Lhe European Commission’s objective is to reduce greenhouse gas emissions from buildings in Europe by 60% by 2030 compared to 1990 levels. Buildings currently produce around 36% of emissions in Europe. This target reflects the sector’s contribution needed to keep us within the limit of a 1.5 degree rise in global temperatures.
This task seems herculean: without a radical change in the response of all players in the sector, the goal will not be achieved in time. Part of the reduction needed will come from the decarbonisation of the heating supply network and the use of on-site renewable energy.
But given that 85% to 95% of existing buildings will still be there in 2050, the most significant emission reductions will have to come from deep renovation, i.e. overall improvements to the structure and building equipment to achieve significantly higher efficiency.
About 85% of buildings in Europe were built before 2001, so this renovation exercise will be a huge undertaking for the building industry and its supply chains in the decades to come. Decarbonization of heating will be achieved primarily by replacing fossil fuel heating with heat pumps.
According to forecasts, sales of heat pumps should increase by 400% over the next thirty years. Can supply chains adapt fast enough, and do we have the required skills? To get an idea of the scale of the challenge, you should know that currently only 11% of European buildings are renovated each year and that only 0.2% of these renovations lead to significant reductions in emissions.
At the current rate, decarbonization could therefore take centuries. A renovation that significantly decarbonizes a building can lead to an increase in capital expenditure of 10 to 20% (and sometimes more) compared to a classic renovation.
A need of 275 billion euros each year
Certainly, tenants and investors are attracted to low-carbon retrofitted assets because, for some buildings, the extra expense can be easily justified by the fact that the improvements will generate a premium and protect against obsolescence.
But the extra cost of deep renovation is unlikely to be financially viable for many buildings, in the absence of incentive policies. The energy renovation of buildings is in fact faced with a significant investment deficit.
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