EUROPEAN COMMISSION Brussels, XXX SWD(2016) 414 COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a Directive of the European Parliament and of the Council

amending Directive 2010/31/EU on the energy performance of buildings

{COM(2016) 765}

{SWD(2016) 415}



Table of Contents 1Introduction 1.1General context 1.2Review process 1.3Impact assessment 2What is the problem and why is it a problem? 2.1Basic problem and its extent 2.2The current legislative response and its evaluation 2.3Problems and drivers 2.4The 'Smart Finance for Smart Buildings' Initiative 2.5Who is affected and how? 2.6How would the problems evolve? 3Why should the EU act? 3.1Subsidiarity and proportionality 3.2Macroeconomic and other benefits 3.3Energy and climate 3.4Coherence 4What objectives should be achieved? 4.1General and specific objectives

4.2Links to problems and drivers 4.3Complementarities 5What are the options to achieve the objectives? 5.1No-change option 5.2Simplification measures 5.3Measures to address the problems 5.4Bundling of measures into policy options 6How do the options compare? 6.1Assessment of the impacts of the policy options 6.2Comparison of the options 6.3Subsidiarity and proportionality 7How would impacts be monitored and evaluated? Table of Annexes Annex 1Acronyms and glossary Annex 2Procedural information Annex 3 Cost-effective savings potentials for 2030 Annex 4Models supporting the impact assessment Annex 5Drivers addressed by the policy measures Annex 6Detailed description of measures

Annex 7Specific impacts of the measures. Annex 8Macro-economic impacts Annex 9Estimation of administrative costs Annex 10Investments in energy efficient buildings Annex 11Characteristics of the EU Building Stock Annex 12State of development of EPC databases Annex 13The EU Building Stock Observatory



1.Introduction 1.1.General context The Energy Union and the Energy and Climate Policy Framework for 2030 establish ambitious European Union (EU) commitments to further reduce greenhouse gas emissions (at least 40% by 2030), to increase the share of renewable energy consumed (at least 27%), and to save at least 27% energy with a review "having in mind an EU level of 30%" to increase Europe's energy security, competitiveness and sustainability. The EU is already achieving energy efficiency progress. Although the decline in energy consumption could be partly attributed to the economic crisis and its aftermath of restrained production, EU energy efficiency policies have also played a significant role in decoupling economic activity from energy consumption. The level of investment in energy efficiency in Europe is still below its economic potential. The cost-effective saving potential in the building sector is significantly higher than the savings achieved so far; investments with a payback time of four or five years are often not undertaken in the private and public sectors. Present energy efficiency policies and strategies focus on correcting for such market failures. This serves to realise this potential, by triggering investments which make economic sense but do not take place because of market or regulatory barriers and/or failures. As described in the Energy Efficiency Impact Assessment 2014, the current 2020 energy efficiency framework is based on: An indicative EU 2020 target underpinned by indicative national targets; EU legislation for products traded in the internal market; EU legislation coupled with administrative support in other areas, such as buildings and combined heat and power, providing general overall provisions, while leaving flexibility for the national and local level to implement them in an appropriate way;

