EU Taxonomy proposals clash with Renovation Wave

By Brook Riley and Adrian Joyce

It is a regulatory clash in the making. In October, the European Commission’s Renovation Wave strategy stressed the importance of renovating at least 35 million buildings to meet a more ambitious 55% by 2030 greenhouse gas reduction objective. But now it risks undermining its good work, with very weak renovation requirements in its draft criteria for climate action-compatible investments.

What exactly are these draft criteria? They are a key part of the EU taxonomy process – that is to say, the business of developing an EU classification system for sustainable activities. As the Commission puts it, the draft ‘technical screening criteria determine 'which economic activities qualify as contributing substantially to climate change mitigation’.

This is outside our usual comfort zone as buildings campaigners but it is hugely important for EU energy efficiency and renovation policies. The main problem – the reason we’re speaking of a clash – is that the draft only requires building renovations to deliver 30% primary energy savings. Yet the Commission’s own Renovation Wave stresses the need to very significantly increase the number of deep renovations, typically defined as delivering at least 60% energy savings.

That makes the 30% requirement a literal half-measure. It means falling short on job creation, air quality improvements, alleviation of energy poverty and GHG emission cuts – not an attractive option for policymakers in the midst of health and climate crises.

The key word here is ‘draft’, however. The Commission’s 30% proposal is just that, a proposal. A public consultation is open until December 18th (we encourage everyone reading this to respond). And there is a good chance of getting higher standards. The draft proposes excellent requirements for new buildings: energy use must be at least 20% lower than business-as-usual legislation. Just as encouraging, if investors want their real estate portfolios – €500 million worth of office buildings, say – to be fully in line with taxonomy requirements, every building must be top level energy performance class A.

It makes you wonder why there is a Jekyll and Hyde approach to buildings in the taxonomy criteria. Given the very ambitious Renovation Wave goals and the urgent need to increase the 2030 emissions target, why propose a 30% renovation requirement in the first place?

It seems the biggest reason is concerns from investors. They worry that excessively strict (as they see it) renovation and energy performance requirements will choke off their investment opportunities. That’s understandable: there are very few energy class A buildings in Europe at the moment. And if nothing else meets the taxonomy criteria, what is there to invest in?

That is precisely the point. As we noted last week in a letter to Commission Executive-Vice President Frans Timmermans, the raison d’être of the taxonomy proposals is to help and encourage investors to meet high standards, not to lower the standards to allow a statistical boost in ‘green’ investment.

This is where the numbers get genuinely daunting. In an average year only about 0.1% to 0.2% of Europe’s buildings get a deep renovation, with at least 60% energy savings. Yet only deep renovations truly register on the greenhouse gas, energy poverty, air quality and job creation scales. So when the Commission speaks about doubling overall renovation rates to 2% in order to deliver 55% greenhouse gas cuts, it is just the tip of the iceberg. What really counts is to get the number of deep renovations over the 1% per year threshold at the very least. And even that means a massive fivefold or tenfold increase compared to current levels.

This is why keeping the renovation requirement at 30% and giving investors a pass on the A class standard would be so counterproductive. Next year the Commission will revise the Energy Performance of Buildings Directive and introduce minimum energy performance standards (a genuine game-changer, the main recommendation in the Renovation Wave). But if the taxonomy requirements are watered down, there will be strong pressure to keep them at the same level in the revised Buildings Directive. The EU then misses its 2030 goals.

On the other hand, if the Commission waives through weak taxonomy requirements but sets high standards in the Buildings Directive, billions of euros will flow into real estate portfolios which will have to be upgraded almost immediately to meet 2030 requirements. Otherwise there will be fortunes locked up in stranded assets: offices or rental housing which cannot be leased out because they don’t meet minimum energy performance standards.

This is why it is far simpler to go with high standards from the outset. Yes, the top of the range energy efficient buildings market will be smaller to begin with. But that is the whole point: it is too small now, it has to grow very, very fast.

The views expressed in this column are those of the columnist and do not necessarily reflect the views of eceee or any of its members.