EU ETS a threat to renovation of buildings: Analysis concludes

(eceee news, 15 Nov 2019) In order to decarbonise European buildings, the renovation of houses and schools need to become a flagship initiative under the European Green Deal. This will not happen under the EU ETS if it is to cover buildings as well, Eurima claims.

The European Commission is now assessing whether to extend the EU Emissions Trading System (EU ETS) to cover the emissions associated with the heating and cooling of buildings.

Decreasing and decarbonising the energy consumption to heat, cool and use buildings is crucial for the transition to a climate-neutral Europe. Buildings are the EU's biggest carbon emitters, as well as its single largest energy user, according to an analysis by Eurima, the European Insulation Manufacturers Association.

Eurima argues that the European Green Deal presents a perfect opportunity to deliver on comfortable, affordable and energy-efficient housing. This Green Deal can help unlock 130 billion euro per year to fill the investment gap for energy-efficient buildings. Over 2 million jobs in Europe could be created through such investments in energy efficiency–in particular in the deep renovation of buildings.

Extending the EU ETS to buildings would mean that governments are no longer accountable for introducing measures to decarbonise the building stock under the Effort Sharing legislation. Under the Effort Sharing Regulation, each Member State has annual climate targets that it needs to meet. By integrating buildings in the EU ETS, the sector would be taken out of the Effort Sharing Regulation, putting the responsibility of climate action instead on heating fuel suppliers.

Most buildings we will occupy in 2050 already built

According to Eurima, most of the buildings that we will occupy in 2050 are already built, and the main challenge is to renovate these 210 million existing buildings to make them less energy consuming. Deep renovation of houses also helps to lower energy bills, make homes more comfortable and healthy and lift millions of people from energy poverty.

According to Eurima, programmes need to be put in place to accelerate renovation, to phase out the worst energy-performing buildings and to alleviate energy poverty. These actions will not happen through the EU ETS, but by policymakers taking ownership of the transition to a climate-neutral built environment, according to the analysis.

Why the EU ETS will not deliver better buildings

Eurima outlines the reasons why including buildings in the EU ETS does not deliver better buildings for all:

  • The integration of the building sector in the EU ETS could lead to the dismantling of more effective EU and national energy efficiency legislation, under the pretext that this would undermine the functioning of the carbon market. This would be dangerous, as the decarbonisation of the building stock requires dedicated policies beyond a carbon price. Extending the EU ETS to buildings would mean that governments are no longer accountable for introducing measures to decarbonise the building stock under the Effort Sharing Regulation. By incorporating buildings in the EU ETS, the sector would be taken out of the Effort Sharing Regulation, putting the responsibility of climate action instead on fuel suppliers.
  • The introduction of a carbon price for the heating of buildings could lead to higher energy bills for tenants or homeowners who are not able to, or cannot afford to, renovate their homes.
  • Most energy efficiency measures already pay for themselves, even in the absence of a carbon price, but are not taken due to market-barriers. For the building sector, these include split incentives between those making investments (i.e. home-owners) and those paying energy bills (i.e. tenants), the inability to come up with high upfront costs and a lack of information. Integrating the building sector in the EU ETS would not help to overcome these barriers.
  • Including buildings in the EU ETS is complex and likely to take at least several years. This could divert attention from more effective short-term measures.

The analysis concludes that the reasons why these measures, such as energy renovation, are not taken are usually not economic in nature, but rather the result of market-barriers and -imperfections. In the case of the building sector, these barriers include split incentives between those making investments (i.e. home-owners) and those paying energy bills (i.e. tenants), the inability to come up with high upfront costs and a lack of information on renovation opportunities and financing options.

Including the building sector in the EU ETS would do nothing to overcome these barriers to make buildings more energy-efficient. Even worse, the introduction of a carbon price for the heating and cooling of buildings could lead to higher energy bills for tenants or homeowners who are not able to, or cannot afford to, renovate their homes.

A link to the paper can be found here