20 Policy Levers to Decarbonise Buildings in Europe

Over a third of the energy-related emissions reductions needed globally by 2050 are in the built environment. Europe is a beacon for driving sustainability in the built environment, but EU institutions must now focus on making the sustainable finance agenda workable for investors, asset owners and bond issuers.

Buildings are a central focus across numerous areas of the EU sustainable finance agenda; including usability reforms to the EU Taxonomy, debates around standardisation of EPC methodologies and Nearly Zero Energy Buildings, the Basel framework for banks and capital requirements, as well as the European Banking Authority’s Opinion on green loans and mortgages. Last but not least, there are discussions around compliance with the Sustainable Finance Disclosure Regulations.

Meeting the EU’s climate objectives

Within the extensive policy framework for promoting renewable energy and enhancing building energy performance across the European Union (EU), numerous pieces of legislation, notably the Energy Performance of Buildings Directive, have been revised recently to provide a better picture of how the EU will achieve an emissions reduction of 55% by 2030, compared to 1990 levels.

A summary of the main pieces of legislation is provided in the table below.

However, with the European Commission recommending a 90% reduction in emissions by 2040, this momentum needs to be maintained into the future. This report aims to set out a range of policy options across three levels:

  • The EU institutions,
  • Member States, and
  • Cities and Regions;

Climate Bonds envisages that these policy options will help to embed regulation and make it more effective in practice.

Financing the transition

While public money will continue to play a large part in the buildings transition through grants and loans, in addition to tax incentives for energy efficient renovations, private sources of capital including green bonds, mortgages, private equity, blended finance and equity loans can play a vital role.

Of these, the global green property bond market, in particular, has been a notable success story. In the USD4.2tn GSS+ bond market at the end of 2023, 21.5% of deals had some type of buildings-related Use of Proceeds. The continued growth of this market is imperative to attract the investment required by 2050, to deliver a built environment that is future fit, low carbon, energy-efficient, safe, and resilient.

Climate Bonds low-carbon buildings criteria

The Climate Bonds low-carbon buildings criteria were updated in December 2023. This development brings enhanced clarity regarding the utilisation of the criteria for new buildings, making it easier for stakeholders to understand and adhere to the standards.

The criteria help in the interpretation of sustainable buildings regulations, particularly moving more in-line with the EU Taxonomy. The criteria use location-specific pathways, which can make it easier for Cities and Regions to understand issues such as grid decarbonisation and demonstrate to investors and other stakeholders that they have a plan to green local activities and assets towards a low carbon economy. 

Cities and regions

Cities and regions often have responsibility for specifying building codes and zoning regulations. Often, they are trailblazers in driving up construction standards generally.

A 2021 OECD Survey found that, globally, 88% of cities and regions surveyed demand higher energy efficiency standards than the national level in building energy codes, and 25% call for a net-zero energy level. Policies at a municipal level can also drive the delivery of positive energy buildings and districts.