EPBD amongst further rulesetting of the EU

In the real estate industry, key regulatory areas that set the pace for energy performance on buildings are, amongst others, the: 

1) EU Energy Performance of Buildings Directive (EPBD) 

The EPBD sets out the minimum requirements for the energy performance of new and existing buildings in the European Union. For example, it requires all Member States to establish energy certification schemes for buildings, and to ensure that all buildings that are constructed, sold, or rented out have an energy performance certificate (EPC). The EPC provides information on the energy efficiency of the building, including its energy consumption and carbon emissions. The EPBD also sets out minimum requirements for the energy performance of new and existing buildings in the EU. 

2) Energy Efficiency Directive (EED):

The EED set a target of reducing energy consumption by 20 % by 2020, the recast included at least 11,7 % in 2030 compared to the projections of the 2020 EU Reference Scenario and requires Member States to establish energy efficiency obligations schemes. These schemes require energy companies to achieve energy savings by implementing energy efficiency measures in their customers' homes and buildings. The EED also requires Member States to set out a long-term strategy for the renovation of buildings, with the aim of improving their energy efficiency. 

3) Renewable Energy Directive (RED II): 

The recast RED set a binding target of a binding EU overall target for 2030 of at least 32 % of energy from renewable sources. This target is a continuation of the 20 % target for 2020. It requires Member States to establish support schemes for renewable energy, and to report on their progress towards achieving the target. The RED II is being amended to further increase the targets (status as at 30 March 2023 – there was an agreement to raise the EU's binding renewable target for 2030 to a minimum of 42.5 %, up from the current 32 target and almost double the existing share of renewable energy in the EU. Negotiators also agreed that the EU would aim to reach 45% of renewables by 2030). 

Overall, these regulations aim to promote energy efficiency and the use of renewable energy sources, and to reduce the environmental impact of buildings and appliances. 

Now focusing on the EPBD, proposed recast and procedure

The EPBD was first introduced in 2002 (recast 2010) and has been revised several times since then (Directive 2010/31/EU; amended by Directive 2018/844 and Regulation 2018/1999). The EU Commission launched its legislative proposal for a further recast of the EPBD on 15 December 2021. On 15 December 2021, the European Parliament adopted an own-initiative resolution on the implementation of the EPBD, coinciding with the publication of the Commission's legislative proposal. In the European Parliament, the file was allocated to the ITRE committee. In the Council of the EU, a general approach (negotiating position) was adopted during a meeting of energy ministers on 25 October 2022. The final report of the European Parliament was adopted by the ITRE committee on 9 February 2023 and voted on in the plenary session on 14 March 2023. As has become common in the EU ordinary legislative procedure, alongside of running the course of 3 European Parliament hearings, the institutions have been conducting informal interinstitutional discussions (so-called Trilogue), with the aim to ensure that the European Parliament amendments adopted in plenary are acceptable to the Council; with the Commission acting as mediator. 

Note that the provisional agreement reached between the European Parliament and the Council on 7 December 2023 to reduce the emissions and energy use of buildings across the EU (see New rules to boost energy performance of buildings (europa.eu) and here for further information). The press release is light on details safe for the relevant target dates and minimum energy performance standards. We, therefore, will provide you with a fuller summary on review of the final published text.

Content of the proposed EPBD recast

The main objectives of the new EPBD recast are to substantially reduce greenhouse gas (GHG) emissions and energy consumption in the EU building sector by 2030 and make it climate neutral by 2050 (outlines tools to achieve zero-emission building stock by 2050). It also aims to increase the rate of renovations of energy-inefficient buildings and improve information on energy performance. The key elements of the EPBD include (if there is no further reference, the content refers to the Commission proposal:

Zero-emission buildings

Current standard for new buildings is the nearly zero-emission building (nZEB). The Proposal introduces a zero-emission (ZEB) standard for new buildings – for non-residential buildings this applies from 2030 (2027 for public buildings; the Council is seeking a 2030 / 2028 split while the European Parliament in its report has sought a more aggressive 2028 / 2026 split). 