National and local provisions not linked to common EU rules; Financing through European, national and local sources. This framework is designed to achieve the following impacts, using a number of mutually reinforcing instruments: (1)An overall decrease in energy consumption, via the set-up of a headline target to give public and private actors confidence that this is a sector worth investing in (Articles 1 and 3 of Directive 2012/27/EU on energy efficiency (EED)); (2)Measures to speed up the rate at which people and businesses choose to upgrade the energy performance of their buildings, systems and appliances (Article 7 of the EED, finance); (3)Minimum performance requirements (depth) for new and existing buildings, new appliances and new vehicles (Directive 2010/31/EU on the energy performance of buildings (EPBD), eco-design and GHG emission standards for vehicles); (4)Information for consumers and industry – labels for products, certificates for buildings and consumer rights for metering and billing – to enable them to choose the efficiency level that is right for them (Energy labelling, EPBD, Articles 8 and 9 to 11 of the EED); (5)Research and innovation particularly through the Strategic Energy Technologies Plan, for development to bring down the cost of key technologies that are currently technically but not economically viable. In order to deliver on the energy efficiency ambition for 2030, the legislative framework is being updated. The review of the Ecodesign Directive concluded that the Directive is still considered fit for purpose and that a revision of the Ecodesign Directive is therefore not necessary. A legislative proposal on Energy Labelling is currently under negotiation with Council and Parliament and the process to review the EED and the EPBD is ongoing. In parallel, the new governance system will ensure that a transparent and reliable planning, reporting and monitoring system is in place, based on integrated national energy and climate plans and streamlined progress reports by Member States. 1.2.Review process The review of the EPBD, including the 'Smart Finance for Smart Buildings' Initiative is one of the specific actions to improve the energy performance of buildings in the EU included in the Roadmap for the Energy Union. It equally delivers on the legal obligation under Article 19 of the EPBD to evaluate the Directive by 1 January 2017 and, if necessary, make proposals. As presented in the Inception Impact Assessment roadmap, the general objective of the review of the EPBD is to promote greater take-up of energy efficiency in buildings and deliver cost-effective greenhouse gas emission reductions as well as to contribute to ensuring security of energy supply in the Union. The review has two specific objectives: The first stems from the political mandate of the Commission, reflected in the Energy Union Strategy, "to review the Directive and propose revisions where needed to underpin the 2030 target". In addition, the review will "address the shortcomings identified by the evaluation of the Directive so as to ensure that it remains fit for purpose (REFIT component)". Although the EPBD evaluation report identified relatively limited regulatory failures, there is scope for simplifying and streamlining outdated measures; enhancing compliance through fine tuning of existing provisions and better linking them with financial support; and modernising the Directive in light of technological developments and the need to increase building renovation and support decarbonisation of buildings. 1.3.Impact assessment This impact assessment follows the Commission Better Regulation Framework, in particular the Standard Cost Model therein. The policy options explored in the present impact assessment deliver on the REFIT component whilst defining additional measures to underpin a 2030 ambition.

