Potential impacts of the EU referendum on green building policies
Table of contents
Climate change targets
Energy Performance of Buildings Directive
Energy Performance Certificates (EPCs)
Display Energy Certificates (DECs)
Nearly Zero Energy Buildings (NZEBs)
Energy Efficiency Directive
Energy Company Obligation (ECO)
Energy Saving Opportunities Scheme (ESOS)
National Energy Efficiency Action Plans and Building Renovation Strategies
Public buildings
Smart Meters
Emissions Trading Directive
VAT Directive
Further information on EU regulations and initiatives relevant to sustainable buildings
The outcome of the EU referendum in June 2016 will have implications for efforts to improve the sustainability of the built environment. EU legislation is closely tied up with UK policies to improve building standards and retrofit existing buildings.
UK-GBC is providing this outline of some of the key policies for carbon emissions and energy efficiency in order to provide an impartial analysis of the potential impacts of a vote to leave the EU. A number of other EU Directives which also impact on built environment policy have not been analysed here but links for further information are included towards the end of the document.
It is unclear exactly what kind of relationship the UK would build with the EU in the event of a vote to leave, so one of the immediate impacts would be a period of uncertainty while the new relationship is being negotiated. There is also a good deal of uncertainty about what impacts withdrawal would have on UK energy efficiency policy. There are cases where the implementation of EU legislation has resulted in completely new policies introduced beingin the UK, but in many instances there is a morecomplementary relationship, with some of the most ambitious EU policy actually following the lead of initiatives introduced in the UK.
Climate change targets
The European Commission’s low-carbon economy roadmap suggests that by 2050 the EU should cut emissions to 80% below 1990 levels, with emissions from buildings reducing by around 90%. Thesewere adopted as non-binding ambitions by EU leaders in 2009 on the basis of the latest recommendations from theIPCC. As interim steps towards these goals, the EU has agreed to legally binding ten-year targets for 2020 and 2030:
EU 2020 targets
- 20% emissions reductions by 2020
- 20% energy savings target by 2020 when compared to the projected use of energy in 2020
- 20% of energy generation from renewables by 2020
EU 2030 targets
- 40% emissions reductions by 2030
- 27% energy savings target by 2030 when compared to the projected use of energy in 2030[1]
- 27% of energy generation from renewables by 2030
The EU’s overalllong term 2050 ambition for emissions reductions is consistent with the approach in the UK whichintroducedthe same level of 80% reductions by 2050as a legally binding target in the Climate Change Act 2008. The UK Government hastaken a slightly different approach to achieving these reductions by setting five-year carbon budgets looking solely at emissions rather than specifying ten-year targets for emissions, energy efficiency and renewable generation. The UK has also not set a specific target for emissions reductions from buildings.
This differing approach has created some inconsistency in delivery, with the Energy Secretary Amber Rudd claiming in January 2016 that the UK may miss the EU 2020 renewables target. But purely in terms of emissions, the Committee on Climate Change estimates that the cost effective path to achieving the UK Carbon Budgets will actually exceed the EU 2020 and 2030 targets.
There is no direct dependency between EU membership and the Climate Change Act. Withdrawal from the EU would be unlikely to result in the Climate Change Act being removed, particularly with recent advice from the Committee on Climate Change that the current Carbon Budgets will be needed to achieve the UK’s minimum commitments for the Paris Agreement. Indeed, Ministers confirmed in March that the Government intends to legislate for net zero emissions in order to achieve the Paris Agreement, which would be going further than anycurrent commitments from the EU.
The likely impact of withdrawal on climate change targets would therefore be limited to the removal of the 2020 and 2030 interim targets for the UK. Focus would shift solely to overall emissions rather than specifying for energy savings and renewables, but would still lead towards the samelevels of ambition for 2050.
Energy Performance of Buildings Directive
The 2010 Energy Performance of Buildings Directive (EPBD) is one of the main pieces of EU legislation relating to green buildings. A review of the Directive is currently underway and it is expected that a recast Directive will be introduced towards the end of this year.
Energy Performance Certificates (EPCs)
EPBD requires that energy performance certificates should be introduced for all buildings when they are constructed, sold or rented out to a new tenant, and that the certificate should be included in all advertisements for the sale or rental of the building.In the UK, Energy Performance Certificates (EPCs) provide basic information on energy efficiency for new building owners and occupiers based upon theoretical building performance, along with recommendations for cost-effective improvements.
As a result of inconsistent enforcement and often poor quality assessmentsit is unclear whether the provision of EPCs has actually had much effect on property markets. Awareness among prospective buyers and tenants is low and getting an EPC is often viewed as just a tick-box exercise by sellers.Questions have also been raised about the assessment methodology used amid concerns that it may not be appropriate for specific building archetypes. Nevertheless, the most significant impact of EPCs has beenon other UK policies which have subsequently been designed around them.
