‘Fit for 55’ and the Energy Performance of Buildings Directive

Inside View

János Tóth, Partner, Wolf Theiss Budapest (left) and Zoltán Bódog, Associate, Wolf Theiss Budapest

In July 2021, the European Commission launched its “Fit for 55” initiative, proposing to make the EU’s climate, energy, land use, transport, taxation, and buildings fit for reducing net greenhouse gas emissions by at least 55% by 2030 (compared to 1990 levels).

The “Fit for 55” proposal, among other things, includes:

• A separate new emission trading system (ETS) for buildings, as a carbon intensive sector, to address the lack of emissions reduction, with part of the new revenue to be dedicated to climate and energy-related projects;

• An Effort Sharing Regulation to achieve emission reduction targets for buildings;

• An amendment of the Renewable Energy Directive to accelerate the transition to a greener energy system with specific targets for the use of renewable energy in buildings; and

• An annual target of 3% for the public sector on renovation of buildings to reduce overall energy use in the recast Energy Efficiency Directive.

The proposed changes will have a significant impact on national policies across Europe and a wide range of sectors, notably the building sector.

The building sector is one of the key areas, since buildings are responsible for 40% of the European Union’s final energy consumption and 36% of its greenhouse gas emissions, even more if the life cycle impacts of construction materials are included. In order to meet the “Fit for 55” targets, buildings’ energy consumption needs to fall by 14%, and associated emissions by 60%.

A large share of today’s EU building stock was built without any energy performance requirement: one third (35%) of the EU building stock is more than 50 years old, while more than 40% of the building stock was built before 1960. Almost 75% of it is energy inefficient according to current building standards. Nowadays, 11% of the EU’s building stock undergoes some level of renovation each year. However, very rarely does renovation work address the energy performance of buildings. The weighted annual energy renovation rate is extremely low at some 1%. Across the EU, so-called “deep renovations” that reduce energy consumption by at least 60% are carried out only in 0.2% of the building stock per year.

The European Commission’s objective is to at least double the annual energy renovation rate of residential and non-residential buildings by 2030 and to foster deep energy renovations. These tasks are quite challenging on their own, but a further difficulty is that the sector is highly complex: fragmented in its value chains and fragmented in the EU’s policy framework.

The revision of the Energy Performance of Buildings Directive, planned for later in the year, will identify specific measures to accelerate the rate of building renovations, contributing to energy efficiency and renewable goals and greenhouse gas emissions reductions in the building sector. The plan is to introduce mandatory minimum energy performance standards for buildings, as a key policy instrument to boost both the renovation rate and depth.

Minimum Performance Standard is a regulation requiring buildings to meet a certain performance standard by a specific time, in coordination with natural trigger points in the building’s lifecycle. The standard is typically based on energy performance standards (kWh/sqm/year), generally using the energy performance certificate as a proxy. But Minimum Performance Standards can also incorporate broader aspects such as operational carbon performance standards expressed in CO2/sqm/year and indoor environmental quality aspects.

Therefore, the upcoming amendment of the Energy Performance of Buildings Directive may mark a milestone towards reaching climate-neutrality by 2050. According to the most recent analysis by the Buildings Performance Institute Europe, the annual deep renovation rate must be brought from 0.2% to 3% as soon as possible in order to be able to meet the “Fit for 55” targets and Minimum Performance Standards must be defined accordingly. This, together with the nearly zero-energy building standards which will be applicable for all new buildings from June 30, 2022 in Hungary, will most likely bring a fresh, possibly burdensome, era in fighting climate change in the building sector.

This article was first published in the Budapest Business Journal print issue of October 22, 2021.

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