The Impact Assessment supports as preferred option targeted amendments, building and/or fine tuning already existing requirements, with a focus on the following aspects: Add a long-term ambition level to the renovation strategies developed by Member States under Article 4 of the EED in order to mobilise the sector towards the transformation of the existing building stock; Further strengthen the energy performance certification (EPC) schemes, improving the transparency of the underpinning calculation methodologies and building upon EPC registers/databases to reinforce compliance; Enable, within these EPC registers/databases, the collection of information on actual energy consumptions to improve the knowledge on the building stock and better inform policy makers and support the decisions of market players, in particular financial institutions; Benefit better of the technological progress to: oSupport a more efficient implementation of the certain parts of the EPBD (technical building systems, including their inspection); oSupport the advent of ‘smarter’ building and create enabling conditions to provide streaming information to consumers on operational energy consumption; to enable the adjustment to the needs of the user; to run the efficient and comfortable operation of the buildings; to make buildings an active component of the modernised electricity market; oRemove the provisions related to the technical, environmental and economic feasibility of high-efficiency alternative systems. With the obligation for all new buildings to be nearly zero-energy buildings, the use of locally available high-efficiency alternative systems becomes an implicit obligation and this provisions become unnecessary; oSupport the support of emergence of electro-mobility for the broader decarbonisation of the economy by easing the later installation of smart recharging points in private parking spaces. Acronyms and definitions of specific terms in use in the present document are provided in Annex 1. Procedural information, information on the consultation with stakeholders, the opinion of the scrutiny board and its follow-up is provided in Annex 2. In terms of consistency with the Charter for fundamental rights, the overarching aim of this proposal is to save energy and this is entirely in line with Article 37 of the Charter under which a high level of environmental protection and the improvement of the quality of the environment must be integrated into the policies of the Union and ensured in accordance with the principle of sustainable development. The proposals to improve the energy performance of buildings do not interfere with the right to own, dispose of or bequeath property as set out in Article 17, nor do they have an impact on the use of property. 2.What is the problem and why is it a problem? 2.1.Basic problem and its extent 2.1.1.Large cost-effective saving potentials remain The energy sector produces the lion’s share of man-made greenhouse gas emissions. Therefore, reducing greenhouse gas emissions by 2050 by over 80% will put particular pressure on energy systems. The EU needs to intensify efforts beyond 2020 and improving energy efficiency should remain the prime focus. In this context, higher energy efficiency in new and existing buildings is crucial, in order to decarbonise the EU Building Stock by 2050. The basic problem is that under business as usual, large amounts of cost-effective saving potentials and economically viable investments in energy efficiency in buildings will not take place. This is damaging in its own right, given the benefits for security of supply, the environment, reduced energy costs for households and businesses and potential for increased jobs and economy-wide economic activity. It is all the more problematic given that the achievement of a significantly higher rate of energy savings is a key part of the EU 2030 energy and climate targets. As established in Annex 3, within the scope of the EPBD (space and domestic hot water heating, cooling, ventilation and built-in lighting), cost-effective potentials for 2030 are estimated at: 29.1 Mtoe of final energy from measures that are a) cost-effective; b) work primarily on the depth of energy efficiency measures, using the EPBD architecture; and c) take place under normal market conditions and an active surrounding policy environment where current efforts in related policy areas are sustained; 86.5 Mtoe of final energy from, in addition to the above-mentioned, measures that step up the rate at which people and businesses voluntarily choose to upgrade their buildings, including from measures which are not cost-effective in a financial perspective, or are out of the EPBD intervention scope.