Minimum Energy Efficiency Standards (MEES) for the private rented sector will prevent the letting of buildings below EPC Band E from April 2018. These regulations have already had a galvanising effect on the commercial buildings market ahead of this date with investors keen to avoid stranded assets. While in the domestic market they provide a significant driver for improvements to rented properties, which on average have worse energy performance than properties in other tenures. MEES will be heavily reliant on EPCs in defining the minimum standard and also because properties need to have a valid EPC to be within scope of the regulations.
The Government’s Fuel Poverty Strategy also sets out long term targets which are based on EPC levels, with ambitions for all fuel poor homes to be EPC band C or above by 2030.Targeting fuel poor households for energy efficiency improvements is particularly difficult so, in line with the strategy, low EPC ratings are increasingly being used as a proxy for fuel poverty in low income areas. The existing EPC register also provides valuable information about specific building archetypes to target, even when these properties do not have their own EPC.
Given how integral EPCs are to the UK’s energy efficiency policy framework it appears unlikely that the certificates would be scrapped if the EPBD no longer applied to the UK. It is possible that requirements for EPCs at the point of sale, rent and construction could be relaxed or removed in order to cut red tape, but doing so would significantly undermine the implementation of MEES and call into question the appropriateness of current fuel poverty targets.
Display Energy Certificates (DECs)
As well as certificates at the point of construction, sale or rent, the Directive also states that buildings occupied by a public authority (over 250m2) and frequently visited by the public will also require an energy performance certificate which is displayed in a prominent place. In the UK Display Energy Certificates (DECs) are issued for public buildings whichprovide benchmarked building ratings based upon actual amount of metered energy used by the building over 12 months, along with an advisory report. Where a building has a total floor area of more than 1,000m², the DEC is valid for 12 months and advisory report for 7 years, and where a building has a total useful floor area of between 250m² and 1000m², the DEC and advisory report are valid for 10 years.
Being based on actual energy performance means that measures on the advisory report are often more bespoke to the building than those provided on an EPC, and annually updated DECs for larger buildings provide feedback on the effectiveness of improvements. Many public authorities have been able to achieve significant energy savings as a result of acting on the information from DECs.
In spite of this effectiveness however, it remains possible that DECs could be removed for public buildings in the event of withdrawal from the EU. In early 2015, the Coalition Government consulted on options for significantly watering down or completely removing the DECs policy, suggesting that the current regulations may constitute ‘gold-plating’ of EU rules. Although no changes have so far been implemented following the consultation, this still suggests that the UK Government could easily take the decision to remove DECs if the EPBD were no longer applicable to the UK.
Nearly Zero Energy Buildings (NZEBs)
EPBD includes provisions for all new buildings to fulfil a nearly zero-energy standard by the end of 2020 and new public buildings by end of 2018. A specific definition of Nearly Zero Energy Buildings (NZEBs) is not set out in the Directive, but Member States are expected to introduce standards which achieve cost-optimal levels of energy performance.
At the time EPBD was introduced, the UK already had in place policies for all new homes to achieve a zero carbon standard by 2016 and new non-domestic buildings to be zero carbon by 2019. It was anticipated that the zero carbon standard would be sufficient for achieving the NZEB requirements ahead of time and provide developers with time to innovate and drive down costs.
With the cancellation of zero carbon policy in July 2015, the NZEB 2020 target may now provide the next uplift in building regulations for energy efficiency standards. The UK Government must undertake cost-optimality analysis of current building regulations to establish whether changes will be needed to meet NZEBs so it is currently still unclear whether NZEBs will actually push UK regulations further than current standards.
In light of the decision on zero carbon, it is very possible that the Government would not proceed with any increases in building standards for NZEBs if the UK withdrew from the EU. It is worth noting however that improvements to UK building regulations thus far have been ahead of EU legislation, with the zero carbon policy demonstrating international leadership. Further improvements to building regulations in the future could therefore be driven by the UK regardless of the outcome of the referendum, although it is clear this is not on the current Government’s agenda.
Energy Efficiency Directive
Alongside the EPBD, the 2012 Energy Efficiency Directive (EED) is the primary piece of EU legislation for improving the energy performance of existing buildings, with a focus on driving deep renovation. The EED is also currently under review and a recast Directive is expected towards the end of 2016.
Energy Company Obligation (ECO)
Article 7 of the EED requires that energy distributors or retail energy sales companies have to achieve 1.5% energy savings per year through the implementation of energy efficiency measures. Alternatively EU countries can opt to achieve the same level of savings through other means such as improving the efficiency of heating systems, installing double glazed windows or insulating roofs.
In the UK, thisrequirement is met through the Energy Company Obligation (ECO) which imposes targets on large energy suppliers to install energy efficiency improvements in homes. ECO was introduced in 2013 but the UK has used a supplier obligation model in some form since the early 1990s, with previous schemes including the Energy Efficiency Commitment (EEC) and the Carbon Emissions Reduction Target (CERT). These experiences helped to inform the development of the EED which sought to replicate the model in other Member States.
