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Javier Ramírez

More than words. Energy efficiency needs no more ambitious targets but political willingness

Efficiency is the first clean energy source, but it faces many barriers, from the lack of awareness to bureaucratic burdens, to regulatory restrictions impeding the flow of private funding to renovation projects at the scale needed to achieve climate targets. As IEA’s president Fatih Birol said, efficiency is “probably the least sexy energy resource”. This lack of appeal contributes to the lack of political willingness to make the most from building energy renovation.

Europe’s building stock is responsible for more than 36% of energy related greenhouse gas emissions and more than 40% of energy consumed. Almost 75% of this stock is energy inefficient and only about 1% of the buildings is renovated each year.

On the other hand, construction industry generates about 9% of EU GDP and accounts for 18 million jobs, with SME contributing more than 70% of the value-added of the European building sector.

In the current scenario defined by the decarbonisation required by the European Green Deal and by the post-covid 19 recovery plans, energy renovation of buildings seems the ideal candidate to play a leading role in green recovery policies. That is even more evident when the EU and other energy bodies, as the International Energy Agency, have totally embraced the principle of energy efficiency first, at least on paper.

The European Green Deal established a 32.5% energy efficiency improvement by 2030, an ambitious goal that is now under revision to set even higher rates, after Ursula Von der Leyen’s Commission upgraded the decarbonization objective for 2030 from 40% to 55% last year.

Pretty ambitious. At the current 1% rate of renovation, we will need a little more than 30 years to achieve the EU's original objective.

In October 2020, the European Commission adopted its Renovation Wave Strategy to improve the energy performance of buildings, which aims to at least double renovation rates in the next ten years. It is an even more ambitious initiative that would renovate 35 million buildings by 2030, decrease energy consumption of buildings by 14%, decrease greenhouse gas emissions by 60%, and create 160,000 new jobs. According to the Commission, it will also enhance the quality of life for people living in and using the buildings, foster digitalisation and contribute to fight energy poverty.

One of the main complaints is that the strategy alone does not contain the tools to achieve its own goals. There are some legislative initiatives on the way that should tackle this issue, as the upcoming revision of the Energy Performance of Building Directive and the Energy Efficiency Directive, however, scepticism still exists.

Even though the construction industry is excited with this opportunity, the sector has met disappointed before. The EU did not meet its previous goal of a 20% increase in buildings energy efficiency by 2020, nor did the Member States comply with the mandatory goal of renovating 3% of public building stock. European construction companies are convinced that this time it will be different, but they are also aware of the barriers the Renovation Wave should overcome to success.

Last year, Italy launched an aggressive plan allowing homeowners to finance 110% of energy efficiency renovations through tax deductions, known as the Superbonus. In the beginning, the plan had an undeniable success, with renovation works rising by 500% and 10,000 renovations completed or in progress by the end of March 2021. But the pace is still too low. According to a survey by the Italian price comparison firm Facile.it, last October, 1 out of 2 Italians intended to request the Superbonus, meaning 21 million people in October 2020. Other 3 million people had given up because of the bureaucracy and six million more said they did not understand the plan.

Bureaucracy to qualify (not only for public aid, but also for the mere licence) ranks among the main obstacles that energy efficiency renovation faces.

European, national, regional, and local authorities play important roles in channelling EU renovation funds to citizens and the process could easily become a red tape nightmare. Many voices have already been raised asking for one-stop-shops to make it simple to apply for the funds. One-stop-shops are also crucial for dealing with the numerous providers involved in this kind of renovation works.

On the other hand, the financial benefits of energy efficiency renovation are not easy to understand nor to measure, even though there are precise tools for it in the market. Customers are mostly wanting to lower their energy bills and improve their homes’ comfort, as well as to contribute with their own grain of salt to the climate action, but they only renovate if it is easy and affordable, as Monique Goyens, director general of the European consumer organization BEUC, said in a column published by Euroactive last April.

75% of buildings in the EU are energy inefficient. Their renovation will require 400 billion euros per year from 2017 to 2050. It is necessary to mobilize private capital to fund it. Deep retrofits (involving building envelope, on-site renewable electricity and heat installations, etc.), which will make the difference in improving energy efficiency, need large upfront investment while their return is only achieved in the long term.

The limitations from the excessive banking regulation, the lack of statistical data on this kind of projects, the projects’ heterogeneity or the lack of secondary financial markets are some of the reasons explaining why this market has not developed yet. But, as well as for measuring energy savings, there are some financial tools in the market for these projects, such as green mortgages, on-bill schemes (the utility finances the renovation and the customer reimburses the capital through the monthly bill); on-tax solutions (reimbursements are collected through a tax or charge); energy service agreements and energy performance contracts, etc.

Public and private institutions are bringing more innovative mechanisms into the market. That is the case of the Property Assessed Clean Energy Programs (PACE), which allow a property owner to finance the up-front cost of energy and then pay the costs back over time through a voluntary assessment attached to the property rather than an individual. These solutions are growing at a good path in the US and Canada. In Europe, their development needs complex regulatory changes involving in most cases several laws and different areas of national and regional governments.

Fatih Birol, president of the IEA described energy efficiency as “possibly the least sexy energy resource, but the most effective and least costly for climate change.”

And that is probably the main barrier it faces: the lack of political willingness to tackle the problem and make the reforms needed for the market to play the game. Energy efficiency is not about big headlines and nice pictures of megaprojects with dozens of windmills (that the Earth also needs) or catchy announcements of new beta phase technologies for producing hydrogen (that we hope to be commercially sustainable sooner than later). Improving energy efficiency in buildings is about thousands and thousands of small and medium-sized projects all over the world, developed by SMEs to reduce energy consumption and GHG emissions, while improving citizens health and comfort, reducing energy poverty and generating growth and employment.