The largest cost-effective energy saving potential, additional to the savings delivered by the current legislative framework, is on existing buildings (close to 95% of the total). Significant untapped cost-effective energy saving potentials remains in all Member States. Annex 3 also provides a detailed analysis of the cost effective energy saving potential by Member State, a disaggregation by sector and a split between new and existing buildings. 2.1.2.Potential for buildings to further contribute to the energy system and the decarbonisation of the economy Technological progress towards ‘smarter’ building systems creates enabling conditions to provide information to consumers on operational energy consumption; to adjust to the needs of the user; to run the efficient and comfortable operation of the buildings; its readiness to connect to electric vehicle charging, to host energy storage and to support demand response in an modernised electricity market. Energy efficiency in transport, in particular efficient vehicles and incentives for behavioural change are also required to move from 2020 to 2050 low carbon goals. The electrification of transport is of pivotal importance for decarbonising the sector and raising the share of renewable energy therein. The impact of electric vehicles will be important in this regard. EU legislation already supports deployment of public infrastructure via Directive 2014/94/EU on the deployment of alternative fuels infrastructure, and monitors developments inter alia via the European Alternative fuels Observatory. The projected deployment of electric vehicles in 2020 will amount to approximately 6-8% of vehicle sales in 2020, reaching a fleet average of approximately 10% in cities by 2030. An EU intervention in this field is necessary since Member States do not have the instruments to achieve pan-European coordination in terms of technical specifications of infrastructure and timing of investments. Since the availability of recharging stations is not only a technical prerequisite for the functioning of alternative fuel vehicles, but also one of the most critical components for consumer acceptance, the importance of accessible infrastructure is largely acknowledged. Vehicle parking spaces are central to any overarching policy for the promotion of electro-mobility. While the existing legislation only mandates public accessible recharging points, an estimated 90% of recharging takes place in areas that are not publicly accessible. In order to address this regulatory gap in transport policy, installation of recharging points in private parking spaces, typically inside or flanked to buildings, is essential to support the market of electric vehicles, complementing the Directive 2014/94/EU In multi-apartment block and non-residential buildings, the freedom to install recharging points is limited by the necessity to get an agreement from the other co-owners to intervene on the building infrastructure or to cross private spaces. Following the example of the measures adopted e.g. in France or in Spain, the construction and the major renovation of buildings should provide the opportunities to install recharging points, or at least facilitate their later installation. National electricity grids have an increasing percentage of renewable energy production. Fewer conventional powertrains mean a shift to cleaner energy sources and an improved air quality and consequently public health. This could be better achieved if with smart recharging points, capable of starting and stopping charging in reaction to network signals. 2.1.3.Large potential for tapping other benefits There is also a large potential for tapping other economic, social and environmental benefits. Successive studies have shown that energy efficiency offers many of the most cost-effective options for meeting global emission targets. In many cases, energy efficiency measures have been shown to be ‘negative cost’, meaning it is economically advantageous to implement them. The IEA’s authoritative report ‘Capturing the multiple benefits of energy efficiency’ shows that the potential benefits from improved energy efficiency are not only socio-economic but could help to address a range of political, social, economic and environmental issues. Energy efficiency measures in the building sector were found to be able to have positive impacts on the economy and labour market (GDP growth, job creation, etc.), health and well-being (through better indoor and outdoor air quality), environmental impact (reduced CO2 emissions), social aspects (mitigation of energy poverty), industrial competitiveness and the value of buildings as assets. 2.2.The current legislative response and its evaluation Directive 2010/31/EU (EPBD) aims at promoting the improvement of the energy performance of buildings within the Union. Its evaluation covered the whole European Union, on the basis of the latest available data. The problem defined above has been addressed by the current policy framework through a three-pronged approach: Creating a demand-driven market for energy efficient buildings, through the provision of information through certification and inspection; Setting minimum building energy performance requirements at cost-optimal level, and consequently prevent sub-optimal investments; Further catalysing the increase in energy performance of buildings and the transition to nearly zero-energy buildings with measures, including of financial and fiscal nature. 2.2.1.Key findings of the evaluation The evaluation shows that the Directive is effective and is delivering on its general and specific objectives. Implementation to date shows broadly good performance on the other four analysed criteria: efficiency, relevance, coherence, and EU added value.