Over the last few years, ECO has funded over 90 per cent of energy efficiency measures installed in UK homes, and given current uncertainty about other policies for domestic retrofit this is likely to continue for the rest of this Parliament. The Government has also confirmed that from 2017 ECO will be re-focused towards tackling fuel poverty, with the policy likely to be the main funding available to improve the energy efficiency of fuel poor households.
At the Autumn Statement in December 2015, spending limits were set for ECO up to 2022, with the intention of providing long term certainty to the industry. Given this announcement and the current reliance on ECO funding for achieving both the Carbon Budgets and the Fuel Poverty Targets it is highly unlikely that the policy would be removed if the UK were to withdraw from the EU.
Energy Saving Opportunities Scheme (ESOS)
Article 8 of the EED includes provisions requiring large companies to make audits of their energy consumption. The intention is to highlight opportunities for cost effective energy efficiency savings and encourage businesses to take action to realise them.
The Energy Saving Opportunities Scheme (ESOS) was introducedin 2015 to comply with EED. Under the scheme businesses with more than fifty employees or a turnover of more than £250m are required to undertake energy audits every four years, with the first deadline for submissions in December 2015. Although many organisations were late submitting audits and the deadlines were extended by two months, there is evidence to suggest that the scheme has been partially successful in driving improvements, with some organisations reporting significant savings as a result of building energy audits.
The future of ESOS is currently being considered as part of the Business Energy Tax Review, and indications are that it will continue as one of the primary reporting requirements for businesses. If the UK was no longer covered by the EED however, ESOS would face an uncertain future as a policy introduced directly as a result of the Directive. It is only likely to be maintained if analysis of the scheme is able to demonstrate that it has driven significant carbon reductions in the commercial sector which will be crucial in achieving the carbon budgets.
National Energy Efficiency Action Plans and Building Renovation Strategies
Member States need to provide national updates on progress towards theEU target of20 per cent energy savings by 2020 through a National Energy Efficiency Action Plan (NEEAP) which is updated every three years. National Governments must provide an overview of the relevant policy measures which are in place, outline the carbon savings which have been made to date and estimate future savings running up to 2020. The most recent NEEAP from the UK was published in April 2014 which showed that we are on track to meet the EU 2020 target, but it is unlikely the Action Plan would be updated in April 2017 if the UK were to withdraw from the EU because the 2020 target would no longer apply.
Alongside the NEEAP, Members States are also required to publish a long-term Building Renovation Strategy every three years which will help mobilise investment in the deep renovation of the national stock of residential and commercial buildings, both public and private. The Strategy should do this by setting out cost-effective approaches to building renovation, describe the policies that will help to achieve this, and provide a forward-looking perspective which can help to guide investment.
The UK’s first Renovation Strategy was published in April 2014 but was not well publicised by the Government and crucially has not been widely used inform investment decisions because it fails to provide a long-term outlook of delivery targets. As such it is likely that the Renovation Strategy would also not be updated for April 2017 if the UK did not have to comply with the EED. Nonetheless, long term certainty will be vital to increasing investment in building energy efficiency and a long term renovation strategy would still be crucial to achieving this regardless of the UK’s membership of the EU.
Public buildings
Article 5 of the EED requires Member States either to renovate, each year from 2014 to 2020, 3% of the floor space of their central government building stock that does not meet minimum energy performance standards, or to take alternative measures to achieve equivalent energy savings by 2020 in buildings owned and occupied by central government.The UK has opted to take the alternative compliance route of achieving energy savings through other policy mechanisms already in place.
For English and UK-wide government departments, the Greening Government Commitments set overall targets for 25% emissions reductions between 2010 and 2015, with the Government currently considering future targets. While the Scottish Government’s Carbon Management Plan and the Welsh Government’s Climate Change Strategy set respective targets of 30% and 35% emission reductions by 2020, to which public authorities need to contribute directly.
These measures are all primarily intended to deliver against the long term carbon targets set by the UK and the devolved administrations, with EED compliance viewed just as an ancillary benefit. This is clearly demonstrated by the fact that the combined energy savings reported to the EU in 2013 were almost three times higher than those required by the EED. As such it is unlikely that emissions targets for public authorities would be watered down as a result of the Directive no longer applying to the UK.
Smart Meters
The EU aims to replace 80 per cent of energy meters with smart meters by 2020 through provisions in the EED. The aim is to empower energy consumers to better manage consumption by providing easy and free access to energy data. The smart meters rollout in UKwas announced in 2009 - before the EED came into effect – and it is planned that every home will have a smart meter by 2020.
Legislation has been introduced mandating energy suppliers to install smart meters and significant work has already gone into developing technical standards and setting up the Smart Energy GB communications campaign. There have been issues around implementation and delays to the rollout are expected, but suppliers are already underway in offering and installing new meters. Given the progress and investment by energy suppliers so far, and the fact the rollout was a UK initiative, it is very unlikely that the policy would be reversed with withdrawal from EU.