Chambers – Real Estate and the EU’s Green Agenda

The EU’s Green Agenda: How It Will Affect the Real Estate and Construction Sector | Ireland

Reducing climate impact through legislation is a key objective of the EU. The Energy Performance of Buildings Directive is an example of such a measure. This article by Katelin Toomey and Mary Liz Mahony of Maples Group explores this Directive and its impact.

The EU has been adopting a series of regulations and directives to address the environmental, social and governance (ESG) challenges of the 21st century. These measures aim to reduce greenhouse gas (GHG) emissions, increase renewable energy use, improve energy efficiency, and promote social inclusion and good governance. The real estate sector, as a major consumer of energy and source of emissions, will be significantly impacted by this new legislation.

Without a doubt the most noteworthy change in the real estate and construction space is the revised Energy Performance of Buildings Directive (EPBD) which will, once adopted, have a significant impact on the design, construction, and operation of all buildings in the EU, both new and existing.

The revised Energy Performance of Buildings Directive (EPBD)

The EPBD is one of the key instruments of the EU’s Green Deal, a comprehensive strategy to achieve climate neutrality by 2050. The EPBD sets out the framework for improving the energy performance of buildings, which account for over 40% of the EU’s energy consumption and over 30% of its GHG emissions. The EPBD was initially revised in 2018 and is currently undergoing another revision, which is expected to be formally adopted in early 2024. The revised EPBD is expected to include the following.

• The introduction of a new concept of a zero-emission building (ZEB), which envisages buildings that have a very high energy performance, requiring zero or a very low amount of energy, producing zero on-site carbon emissions from fossil fuels and zero or a very low amount of GHG emissions – the ZEB builds on the current standard of a nearly-zero energy building (NZEB), which requires buildings to have a very high energy performance and a significant part of their energy needs met by renewable sources, ideally produced on-site or nearby. The EPBD will set a timeline for achieving ZEB standards for new and existing buildings. If enacted in its current form, the ZEB standard will apply to publicly owned buildings by 2028 and all other new buildings by 2030 with the aim of achieving a fully decarbonised ZEB building stock by 2050.
• The replacement of the current building energy rating certificate (BER) used in Ireland with a standardised energy performance certificate (EPC) across the EU – the EPC will document the status of each building, using a rating scale from A (ZEB) to G (the worst performing buildings in the national stock). The EPBD will require each member state to introduce minimum energy performance requirements for commercial buildings, which will gradually increase over time, so that buildings with the lowest EPC ratings will either need to renovate or face consequences. The consequences are currently unknown; however, such buildings could be rendered obsolete. In relation to residential buildings, member states must ensure that compared to 2020 the average primary energy use of the entire residential building stock decreases by at least 16% by 2030 and at least 20–22% by 2035. An EPC will be required for the construction or renovation of buildings, when they are sold, or leased, and for all existing buildings owned or occupied by public authorities. Member states may exempt certain categories of buildings from the EPC obligations, such as historical buildings, religious buildings, and temporary buildings.
• The deployment of additional infrastructure for electric vehicle charging and bicycles, including cargo bikes and e-bikes, in new and existing buildings, to support the transition to low-emission mobility.
• The requirement for all buildings to be “solar-ready”, meaning that they must be capable of hosting rooftop solar installations where technically suitable and economically feasible – this will increase the share of self-generated energy and reduce dependence on external energy sources.
• The provision of direct access to a building’s systems’ data relating to the energy performance of the building, estimated lifespan of systems, and building automation, as well as to building owners, occupiers, and managers, to enable them to monitor and optimise the energy use and maintenance of the building.
• The development of a national strategy to combat energy poverty, targeted particularly at vulnerable customers in the worst performing buildings, including those in social housing.
• The introduction of safeguards for tenants to prevent the risk of eviction or disproportionate rent increases as a result of energy efficiency renovations.
• The establishment of “one stop shops” in each member state, providing technical assistance and guidance on energy efficiency in buildings, to facilitate the planning, financing, and implementation of renovation projects.

Practical implications and opportunities for the real estate sector

The EPBD will pose a significant challenge for the real estate and construction sector, it will require substantial investment and result in significant changes in the design, construction, and operation of buildings. However, it will also create opportunities and benefits for all stakeholders, such as:

• protection against volatile energy costs, natural resource shortages, and climate change by increasing the resilience and self-sufficiency of buildings;
• enhancement of the future investment value and marketability of buildings, by improving their energy performance and attractiveness to potential buyers, occupiers, investors, and funders;
• contribution to the EU’s climate and energy goals, by reducing GHG emissions, increasing renewable energy use, and improving energy efficiency, in line with the Paris Agreement and the Green Deal; and
• promotion of social inclusion and well-being, by improving the quality and comfort of the indoor environment, reducing health risks and energy poverty, and creating jobs and skills in the green economy.

To seize these opportunities and overcome the challenges, the real estate sector will need to adopt a proactive and collaborative approach, involving developers, owners, contractors, and professional advisors, as well as public authorities, financial institutions, and end users. The sector will also need to keep abreast of the evolving legal and regulatory environment, which will encompass not only EU and national laws, but also the expectations and requirements of funders, investors, and occupiers, who are increasingly demanding greener than green ESG credentials.