There is evidence of around 48.9 Mtoe of additional final energy savings in 2014 in buildings compared to the 2007 baseline of the EPBD. These savings occur mainly within the scope of the EPBD – space heating, cooling and domestic hot water – and a significant part can be attributed to factors influenced by policy interventions. This figure of 48.9 Mtoe in 2014 is in line with the 2008 Impact Assessment supporting the EPBD, which estimated that the Directive would deliver 60 to 80 Mtoe of final energy savings by 2020. The evaluation shows that the overall architecture of the Directive, combining minimum requirements and certification, is working, in particular for new buildings. Targets for all new buildings to be of nearly zero-energy by 2020 have proved to set a 'future-proof' vision for the sector and mobilise stakeholders accordingly. Moreover, for both new and existing buildings, the choice of a cost-optimal methodology to steer existing national energy performance requirements towards cost-efficient levels has proved to be an efficient approach. Analysis of national reports shows that it is ensuring reasonably ambitious levels of requirements. A large cost effective energy saving potential remains in the building sector (see Annex 3). Increasing the rate, quality and effectiveness of the renovation of existing buildings is the biggest challenge for the coming decades. The long term renovation strategies developed by Member States under Article 4 of the EED should result in increased renovation rates through mobilising finance and investments. These strategies should be combined in a clear forward looking vision with 2030 and 2050 perspectives, creating market signals for households, building owners/managers, businesses and investors. The evaluation shows that certification of the energy performance of buildings is delivering a demand-driven market signal for energy efficient buildings and is achieving its aim to encourage consumers to buy or rent more energy efficient buildings. However, national certification schemes and independent control systems are yet at early stages in several Member States and their usefulness could be enhanced. Due to the diversity and disaggregation of the buildings sector, it remains challenging to acquire good data on building characteristics, energy use, and financial implications of renovation in terms of cost savings or asset values. This lack of data has negative consequences on the market perception of the cost-effective energy saving potential of the EU building stock, on enforcement tracking, on monitoring and evaluation. EPC registers/databases can be a key instrument for reinforced compliance, improve the knowledge on the building stock and better inform policy makers and support the decisions of market players. 2.2.2.Scope for improvements The evaluation identified ways in which national transposition and implementation can be further developed through better enforcement, compliance monitoring and evaluation. At EU level, opportunities for simplification or modernisation of outdated provisions and streamlining existing provisions in the light of technological progress were detected, in particular: The requirement to assess the technical, environmental and economic feasibility of high-efficiency alternative systems, under Article 6(1)) of the EPBD; The regular inspection of heating and air conditioning systems, under Articles 14 and 15 of the EPBD, for which many Member States have opted out for alternative measures as allowed by the Directive. Technological progress towards ‘smarter’ building systems offers not only opportunities to support a more efficient implementation of the EPBD and in addition creates enabling conditions: to provide information to consumers and investors on operational energy consumption; to adjust to the needs of the user; to run the efficient and comfortable operation of the buildings; to ensure buildings' readiness to connect to electric vehicle charging; to host energy storage; and to support demand response in a modernised electricity market. In conclusion, the evaluation reveals relatively limited regulatory failures. There is however scope for simplifying and streamlining outdated measures, and for enhancing compliance through fine tuning of existing provisions and better linking them with financial support. Additionally the evaluation points to the scope for modernisation of the Directive in light of technological developments and the need to increase building renovation rates while supporting the decarbonisation of buildings in the long-term. 2.3.Problems and drivers The reasons behind the slow transformation of the building stock and the slow tapping of the significant cost-effective energy saving potentials and economically viable investments in energy efficiency and renewable energy in buildings relate to drivers that are partly within the regulatory influence of the EPBD. Overall, these can be classified in three categories: Contextual; Market failures; Regulatory failures.

