteris paribus), that would imply a total reduction of the average energy use of 8% by 2033. As such, the final Directive is asking Member States for a larger and faster reduction of its building stock energy use.
The other change to the Directive regards the timing and targets for new buildings, which is a bit less ambitious than in the draft proposal. According to the Directive, “Member States shall ensure that all new buildings are ZEB from 1 January 2030”. In the draft proposal, the public-owned buildings had to be ZEB by 2027.
Also, most likely due to the delayed approval of the Directive, the first national building renovation plans by Member States have to be submitted by 31 December 2026. In the draft proposal, national plans had to be submitted by 30 June 2024. The delay in the approval of the Directive has ultimately hampered the transition and further delayed the efforts that Member States need to start doing/enacting.
What is new?
The Directive introduces three novel articles. One regards solar energy in buildings, another regards zero-emission buildings – although this concept was already defined in the previous proposal, there was not a sole article defining and describing what a ZEB is -, and, finally, one regarding one stop shops. Except for the first one, the other two articles do not seem to make the Directive more ambitious, more than they are informative.
Regarding Article 10 “Solar energy in buildings”, the Commission proposes that Member States “shall ensure that all new buildings are designed to optimise their solar energy generation potential on the basis of the solar irradiance of the site”. This means that new buildings have to be fit to host rooftop photovoltaic or solar thermal installations at a later stage without costly interventions.
Concerning “one stop shops”, Member States shall ensure the establishment and operation of one-stop shops targeting all actors involved in building renovations, such as home owners and financial and economic actors (e.g. SMEs, microenterprises).
No foreseen impact on green bonds
The EU Taxonomy only allows buildings labelled at least EPC A or belonging to the top 15% of the building stock in terms of energy intensity as eligible assets. The final Directive clarifies that class A buildings should be all zero emission buildings. Although the top 15% of the building stock of a country might not be ZEB, the Taxonomy allows for assets to either meet one condition of the other. As such, we do not consider that the final Directive affects the existing green bonds.