- The EU’s targets for reducing emissions are not ambitious enough to meet the Paris climate goals: Taking into account its “fair share”, calculated by dividing the remaining carbon budget by its share of the global population, the EU needs to slash emissions by 65% by 2030 instead of the aspired 55% and achieve climate neutrality by 2040, 10 years earlier than currently planned. In this context, the building sector could play a key role: Buildings account for 40% of the EU's total energy consumption and 36% of energy-related greenhouse gas (GHG) emissions.
- There are two key levers to reduce emissions in the buildings sector: improving energy efficiency and switching to greener fuels. The former, energy savings, can be mainly achieved through renovations, reducing the energy demand by at least a quarter over the next decade. The latter implies thorough electrification: The electricity share is expected to climb from around 20% to 45% (residential buildings) and from 45% to 60% (service sector) in 2050. In the process, the share of natural gas in the energy consumption mix – today at 50% – will plunge to almost zero.
- Since up to 95% of existing buildings are likely to still be around in 2050, ramping up the renovation rate is essential. While around 16% of all of EU buildings undergo partial to full renovation per year, little to no attention is being paid to assessing and improving the energy performance of those buildings. As a result, the “real” renovation rate, weighted by effective energy savings, is close to 1% for residential buildings and close to 0.5% for non-residential buildings. The EU is aiming for a 2% energy-renovation rate to reduce GHG emissions from buildings, but we find that it needs a much more ambitious target of 3%.
- The actual investment needed for a 'deep energy renovation' (more than 60% of energy savings) varies between EU countries, ranging from EUR50 per m2 (residential projects in Spain) to EUR450 per m2 (non-residential projects in Sweden). But how much bang do you get for the buck? Energy savings of 1kWh per year were mostly realized at investments between EUR1-5; reducing CO2 emissions by 1kg per year was almost three times as expensive.
- Overall, the annual energy-renovation investment needs to achieve the EU goal of a 2% energy-renovation rate range between 0.2% and 0.8% of GDP in the EU countries, with an average of 0.5% of GDP. This amounts to EUR82bn per year in the EU or EUR95bn if the UK is included as well. However, the necessary 3% renovation rate would increase the energy investments needed by EUR47bn in the EU and UK per year. Against the backdrop of the EU’s residential sector currently investing about EUR 200bn per year in energy renovations (though rather inefficient ‘light’ than efficient ‘deep’ energy renovations), these investment needs seem feasible if energy renovation becomes the first principle in renovation.
The buildings sector transition pathway
The great green renovation
Emission reduction targets and pathways
The EU’s ‘2030 Climate Target Plan’ aims at slashing emissions in all sectors by a minimum of 55% by 2030 (compared to 1990), thus delivering the Fit for 55 (Ff55) target within the European Green Deal and implying a 60% GHG emission reduction for the buildings sector. However, looking at the bloc’s “fair share” in achieving the Paris climate goals, we find that emission-reductions of at least 65% would be necessary in all sectors by 2030. The EU would also need to achieve climate neutrality by 2040, 10 years earlier than planned in the Ff55. In this context, the buildings sector could play a key role: Buildings account for 40% (households: 26.3%, services: 13.7%) of the EU’s total energy consumption and 36% of all energy-related GHG emissions.
The new REPowerEU Plan, introduced to accelerate energy sovereignty in the wake of war in Ukraine, could lay the foundations for the green transition of the building sector. Many of its measures address the diversification of energy supplies and propose energy savings through behavioral changes (e.g. less heating, speed limits). However, the key for long-term effects is the accelerated roll-out of renewable energy in buildings, which will be subsidized and demanded through various measures:
- Boosting national fiscal measures to encourage energy savings, such as reduced VAT rates on energy-efficient heating systems, building insulation and appliances and products.
- Increasing the binding EU Energy Efficiency Target from 9% to 13% in 2030 vs. 2020.
- Implementing a solar rooftop initiative, with a phased-in legal obligation to install solar panels on new public and commercial buildings and new residential buildings.
- Doubling the rate of deployment of heat pumps, and measures to integrate geothermal and solar thermal energy in modernized district and communal heating systems.
- Extending buildings’ Minimum Energy Performance Standards.
- Strengthening the national energy requirements of new buildings.
- Tightening national heating system requirements for existing buildings.
- Introducing national bans for boilers based on fossil fuels in existing and new buildings.
- Advancing the end of member states’ subsidies for fossil fuel-based boilers from 2027 to 2025.
These measures address the two crucial focus areas for achieving GHG emission-reductions in the building sector: 1) improving energy efficiency and 2) switching to greener fuels.
Renovation will play a key role in improving energy efficiency. Heating and cooling account for 80% of the energy consumed in residential buildings, largely because they continue to rely on outdated technologies and appliances, as well as fossil fuels. Renewable heating and cooling accounted for only 22% of buildings’ gross final energy consumption in 2019. Hence, one of the key focus areas is to slash the energy demand for heating and cooling by renovating the building envelope (e.g., insulation and windows) which is particularly important for older buildings that were constructed with lower energy-performance standards. In addition, the equipment fitted and used in the buildings also matter: Switching to electric heating systems, adopting renewable solutions such as solar systems, using better standardized and labelled energy-efficient equipment and smarter technologies can also play an important role in keeping energy demand in check.
If the EU is to achieve its original 2030 emission targets, significant final energy savings should be observed (Figure 1). The most pronounced savings would be in the residential sector, with the total energy consumption of buildings in the residential sector down by 24%, while heating and cooling savings would be around 31%.
For the complete insights download the full report.
 The ‘fair share’ is calculated by the dividing the remaining carbon budget by the EU’s share of the global population. Current targets imply that the EU requires 10% of the available global carbon budget to limit the temperature rise to 1.5°C, while the EU represents only 5% of the world’s population.
Sources: EU Commission, Allianz Research