Table 1 presents a summary of the problem drivers by type of problem and according to the type of buildings and/or building tenure that are more likely to be associated with the drivers.



Type of problem Drivers Existing buildings New buildings Residential Non-residential Residential Non-residential Owner occupied Rented (incl. social housing) Public Service Owner occupied Rented (incl. social housing) Public Service Structural Characteristics of the building stock +++ +++ +++ +++ Characteristics of the market +++ +++ +++ +++ +++ +++ +++ +++ Market failures Lack of understanding on energy use and potential savings +++ +++ +++ + Limited activity in a post-crisis context +++ +++ +++ +++ ++ ++ ++ ++ Split incentives + +++ + Lack of attractive financing products +++ +++ ++ + Limited information on building stock ++ ++ +++ +++ + +++ +++ +++ Limited uptake of efficient and smart technologies +++ +++ +++ +++ +++ +++ +++ +++ Regulatory failures Potential for improvement of the national implementation +++ +++ +++ +++ ++ ++ ++ ++ Potential for simplification of provisions ++ ++ +++ +++ ++ ++ ++ ++ Potential to better avoid potential negative effects +++ +++ +++ +++ ++ ++ ++ ++ 2.3.1.Structural With construction rate significantly higher than the demolition rates, the building stock is naturally expanding in size. With more space to heat, cool, ventilate, etc. the increasing size is bound to increasing energy consumption and hence increasing carbon dioxide emissions. However, when all new buildings are nearly-zero energy buildings, i.e. by 2021, the cost-effective saving potentials remain for new construction will be small. Buildings are assets with a long lifetime, much longer than appliances, or cars, meaning that buildings have a natural trend for low replacement and refurbishment rates. With current construction and demolition rates, around 70% of the buildings that we will occupy in 2050 are already built. At current renovation rates it will take more than 100 years to renovate the EU building stock. Ensuring cost-optimal depth of renovation is not sufficient; a long term vision and strategy are needed. Increasing the rate, quality and effectiveness of building renovations is certainly the biggest challenge for the coming decades. Due to the slow turnover of buildings, a strong market signal (for Member States and for investors) is needed now, and the evaluation clearly indicated that this is lacking. The long term renovation strategies under Article 4 of the EED could play this role but would need to be reinforced with clear milestones for 2030 and 2050 (having in mind the EU goal for a decarbonised system by 2050). The characteristics of the building stock are rather different across Member States, building ownership and the construction sector is highly fragmented by nature. The bulk of building renovations consists of small scale projects and relatively low investment. The lack of aggregation of small scale renovation into larger scale investments (to decrease the transaction costs and the level of risk perceived) is an important barrier for building renovation. 2.3.2.Market failures There is a general lack of understanding among households and building owners of their energy use, and potential savings related to different energy efficiency measures as well as insufficient knowledge on financial and other benefits related to building renovation. The provisions of the EPBD focus on the depth of energy efficiency measures in buildings. The reported gap between the estimated savings at design stage and actual savings after renovation can create mistrust and contribute to lower the impact of the information given to citizens. The EPBD does not (and will not) mandate any increase in new construction and/or renovation activity. The EPBD aims at addressing informational barrier to create a demand-driven market; however, the decision to take action to upgrade the energy performance of buildings is entirely left to market actors. The economic context therefore plays an important role in the observed renovation rates. As shown in the evaluation, the construction sector was strongly hit by the global crisis with a decrease of economic output and absolute number of jobs. Only strong market signals such as 'nearly zero-energy building' target can mobilise the sector. The evaluation indicated that such signal was missing for existing buildings, i.e. for building renovation. Despite being cost-effective, the renovation of buildings requires up-front investment. It is important to highlight that 30% of the EU population live as tenants, according to Eurostat. Landlords may have little incentive to invest in housing stock improvements as return on capital employed can be limited. Split incentives play an important role and are also present in office buildings and other rented space such as shopping malls. However, there are no provisions in the EPBD with regards to split incentives. These are indirectly addressed by other legislation (e.g. Article 7 of the EED, which is having an effect on the renovation rate in some regions). In response to these challenges, there is a lack of attractive financing products on the market, in particular because financial institutions do not incorporate all the benefits of energy efficiency investments (higher asset value, better liquidity position of borrowers, lower credit default rate of renovation loans compared to standard loans) into their offering of financial products. In the public buildings segment, the level of investment financed through commercial finance (outside public finance grants) is influenced by Eurostat accounting rules and of Stability and Growth Pact rules. Due to the diversity and disaggregation of the buildings sector, it remains challenging to acquire good data on building characteristics, energy use, and financial implications of renovation in terms of cost savings or asset values. This generalised lack of data has negative consequences on the market perception of the cost-effective energy saving potential of the EU building stock, enforcement tracking, monitoring and evaluation. The building sector is relatively conservative, in particular for the uptake of technical innovation. The evaluation identified rapid technical progress associated with the supply of new efficient technologies. It also observed that some investments do not take place despite very short pay-back periods of less than five years. The timid recommendations in Article 8 of the EPBD have not been sufficient to overcome barriers preventing the integration of technical progress on key enabling technologies for 'smart buildings'. Similarly, the building infrastructure offers large potential to support the decarbonisation of the economy, for instance by hosting recharging points for electric vehicles. But, whilst 90% of recharging takes place in private spaces, existing transport legislation tackles only publicly accessible parking spaces. A ‘principal-agent’-type market failure exists, which is manifested in the scarce interest of landlords in providing charging points for tenants/users in private dwellings and in office buildings. 2.3.3.Regulatory failures Some of the barriers directly or indirectly addressed by the current legal framework are not yet fully solved through its implementation. With minimum requirements set at cost-optimal level, the depth of interventions should guarantee the reaping of the cost effective potential, as far as the decisions are made to renovate buildings ("renovation rate" factor). This ideal scenario supposes an effective implementation of the EPBD takes place, which is not yet the case in all Member States: National/regional calculation methodologies for the energy performance of building must be unbiased and consider fairly all technologies that can contribute to the improvement of the energy performance of buildings, in particular emerging efficient technologies, including technologies using renewable sources;

