The Time Is Now: New Epbd Most Positive Signal Yet For Financial Innovation
By Shayna Kowalczyk and James Hooton, Programme Director, Coalition for the Energy Efficiency of Buildings Europe
With the release of the revised Energy Performance of Buildings Directive yesterday, the European Commission has given a clear indication of the direction renovation regulation is travelling: into a future of lower carbon emissions and reduced rates of energy poverty.
The revised directive is a definite step forward from the 2018 EPBD, which required Member States to develop Long-term Renovation Strategies, forming the backbone of the renovation information in the national recovery plans used to receive Recovery and Resiliency Facility funding. In a more ambitious push, the 2021 EPBD now lays out National Building Renovation Plans for the delivery of a decarbonised building stock by 2050, with the objective to transform existing buildings into nearly zero-energy zero-emission buildings. Member States will need to submit a draft of this plan to the Commission every five years, with the first draft due by 30 June 2024, and report on their progress biennially. Across the European Union, renovation activity will need to speed up and scale up to meet the new targets which, for the private sector, presents an opportunity as much as a challenge.
So how will this scaling up be funded? Member States have allotted investment for renovation through the EU Recovery and Resilience Fund but public funds alone won’t be able to deliver a decarbonised building stock by 2050, or ensure all residential buildings perform at EPC E or above by 2033. The revised EPBD therefore requires that Member States conduct analysis into the market barriers and, in some cases, failures, which are limiting renovation activity – including situations of ‘split incentives’, such as between landlords and tenants in the private-rented sector. The directive also stipulates Member States will need to facilitate mechanisms for ‘the use of public funding to leverage additional private-sector investment or address specific market failures’, thereby opening up the playing field for the private sector to drive innovation and fill the investment gap.
The analysis which the EPBD is requiring of Member States will need detailed investigations. Coalitions such as the GFI’s Coalition for the Energy Efficiency of Buildings in the UK and the Horizon 2020 project AUNA in Spain have undertaken large amounts of country-specific analysis into financial barriers to renovation already, and have demonstrated that coalitions are a great way of expediting this work due to the necessity of cross-sectoral input – something the Energy Efficiency Financial Institutions Group (EEFIG) has been promoting since their very first report in 2015. EEFIG have also been promoting Mortgage Portfolio Standards, a new addition to the Directive. It will be interesting to see how Member States tackle these challenges: will financial institutions, NGOs, and the energy and construction sector be brought to the table? Or will existing coalitions be invited to continue their work?
Once Member States complete this analysis, financial innovation can take place to ‘lower credit risk’ and use public money to leverage private capital. The key will be to make a variety of options available, meeting the needs of consumers across the private-rented, owner-occupied, and social-rented sectors – each of which have their own set of market barriers. This will also feed into the technical assistance piece, which the EPBD sets out. From start-ups to the largest national retail banks, the private sector will need to be ready if they want to be part of the innovation drive and find a place in the new renovation landscape.
Evidently, the time is now to leverage the EU Recovery and Resilience Fund. As Member States start to draw up their action plans, there is a real-economy opportunity for the financial sector to start directing flows of capital towards the necessary future of greener buildings. The regulatory landscape is changing; financial institutions should see the EPBD as the first wave of a much larger movement and invest into the opportunity to ‘grow to green’ with the entire built environment chain.