The European Parliament and European Council reached a provisional agreement this month to further reduce the emissions and energy use of buildings across the EU. A staggering 75% of Europe’s aging building stock is considered energy inefficient and this latest piece of legislation will strengthen the Energy Performance of Buildings Directive (EPBD) across the Union.

In this research note, we study the details of this new Net Zero agreement and analyze what it means for the European proptech markets.

“This is a win-win for citizens: improving the energy performance of buildings will result in both lower energy bills and lower greenhouse gas emissions,” says Maroš Šefčovič, Executive Vice-President for the European Green deal’s Inter-institutional Relations and Foresight. “Today’s agreement strikes the right balance, with European standards, national implementation, individual autonomy, and financial support.”

New revisions to the directive will set out a range of measures to help EU governments apply a structured approach to boost the energy performance of buildings, with a specific focus on the worst-performing buildings first. Each Member State will then adopt its own national strategy and trajectory, however, which is expected to provide enough flexibility to take into account unique national circumstances.

Member states are free to choose which buildings to target and which measures to take but must reduce the average primary energy use of residential buildings by 16% by 2030 and 20-22% by 2035. And, each state will have to ensure that at least 55% of the decrease of the average primary energy use is achieved specifically through the renovation of the worst-performing buildings.

For non-residential building stock, including commercial and industrial, the revised rules require a more gradual improvement via minimum energy performance standards. This will lead to renovating the 16% worst-performing buildings by 2030 and the 26% worst-performing buildings by 2033. The more lenient approach to non-residential buildings has, no doubt, been put in place to protect businesses during the ongoing economic slowdown.

Overall, the clear focus of this new agreement is to drive building renovation specifically. The revised EPBD contains measures to improve both the strategic planning of renovations and the tools to ensure such renovations actually happen.

Under the agreed provisions, all states establish National Building Renovation Plans to address key barriers, such as financing, training and attracting more skilled workers. They must also create building renovation schemes and value chains to guide owners in their staged renovations towards net zero buildings.

More specifically, the deal will help the EU phase-out fossil-fueled boilers in buildings. Existing subsidies for the installation of stand-alone boilers powered by fossil fuels will be stopped on January 1st 2025 and an all-out ban will be applied in 2040. The deal also introduces a clear legal basis for EU members to set requirements for heat generators based on greenhouse gas emissions, type of fuel, or the minimum share of renewable energy used for heating.

Towards Net Zero Buildings

While EU member states retain significant control of their own national strategy, revised Energy Performance Certificates (EPCs) will be based on a common EU template with consistent criteria. The agreement also requires that all members ensure there are safeguards in place to help tackle the risk of eviction of vulnerable households caused by disproportionate rent increases following such renovations.

To support electric mobility, pre-cabling will be standardized for new and renovated buildings, while the number of recharging points in both residential and non-residential buildings will be increased. The new directive requires all EU states to try and remove barriers holding back the installation of recharging points, to ensure the ‘right to plug' for all citizens. The new deal also makes provisions to ensure buildings offer sufficient parking spaces for bicycles.

Perhaps the most progressive element of the new deal is the stronger language around net zero building ambitions in the bloc. The revised directive will make net zero buildings a new standard for all new residential and non-residential facilities as of January 1st 2028 for publicly-owned buildings, and as of January 1st 2030 for all other new buildings.

As part of this net zero initiative, all new buildings will have to be solar-ready, therefore able to host rooftop photovoltaic or solar thermal installations. For existing public and non-residential buildings solar will need to be gradually installed, starting from 2027, depending on the building type and size. There is still a long way to go in the EU, where over 35% of the EU's buildings are over 50 years old, but these are strong steps in the right direction.

This month’s provisional agreement is now expected to be formally adopted by the European Parliament and Council. Once officialized, the new legislation will be published in the Official Journal of the Union and enter into force across the EU. Against the backdrop of Russia’s war with Ukraine and the EU’s dependence on Russian fossil fuels, this agreement is clearly designed to boost Europe's energy independence in line with the broader REPowerEU Plan.