Minimum requirements should continue to be periodically reviewed and the calculated cost optimal level be swiftly implemented in the national/regional legislation. The EPBD leaves 5 years ("by the next review") to reduce any significant gap between the regulatory and the cost-optimal levels. A shorter implementation timeline could be envisaged when the gap to cost-optimality is limited; Member States must take the relevant actions to ensure that by 2019 (public buildings) and 2021 (privately-owned buildings) all new buildings placed on the market will effectively be nearly zero-energy buildings (NZEB); Enforcement and compliance of the EPBD could be stronger. Levels of compliance with national transposition measures hamper reaping a potential of around 40% additional energy savings, mainly because of lack of compliance with minimum requirements in existing buildings; The measures adopted to further catalyse the increase in energy performance of buildings should prevent lock-in effects or other negative effects. As mentioned above, the evaluation identified that certain components of the EPBD could be streamlined and simplified. This concerns specifically the requirements for inspections of heating and cooling systems (no longer in tune with progress in building systems) and the technical, economic and environmental assessment of alternative heating and cooling systems, including decentralised or district solutions, preceding the construction of new buildings (which should be part of the proper setting of minimum requirements for new buildings). When not covered by other pieces of EU legislation, Member States keep the responsibility to ensure that the implementation of the EPBD improves and is coherent. Gaps in the national regulatory framework were observed regarding the indoor environment quality (i.e. indoor air quality, thermal comfort, noise and lighting) and ventilation requirements, in particular for existing buildings where health-based mandatory minimum IEQ requirements can hardly be found in several national/regional building codes. 2.4.The 'Smart Finance for Smart Buildings' Initiative The effect of the EPBD on the depth of building works in new and existing buildings, combined with labelling informing consumers, acts in synergy with other policy measures and financing schemes which speed up the rate of renovation. The EPBD ensures that when building works are engaged they respect the required level of quality and, in this regard, access to finance is not a pre-condition per se for the effectiveness of the EPBD. Access to attractive and appropriate financing is however necessary to underpin a higher investment rate in energy efficiency in buildings, as induced by policy intervention. This is particularly important in the area of building renovation where access to financing remains an obstacle for many project promoters who need to mobilise dedicated up-front capital to benefit from lower energy bills in the future. Flanking measures under the 'Smart Finance for Smart Buildings' (SFSB) Initiative will contribute to the development of an improved financing environment for energy efficiency investments. This initiative will bring practical solutions to address the remaining barriers to capital mobility and affordable access to finance. It will unlock more private financing for energy efficiency, and hence enable market actors realise the related business opportunities and environmental and financial benefits. These measures will be presented in the Communication accompanying the energy efficiency package. The European market for energy efficiency in buildings is already sizeable. Although it varies according to macro-economic activity, consumer demand or regulatory signals, it can be estimated that around €120 billion (Cf. Annex 4, Figure 12) is spent each year on building envelopes and heating, cooling and ventilation systems. This level of investment might be increased by up to €47.6 billion in 2030 in the preferred policy option. Overall, although substantial, these investments represent only a small part of the overall EU market for building renovation that amounts to around €500 billion per year, and of the annual market for new construction estimated at around €400 billion. A quarter of total investments in the EU-28 is in fact allocated to dwellings, which represent around 5% of the EU-28 GDP. Most of the current energy efficiency investment flow is coming from private financing in the form of savings from households, equity from companies or commercial debt originated from small consumer loans by retail banks to large-scale green bonds issued on the capital markets. This mobilisation of private financing is reinforced and underpinned by a number of public schemes across Europe (around 200), which take the form of grants or subsidies, low interest rate credit lines, tax rebates and guarantees. Most of these schemes target the building sector. For instance, tax credit schemes in France have already helped about 8 million households purchase more energy efficient materials and equipment for the energy refurbishment of their main residence. At EU level, the most important financing streams for energy efficiency are the European Structural and Investment Funds (ESIF) that represent around €18 billion over the period 2014-2020, representing a tripling of allocations compared to 2007-2013 and confirming the commitment and the importance Member States and regions attach to energy efficiency. Energy Efficiency has also been a big beneficiary of the European Fund for Strategic Investments (EFSI) during its first year of operation, catalysing €2.7 billion investments and accounting for more than 10% of the EFSI guarantee usage. Some of these projects are combining ESIF/other public funds and EFSI funds in a way to provide risk sharing and technical assistance. A solid base of good practices to build upon can be found therein in order to leverage more investments in this area. In addition, there are two specific EU financial instruments for energy efficiency, the European Energy Efficiency Fund (initial capital of €265 million), which provides market-based financing to public projects and PF4EE, (Private Finance for Energy Efficiency) that combines lending from the EIB to private banks together with guarantees and technical assistance with a view to trigger €650 million of investment. Absorption on this instrument is a good indication that there is market appetite for an instrument that combines bank financing with technical assistance. In 2013 the types of publicly supported financing instruments for energy efficiency investments in residential and non-residential buildings (for Member States that provided the information) were according to