Energy Performance Certificates (EPC)

The recast EPBD sets out to harmonize requirements for the energy performance classes on a harmonized scale from A to G across the EU. A classification will correspond with zero-emission buildings (ZEB) while the letter G is to correspond to the 15 % worst-performing buildings in the national building stock at the time of the introduction of the scale. Member States are to ensure that the remaining classes (B to F) have an even bandwidth distribution of energy performance indicators among the relevant classes. The EPC shall comply with a template set out as Annex V to the EPBD by end of 2025 and the validity of EPCs in lower classes (D-G) shall be reduced from 10 to 5 years. Furthermore, EPBD requires digital form (Art. 16 to 18; Art. 2 no. 29).

The current draft requires that by 2025 all energy performance certificates must be based on a harmonised scale of energy performance classes and comply with the template laid down in Annex V of the draft. This harmonisation of scale does not mean that an A EPC in one Member State is equivalent to an A EPC in another Member State. While standards of the scale will be the same the requirements for each step on the scale still vary.

Minimum energy performance standards (MEPs)

The current provisions on major renovation, which offer an opportunity to apply minimum energy performance requirements in place (to ensure minimum renovation depth) are complemented with new EU-level minimum energy performance standards (aiming to trigger an increase in renovation rates) for the worst-performing public (i.e. buildings and building units owned by public bodies) and non-residential buildings. Member States shall ensure that non-residential and public buildings achieve at least class F by 2027 (European Parliament: class E by 2027), and class E by 2030 (EP: class D by 2030). Residential buildings shall achieve at least class F by 2030 (European Parliament: class E by 2030), class E by 2033 (European Parliament: class D by 2033). The Council draft requires Member States to establish MEPs which ensure that non-residential buildings do not exceed specified maximum energy performance thresholds; for residential buildings based on national trajectories for the progressive renovation of the building stock in line with 2030, 240, 2050 targets. (Art. 9 NEW). The focus on the very lowest performing classes of the building stock intends to ensure that efforts focus on buildings with the highest potential for decarbonisation, energy poverty alleviation and extended social and economic benefits. As with other elements of the draft the European Parliament suggested amendments are more stringent than those originally proposed.

National building renovation plans

The recast EPBD includes changes to make national building renovation plans (currently named “long-term renovation strategies”) more operational, including a common template (as Annex II to the EPBD); intended to include with target setting in line with further EU lawmaking, including the annual energy renovation rate, primary and final energy consumption of the national building stock and its operational GHG emissions. The Member States shall submit their (draft) national building renovation plans as part of their (draft) integrated national energy and climate plan (NECP) (Art. 9 of the Governance Regulation) every five years (progress reports as part of the NECP reporting biannually); the first draft shall be submitted to the Commission by 30 June 2024, final plan 30 June 2025; which shall review the draft and may issue country-specific recommendations (3 (formerly 2a), Annex II). 

As part of the national building renovation plans, Member States shall establish specific timelines for achieving higher energy performance classes. They may also have the option to introduce national minimum energy performance standards in their national renovation plans.

Deep renovation, staged deep renovation

The recast EPBD introduces a definition of and aims to incentivize deep renovation –as a first step, before 1 January 2030, being a renovation that transforms buildings into nearly zero-energy buildings (ZEB). Staged deep renovation means a deep renovation carried out in several steps, following the steps set out in a renovation passport as per the requirements of the EPBD.

Renovation passport

The recast EPBD introduces voluntary renovation passports to equip building owners planning a staged renovation of their building. A renovation passport is a document that provides a tailored roadmap for the renovation of a specific building in several steps that will significantly improve its energy performance. The EPBD requires that the renovation passport is issued by a qualified and certified expert, following an on-site visit; that it comprises a renovation roadmap indicating a sequence of renovation steps that build upon each other, with the objective to transform the building into a zero-emission building (ZEB) by 2050 at the latest; that it indicates the expected benefits in terms of energy savings, savings on energy bills and operational greenhouse gas emission reductions as well as wider benefits related to health and comfort and the improved adaptive capacity of the building to climate change; and that it contains information about potential financial and technical support. By 31 December 2023, the Commission shall adopt delegated acts to supplement the criteria in the EPBD. The Member States are required to introduce a scheme of renovation passports by 31 December 2024.

