Regulators looking to achieve climate goals through energy efficiency are facing a tough challenge
SIMPLE TASK
Using less energy is something most of us can do—and it provides a benefit in terms of lower costs TOUGH CHOICES
In practice, getting people to adopt energy efficiency measures is hard and incentives need to take that into account KEY QUOTE
We need to fundamentally own the fact that we built loads of shit houses and a large proportion of them are going to have to come down
As of 2022, thermostats have become instruments of war. After Russian president Vladimir Putin ordered tanks into Ukraine, Josep Borrell, head of foreign policy at the European Union (EU) said European citizens should turn down their heating to cut Europe’s dependence on Russian gas.
In the war on climate change, using less energy is also key. The International Energy Agency (IEA) says energy efficiency represents “a critical contribution” to its Net Zero by 2050 road map to meet the Paris Agreement to limit global warming to well below 2ºC.
Unless demand is reduced through electrification, behavioural changes and efficiency, global energy consumption could be 83 petawatt-hours a year higher in 2050 than in 2020, or 90% above the amount needed to cut net emissions to zero, the IEA says.
EU lawmakers recognise the importance of efficiency and last year tabled a revision of the bloc’s energy directive, aiming to bring in a legally binding 36% cut in final consumption by 2030. This target could be revised further following Russia’s invasion of Ukraine.
On the surface, encouraging energy efficiency should not be hard. Businesses and consumers alike benefit from using less energy because they pay lower bills.
Lower energy costs are not the only plus. More than 220 million buildings, representing around 85% of Europe’s building stock, were built before 2001 and most will still be standing by 2050. “[These buildings are] unprepared for the ongoing and future changes in our climate, such as increasing temperatures and extreme weather events,” says the EU.
Buildings account for around 36% of the region’s energy-related greenhouse gas emissions, so improving their efficiency would deliver a triple benefit of lower costs, greater climate resilience and counteractglobal warming. People should hardly need encouragement to improve the energy efficiency of their homes and workplaces. In practice, however, things are not so easy.
Get your house in order Businesses and households need to improve the efficiency of the existing building stock
POOR RESPONSE
One renovation firm discovered these difficulties when it offered to improve the energy efficiency of UK homes but only got three responses. Meanwhile, a 2020 EU “renovation wave” plan to improve building efficiency could miss its target of 35 million renovations by 2030 because progress on the ground has been slower than is required, says Peter Sweatman, of Climate Strategy, an advisory firm.
Observers from Australia to the United States bemoan the fact that energy is needlessly wasted every year from poorly insulated buildings, but few public or private sector initiatives seem to be able to stem the loss. There are multiple reasons for this.
For a start, our brains are not wired for efficiency. Our species evolved largely without the means to store things, so reducing consumption did not make much sense. You took as much as you could of a given resource when it was available and then moved on.
Today, we see this in the Jevons paradox, which says that if you improve the efficiency and reduce the cost of something then people just use more of it. The paradox means attempts to improve efficiency can be stymied from the start. John Grant of Sheffield Hallam University in England calls it the rebound effect. “You end up using more stuff, not less, because it drops in cost. Efficiency in itself is actually a false god,” he says.
Further evidence of our indifference to efficiency stems from the fact that most of the world’s economy is built on capitalism, which is based on, and rewards, conspicuous consumption. In Europe, this economic system leads to a clear conflict of interest for businesses linked to building efficiency.
FINANCIAL INCENTIVES
Energy utilities and construction companies stand to lose financially from the creation of sturdy, well-insulated buildings that have low energy and renovation needs, yet these companies are often tasked with implementing efficiency schemes.
A further challenge is that most energy efficiency programmes assume people will welcome the savings that come from having more efficient homes, but the cost is a minor concern for many consumers.
“Evidence tends to show that just relying on prices isn’t very effective, for a couple of reasons,” explains Samuel Thomas of the Regulatory Assistance Project (RAP), a non-governmental organisation focused on the energy transition. “At the lower end of the income spectrum, you can’t really afford to cut back on your energy consumption except in ways that negatively affect your welfare.”
For rich people, energy costs tend to be such a small portion of overall expenditure that there is practically no incentive to cut back on consumption. At best, says Thomas, price incentives “will have some effect in the middle ground”.
All this may help explain why many energy efficiency schemes, historically based on grants, subsidised loans and fiscal benefits, have struggled to deliver results despite the availability of finance.
“In many [EU] member states, low renovation rates relate more to an absence of promoting, supportive policies and a mature renovation industry than to an absence of funding,” says Sweatman.
SUCCESSFUL SCHEMES
As European lawmakers look to improve the efficiency of buildings in the future, it will be important to learn from initiatives that have worked despite these challenges.
One such scheme is the Superbonus programme in Italy, where the government provides a tax rebate covering more than the entire cost of energy efficiency work such as installing thermal insulation.
The scheme has not been without its problems, with Italy’s tax agency in late 2021 uncovering €950 million in fraudulent claims tied to the Superbonus and other building improvement tax rebates. But the programme has led to 122,000 renovations across the country, delivering €21 billion in improvements.
Another acclaimed approach is the white certificates trading programme in France. This forces energy suppliers to help their customers reduce consumption, through information campaigns or incentive schemes. Suppliers that exceed government targets for consumer efficiency can trade excess white certificates with other providers, while those that do not face a per-kilowatt penalty.
