A battle over the ambition of the two directives is set to take place
HIGHER TARGETS
The revised directives are set to strengthen the bloc’s targets in energy efficiency and buildings performance
MONEY MOVES
Mobilising investments in energy efficiency is key to reaching renewed targets
KEY QUOTE
Fast-tracking key measures in the revision of the EPBD, such as MEPS, is crucial to aligning the EU’s Green Deal with the new geopolitical reality
The EU’s topline climate targets of a 55% cut in greenhouse gas emissions by 2030 and net-zero by 2050 rely heavily on accelerated renewable energy deployment, significant—if not total—fossil fuel cuts and a substantially more efficient energy system.
Talks aimed at ratcheting up sector-specific targets, rewriting emission standards and funnelling more money towards green projects are ongoing, all against a backdrop of unpredictable geopolitical events that are moving markets and changing the game. In 2021, the European Commission (EC) published its plan—known as the “Fit-for-55” package—to drag Europe’s economy onto a trajectory that is consistent with its set-in-stone climate neutrality goal.
Under the EC’s existing regime, renewable sources have to reach 32% of the total energy mix by 2030. This was increased to 40% by the Fit for 55 plan. Its energy efficiency directive (EED) counterpart aims for arguably even more ambitious improvements. The current overall benchmark of a 32.5% reduction in final energy consumption is ramped up to 36%, while annual energy savings requirements were nearly doubled from 0.8% to 1.5%.
According to the updated Energy Performance of Buildings Directive (EPBD)—designed to support the energy efficiency of Europe’s buildings stock—governments will identify which commercial, public and residential structures are among the least efficient 15% of the building stock.
These will then be classified as ‘G’ class on a rating scale that goes all the way up to ‘A’—which will be reserved solely for buildings that emit no emissions whatsoever during their operation phase. Minimum Energy Performance Standards (MEPS) will then be applied to that 15%.
G-class commercial and public buildings would have to be renovated up to F-class by 2027 and E-class by 2030 if the Commission’s plan is adopted as it stands. Residential buildings would have longer— by 2030 and 2033, respectively—for the two lowest classes.
The revised EPBD will be the main lever for the EU’s ongoing Renovation Wave policy, which aims to boost refurbishment rates above their current annual 1% and upgrade 35 million buildings by 2030.
Building works Updated EU directives are aiming to increase the efficiency of Europe’s building stock
EFFICIENCY FIGHT
Niels Fuglsang, a Danish socialist member of the European Parliament, is tasked with crafting the institution’s proposal for the EED review. He is not pulling any punches when it comes to ambition. His report says the overall target should be 43% rather than 36%, while his vision for annual savings is 2% rather than 1.5%. Fuglsang also insists that those requirements be legally binding on national governments.
“We need to do more to live up to the EU’s Climate Law; it is cost-efficient, according to the cost analysis that I have built this on and we need to become independent of Russian gas and oil,” the MEP explains. He is likely to find plenty of support in Parliament for his bumped-up targets, as lawmakers from across the political spectrum have already publicly backed energy-saving policies as a weapon against Russian fossil fuel dependence.
Arianna Vitali of the Coalition for Energy Savings, an NGO, says discussing higher targets is no longer taboo. “There’s more consciousness now about how important energy savings are and why it should be prioritised,” she says.
According to member state diplomats from some of the EU’s biggest players, their governments are unlikely to push back too hard on the target increases but will argue that their national contributions to the binding EU-wide goal remain indicative only. The Parliament too might struggle to agree on a negotiating position that includes legally binding benchmarks, despite Fuglsang’s efforts, as the large centre-right European Peoples’ Party (EPP) has submitted amendments that insist countries must be granted flexibility.
In changes suggested by Danish MEP Pernille Weiss, governments should set milestones to keep them on track and be able to use their own energy policy datasets to calculate their contributions. The Commission says member states should use a formula that it has designed.
A third way may yet emerge when negotiators sit down for talks in 2022. The European Policy Centre (EPC), a think tank, suggests that member states should be given free rein and only hit with obligatory measures if they come up short.
“If the 2022 evaluation of a National Energy and Climate Plan shows that a member state is not on track or not taking the appropriate measures to meet its energy efficiency goals, the Commission should be able to propose new, binding targets and plans to said member state. This would ensure that monitoring also leads to concrete results,” the EPC writes in a briefing.
BUILDINGS BOOST
The buildings performance directive is one legislative step behind the EED, as the proposal was only published at the end of 2021 as part of the second wave of climate legislation promised by the Commission. Ciarán Cuffe, an Irish greens MEP, is Fuglsang’s counterpart on the EPBD and will lead the Parliament’s negotiating team. He too is adamant that the rules review can make a huge difference to the EU’s climate accounts.
“Renovating existing buildings can lead to significant energy savings and could reduce the EU’s total energy consumption by 26%,” Cuffe says, adding that he will seek to accelerate the Commission’s proposed timeline. “We also have to look at other areas like encouraging the uptake of on-site renewable energy systems and creating frameworks to improve the energy performance of buildings through MEPS,” he adds.