Mobility

Next to lowering the threshold for installation of recharging points – for example for non-residential buildings new or undergoing major renovation if there are five parking spaces the recast EPBD includes the obligation to install at least one recharging point (the current version includes the obligation if there are ten parking spaces); as well as introduces the requirement to install pre-cabling (for electric vehicles) for every parking space; and introduces obligations to install bicycle parking spaces (one for every car parking space). Again, there is a divergence between the Council and the European Parliament on what would be required here on pre-cabling and bicycle parking spaces. This is an area to watch in the final agreed position as it will have an impact on the ability to complete (or the feasibility to carry out) renovation projects to meet improving EPC standards. 

Smart metering, Building Management Systems

Consistent with the rest of the EPBD there is an increased focus on ensuring that new buildings and renovation projects install suitable smart meters and building management systems to harvest data on energy performance. The requirements on this will impact on property management. 

Ban on fossil fuel heating

The proposed recast EPBD includes a legal basis for national bans of boilers based on fossil fuels, allowing Member States to set requirements for heat generators based on greenhouse gas emissions or the type of fuel used. Also, with the intention to avoid that investments in new generations of fossil fuel-based boilers become stranded assets, the recast EPBD includes a requirement (Art. 2 no. 2; Annex III) that a zero zero-emission building (ZEB) does not cause any on-site carbon emissions from fossil fuels.

Databases for energy performance of buildings

The Member States shall set up national databases to gather data on the energy performance of the buildings and on the overall energy performance of the national building stock (related to EPCs, inspections, the building renovation passport, the smart readiness indicator and the calculated or metered energy consumption of the buildings covered). Access shall be ensured subject to data protection laws – for example access of EPCs shall be granted to owners, tenants, managers, financial institutions for their investment portfolio, prospective tenants or buyers; anonymized aggregated data for the public; and once per year data shall be rendered to the (EU) Building Stock Observatory. Also, the databases shall be interoperable with other administrative databases containing information on buildings, such as the national building cadastre and digital building logbooks (Art. 19 NEW).

Solar panels

According to the Council draft, Member States shall ensure that new buildings are designed to optimize their solar energy generation potential based on solar irradiance of the site to enable later cost-effective installation of solar technologies. Member States shall ensure deployment of suitable solar energy installations for all non-residential buildings with over 250 sqm floor area by end of 2026, further non-residential buildings undergoing a major or deep renovation by end of 2027, all new residential buildings by end of 2029. The European Parliament has provided an even tighter timeline. to ensure the deployment of suitable solar energy installations, if technically suitable and economically and functionally feasible (within 24 months after the date of entry into force of the EPBD, on all new public and new non-residential buildings; by end of 2026, on all existing public and non-residential buildings; by end of 2028, on all new residential buildings and roofed carparks; and by end of 2032, on all buildings undergoing major renovation), [EP draft, 9a NEW].

Effect on mortgage lending

The European Parliament has in its draft sought to introduce restrictions on mortgage lenders as a way to incentivise further sustainable loans. As these restrictions are targeted at residential lenders and would therefore potentially affect the availability of credit to consumers it is unlikely they will be accepted in their current form. However, it does provide an insight to a possible next step for the EPBD and it is matter lenders should be considering to ensure their portfolio is not exposed unduly to poor energy performing buildings.

After the summer break end of August 2023 Trilogue discussions continued. On 23 November 2023, a statement was made in the legislative train of the European Parliament that negotiations were still ongoing and that once agreement is reached, it will require formal approval by the European Parliament and the Council. If the Parliament amendments in the upcoming hearing are adopted in plenary and approved by the Council, the Directive will enter into force on the twentieth day following publication in the Official Journal of the EU. As a Directive, the EPBD has to be implemented into national law. The Member States have two years to implement the regulations of the EPBD according to the current draft.

Where Dentons can assist

Members of the Europe Real Estate ESG Steering Committee at Dentons can assist you on various aspects related to the topics covered, such as:

• Renewables and Real Estate 
• Energy
• E-mobility
• Data protection
• Telecommunications