As published in Property EU on 26 December 2023

Buildings across the European Union (EU) remain responsible for 40% of EU energy consumption and 36% of greenhouse gas emissions; therefore, it makes sense that improving energy efficiency across real estate is a key priority. But with most of the building stock across the EU being energy inefficient, a reform of energy performance policies is heavily welcomed.

This is where the Energy Performance of Buildings Directive (EPBD) comes in to put forth changes for the EU to achieve zero emissions and a fully decarbonised building stock by 2050, while providing reliable building information and data. To help drive our industry further towards net zero, the European Commission has proposed multiple revisions to the EPBD, but how will they impact real estate in the short term?

Aligning EPCs across the EU

One of the new proposals is an EU-wide EPC scheme that includes ratings based on literal energy usage rather than theoretical measurements. EPC A will be a zero-emission building in all countries, and the new EPCs will have common indicators on energy and GHG emissions. Voluntary indicators such as charging points, indoor air quality, and global warming potential (GWP) will be based on the building’s life-cycle carbon emissions.

Additionally, as stated in the revision, there will be a common requirement for databases and the provision of public access to data on the energy performance of buildings. In the end, member states shall enable the transfer of this data to the EU-level ‘Building Stock Observatory’, which will be used to generate denominators for the consumption-based EPC scheme.

This examination of critical data can be a transformative practice that will aid in satisfying regulatory expectations. It will also position the sector to easily accommodate an energy-consumption based EPC system that will provide a much more tailored and accurate measure of environmental impact.

Minimum Energy performance standards (MEPS)

The directive requires EU countries to set cost-optimal minimum energy performance standards for new buildings. These MEPS outline the minimum EPC rating a building can earn to be considered in compliance with legislation within its country. Renovations of the worst-performing buildings, or buildings owned by public bodies, commercial or non-residential, to reach at least EPC E after 01 January 2027 and EPC D after 01 January 2030. Residential buildings and units are expected to attain an EPC E rating after 01 January 2030, and an EPC D rating after 01 January 2033.

CBAM regulation encourages greener building materials.

To reduce the risk of ‘carbon leakage’, or the act of moving carbon-intensive production to countries with less stringent climate legislation, the EU has introduced the Carbon Border Adjustment Mechanism (CBAM). The CBAM is a green tariff that charges a fair price calculated according to the amount of carbon emitted during the production of carbon intensive goods entering the EU; a tariff that will aim to both protect the EU’s climates objectives whilst encouraging other counties to introduce stricter carbon legislation.

In the early stages of implementing the CBAM, only certain goods will face the additional charge, such as cement, steel, and iron. As they’re heavily used materials in real estate, this has the potential to increase the price of developments. But it also acts as a definitive method of reducing carbon emissions from importing materials from countries with less stringent environmental regulations.

Building renovation passports and mobility

The EPBD recast calls for increased visibility of sustainability through what is called a ‘building renovation passport’. Such passports will outline a long-term, step-by-step plan for the renovation of specific buildings and are designed to reflect the changing environmental situation. They will forecast specific repairs that need to be applied for a building to reach net zero, while considering any associated costs. Passports will also aid in outlining an optimal sequence of project implementation to avoid any carbon lock-ins.

Integrating building renovation passports will benefit investors, valuers, and lenders significantly. The game-changing promise of improved visibility into costs and sustainable construction that will come into play further down the line allows for planning ahead and a transparent view of requirements. They will also encourage the integration of renewable energy sources such as wind and solar into the grid and assist in decarbonising the energy system.

Implementation of renewable energy and indoor air quality

This universal scheme expects all new buildings that are technically possible to update to have 100% of on-site energy consumption covered by renewable energy as of 2030, while considering an early transition as of 2027 for public buildings. Member countries will have to plan measures with the idea of completing a fossil fuel phase-out in buildings by 2040 and put in strategies to remove fossil fuels from existing buildings.

The EPBD also supports the application of high indoor environmental standards by requiring new zero-emission buildings to be prepared with measuring and control devices for the monitoring and regulation of indoor air quality. As expected for buildings undergoing major renovations, this will improve the overall health of the population.

ESG as a strategic imperative

The proposed updates offer benefits to the future of the built environment as they’re pushed towards the target of a 55% reduction in carbon emissions. However, these benefits extend beyond compliance.

Implementation of future proof ESG strategies will raise the profile and offer a competitive advantage to the businesses that put them into action as the focus on green practices continues to grow. Investors continuing to prioritise sustainable projects, aligning portfolios with current ESG principles, and enhancing resilience amid emerging changes to regulations can help establish their status as leading the fight to a bright future.