Performance standards risk being a key point of contention between EU countries that already have strict rules in place, such as the Netherlands, and other member states that have building stocks that are in a much worse condition and require bigger injections of capital. As a result, the Commission has attempted to forge a middle way with the EPBD, setting EU-wide class requirements but allowing governments to design their own rating systems and designate their own trigger points for when renovations must be carried out.
Caroline Simpson of campaign group Renovate Europe says, “Fast-tracking key measures in the revision of the EPBD, such as MEPS, is crucial to aligning the EU’s Green Deal with the new geopolitical reality,” following Russia’s invasion of Ukraine.
Both Cuffe and Simpson regret the fact that the Commission failed to include building renovations in its initial plan to curb Russian energy imports. Indeed, an entire section on refurbishments in the first draft of the REPowerEU plan was withdrawn from the final text.
Fuglsang will be working closely with Cuffe as the two MEPs attempt to marshall two different but closely linked directives through the EU’s legislative process. However, success for one does not necessarily guarantee success for the other.
“An ambitious EED might actually be used as an excuse to lower the ambition of the EPBD. The interplay between the various pieces of legislation is tricky and must be managed carefully,” Simpson warns.
One important factor that will make or break the ambitions of the legislation is financing. Hundreds of billions of euros will be needed to bring the building stock up to code but in that regard, the EPBD can count on a powerful ally. An €800 billion pandemic recovery fund is already doling out grants and loans to the 27 member states and renovations feature prominently in many of the plans that governments have submitted to the Commission, which is the gatekeeper of the money.
“There’s a lot of money under the recovery fund that can be used for energy efficiency, including building renovations,” Vitali insists. Meanwhile, Cuffe warns that some member states have missed an opportunity not to spend more on buildings.
EXPERTISE MATTERS
As is the case for so many EU rules and regulations—not just in the climate and energy sector—there is often a gap between what is decided in Brussels and what is implemented on the ground. In order to help national, regional and local authorities actually stick to targets, the EU offers technical assistance funding, so governments can obtain the services of experts that, for instance, know how to run mass renovation projects.
Under the InvestEU programme—worth nearly €400 billion in total—governments can apply for funding and seek help from the scheme’s advisory hub, which links project promoters with advisors to work together and help projects reach the financing stage. It is a little-known instrument that many senior Commission officials complain is almost completely underappreciated by the member states.
“Governments have to get better at using money which has already been allocated to green investments, like the recovery funds, and the EU has to get better at helping them,” insists Brook Riley at multinational insulation firm Rockwool.
“It’s pretty clear that every euro in renovation brings big socio-economic benefits, but you’ve got to actually get the money into the economy. Cue technical assistance,” he adds. More governments may shortly realise what they have been missing after the Commission set up a special branch of its technical assistance services to help 17 EU countries curb their reliance on fossil fuels.
The revised EED and EPBD rules both tout technical assistance as an essential step that governments must consider when allocating funding to efficiency and renovation projects. Small- and medium-sized enterprises in particular should be given special attention as they represent significant energy-saving potential. The directive insists that national authorities must provide technical assistance and targeted information under an appropriate framework.
Plans to deploy minimum energy performance standards for buildings will also hinge on technical assistance, according to the Commission’s EPBD proposal, which makes an explicit link between targets and results. One-stop shops are the main tool the Commission wants to see governments embrace and roll out en masse.
“We need to have a lot of money going into skills and training at the moment. This will make sure that our workforce is adequately equipped for the increased demand for renovations,” says MEP Cuffe.
This is where the institutional arm of technical assistance can come into play. Not only can the EU offer expertise there, but other international organisations such as the World Bank also have the resources needed to help craft policy options for countries that seek assistance. “Discussions with financial institutions show that there is a desire to up investments in renovations but to do this we must create a legislative framework that can strengthen and secure investments in energy-efficient and affordable homes,” Cuffe explains.
AVAILABLE FINANCE
Cuffe is not the only MEP that wants financial institutions to play a larger role in the EU’s green transition, as compatriot and centre-right lawmaker Seán Kelly has urged the European Central Bank to do more to help households renovate their properties.
“A big barrier faced by homeowners is the high costs of procuring bank loans for renovations. Banks themselves face high fixed costs,” Kelly says, adding that the European Central Bank (ECB) should step in and link energy efficiency criteria with low-interest loans. Governments are limited in how much of their budgets they can pump into renovation schemes but the banking sector theoretically has more flexibility. The ECB in particular has billions of euros at its disposal with its targeted longer-term refinancing operations.
Kelly suggests the European Parliament should be discussing how to unleash that funding for renovation programmes and make other changes, such as disclosing energy performance standards on bank mortgage portfolios. He insists that the ongoing work on the EPBD and existing recommendations by the European Banking Authority will “greatly facilitate the ECB’s efforts in this direction.”
Under the presidency of Christine Lagarde, the Frankfurt-based institution seems to be in an environmentally-inclined mood after publishing a comprehensive climate strategy for monetary policy in the summer of 2021. Kelly’s suggestions could therefore fall on fertile ground. •
TEXT Sam Morgan
PHOTO Simone Hutsch & Sasha Plescho