The French white certificates have been in operation since 2006. Between 2011 and 2019, it led to the installation of 116,000 heat pumps, 45 million square metres of insulation and 3 million double- or triple-glazed windows.
“What I like about it is the French government uses it as an overarching instrument to meet energy efficiency goals,” says Thomas at RAP. “They’ve ramped up the targets over time and helped keep the lid on bills by allowing other subsidies.”
Elsewhere, Europe’s Energy Efficient Mortgages Initiative, established in 2015, aims to encourage the installation of energy efficiency measures by cutting mortgage rates for efficient buildings. The programme includes 70 European lending institutions, which benefit from the correlation between energy-efficient homes and low mortgage default rates, even considering other factors.
Fruitful programmes Italy’s Superbonus programme saw €21 billion in energy efficiency improvements
FUTURE OPTIONS
Building on the initiative, the European Commission introduced mortgage portfolio standards in its proposed recast of the Energy Performance of Buildings Directive, in December 2021. Sweatman at Climate Strategy believes the standards could play an important role in fostering energy efficiency.
“These are internal tools to help attach energy performance indicators to existing mortgages and then establish a median for the entire portfolio to move down a Paris-aligned pathway,” he says. “We think these should be extended to the over 50 million existing mortgages in Europe, to engage lenders in offering fully funded deep renovation solutions to the lowest-hanging fruit in their portfolios.”
Sweatman’s Climate Strategy is developing an EU-backed instrument, called the EU Renovation Loan, for homeowners who cannot take out a mortgage. More generally, Europe is gearing up to tackle energy efficiency like never before, as part of moves to get the economy back on track after Covid-19.
Sweatman notes that 37% of the recovery and resilience funds offered by the EU to member states must be spent on climate neutrality goals and a recent review of plans suggests this proportion could be closer to 40%. The European Commission has singled out energy efficiency in its guidance to member states. “In principle, recovery funding provided designated funds and guidelines to upscale climate-aligned buildings renovation,” says Sweatman.
HASSLE COSTS
European funding may improve financial incentives, but it is clear these only have a limited impact on the uptake of energy efficiency. On the other hand, the extra money will have little effect on another factor that is increasingly recognised as being of fundamental importance in the success of energy efficiency schemes: convenience.
“Serious energy efficiency is going to involve all sorts of hassle,” says RAP’s Thomas. “It might involve moving out or whatever. Those are basic barriers. Hassle costs are real costs.”
Plus, this inconvenience often buys no more than a meagre amount of efficiency. According to the EU, renovations are currently only reducing building energy consumption by 1% a year. Deep renovations, of the kind needed to cut energy consumption by 60% or more, are only carried out in 0.2% of the building stock per year—and barely a fifth of these see significant improvements in efficiency.
To achieve the emissions reductions envisaged in studies such as the Zero Carbon Britain report published by the Centre for Alternative Technology in the UK will require “a brutal level” of energy efficiency upgrades, says Grant of Sheffield Hallam.
UK HOUSING
The best way to achieve this is by retrofitting today’s building stock (page 40) to a standard called EnerPHit, which makes existing buildings almost as efficient as new-build passive houses with ultra-low energy requirements. However, EnerPHit “is crushingly expensive,” Grant says. “I think we need to fundamentally own the fact that we built loads of shit houses and a large proportion of them, unfortunately, are going to have to come down,” he adds.
In the UK, Grant says, roughly 10% of buildings—around 3 million homes, mostly dating back as far as the 1970s—could potentially be retrofitted to passive house standards. The experience gained from carrying out these renovations might serve to tackle a further 10% or so of more challenging buildings, Grant speculates. Up to a further 10% might be demolished anyway in the next three decades, he adds.
“That leaves 70% of your houses,” says Grant. “I think somewhere between 10% and 50% of those houses cannot be retrofitted to any standard that is comfortable. There is a hard question to be asked about those houses.”
The houses he is referring to include heritage buildings such as those in the UK’s classic Victorian terraces, which were designed to be lived in at 9ºC in the winter—not the 20ºC that is deemed comfortable today. Asking residents in these buildings to live the way their homes were designed for might be a tall order.
STARK REALITY
Even assuming most Victorian terrace residents agree to live at 9ºC in winter, the energy consumption of up to about 40% of the UK housing stock from other periods would still be too high for what is needed to meet net-zero emission targets. “[This stock] needs to be recycled, because at the cost it would take to retrofit that last 40%, you’d be able to build two houses for every one you retrofitted,” says Grant.
His proposal is for the replacement buildings to be designed to passive house standards, with a minimum lifespan of 500 years. On paper, this would solve the buildings’ efficiency problem and put the UK on the path to net-zero emissions. In the real world, however, it is hard to see the UK government—or indeed any western administration—asking citizens to take such draconian action on climate, particularly when it concerns their most prized possessions—their homes.
This is the conundrum facing energy efficiency lawmakers: what seems simple in theory might be difficult—or even impossible—in practice.
TEXT
Jason Deign
ILLUSTRATION
Hvass&Hannibal and Liana Mihailova PHOTO
Frederico Beccari