Figure 2 (residential buildings) and Figure 3 (non-residential buildings).



In the next decade, the key financing strands for energy efficiency are expected to be: savings and equity when available, energy efficiency-tuned commercial debt including 'green mortgages', funds from energy efficiency obligation schemes (EED Article 7) and low-carbon financing instruments, and third-party financing. In the period post-COP 21, the abundant liquidity from the capital markets has potentially an increasing role to play, as large institutional investors are keen to re-allocate their asset holdings in more sustainable sectors. Such a development requires the creation of a well-established secondary (re-financing) market for energy efficiency investments in order to allow investors/lenders to refinance their assets and invest their money into new projects. The SFSB Initiative will contribute to unlock all these private financing strands by: supporting the better use of public funds via new or up-scaled financial instruments, helping project developers bringing good project idea to maturity, and making the energy efficiency market more trusted and investible for investors. Together with other measures stemming from the EPBD review, the implementation of these actions will support the rapid shift of existing investment flows towards energy efficiency projects, while maximising the impact of existing public finance. The SFSB Initiative builds upon a threefold strategy: (1)Maximising the impact of available public funds and leveraging more private capital by further deploying financial instruments and better using subsidies towards energy poverty or specific market failures: to support Member States and market actors in this challenge, the SFSB initiative will put forward a practical model for combining various public and private funding sources and deploy investment platforms, as appropriate and according to market needs. A capacity building campaign will also be established to deliver assistance with structuring and deployment of financial instruments and investment platforms. In parallel, the initiative aims at enabling more investments in public assets by addressing, where appropriate, existing accounting issues currently deterring public bodies from making investments, such as in the form of Energy Performance Contracting. (2)Promote aggregation of projects, and project development assistance to secure a sustainable large-scale pipeline of bankable projects to feed investment platforms and financial instruments: the SFSB initiative will aim at reinforcing the European Local Energy Assistance Facility and make it more accessible at the regional or local level, in accordance with the market need. This is expected to trigger additional energy efficiency investments of more than €1 billion each year. In addition, the initiative will encourage Member States to develop dedicated local one-stop-shop facilities that cover the whole customer journey and that ultimately connect the supply of finance with demand for it. (3)Help investors and financiers better understand the risks and benefits of energy efficiency investments based on market evidence and performance track record: the SFSB initiative will provide private sector investors access to more and better information in order to ensure that key fundamentals such as lower probability of default on energy saving loans or increased value of assets due to higher energy performance of properties are progressively reflected in pricing of financing products offered. To underpin this market transformation, the initiative will build upon the EPBD review including more reliable Energy Performance Certificates for buildings, the disclosure of actual energy consumption of public buildings or the evaluation of energy efficiency programmes supported by public funds. In addition, the initiative will include the launch of a De-Risking Platform (DEEP), revealing real performance data from hundreds of implemented and monitored energy efficiency investments across the EU. Finally, the initiative will support the development of a consensual framework for energy efficiency investment underwriting in close collaboration with the finance industry. All these measures are crucial to support the incorporation of the key energy efficiency benefits into the business practice and thus make energy efficiency investments attractive and trusted for private capital. The development of 'green mortgages' in Europe would for instance benefit from these actions and could seriously influence the market for gross residential loans amounting to €862 billion in 2014. If increased asset value of energy efficiency buildings were fully taken into account when determining the loan-to-value ratio, this could lead to additional capital provided that might represent about €20 billion per year specifically for energy efficiency retrofits of existing buildings. The 'Smart Finance for Smart Buildings' Initiative does not directly require legislative intervention. The three pillars of the initiative are already under way or project related. The present impact assessment looks at supporting measures directly linked to the EPBD and to its Article 10 on financial incentives and market barriers. 2.5.Who is affected and how? This initiative of reviewing the EPBD has practical implications on a variety of stakeholders; inter alia, the public authorities (national, regional and local), entrepreneurs, labour market participants, households, investors and other financial actors. Being responsible for the implementation of necessary policies and legislation, Member States are the first and foremost stakeholders that are affected by this initiative. As the initiative envisages a number of provisions for different levels; public authorities at national, regional and local levels are in charge of taking action. A pilot assessment of potential territorial impacts of the EPBD showed rather positive effects in the fields of economy, society, environment and governance. But these effects largely depend on the quality of transposition and enforcement. Secondly, the initiative has direct implications on the construction sector, both in terms of new business opportunities and planned links to finance. Energy efficiency and renewable energy installations proposed by the Directive require the development of new business initiatives. Moreover, policy options under consideration include actions to link financing opportunities with EPCs, renovation plans to improve energy performance of buildings to NZEB levels, which will also have a positive impact on the construction sector, namely construction products manufacturers or construction service providers. Thirdly, as the initiative covers both residential and non-residential buildings, it will have a direct impact on the energy bills of households (owners and tenants), companies and public bodies owning and/or occupying non-residential buildings. Additionally, increased energy performance of buildings can have positive impacts on health conditions and energy poverty, mainly through the improvement of indoor climate conditions. Finally, the initiative will have direct implications on investors and other financial institutions that may obtain a clear framework and business environment, which will contribute to lower perceived risk and transactional costs. 2.6.How would the problems evolve? In the absence of changes to the EPBD and changes to the way it is implemented, further energy savings would be achieved. Detailed information on the scenarios analysed is provided in Annex 4. If nothing is changed, the continuous 5-year cycle of tightening of national minimum requirements in line with the cost-optimal methodology, will still ensure an adequate level of savings. This tightening of the minimum requirements is already being accounted for in the baseline of this impact assessment. However, if nothing changes the lessons learned and the experience gained during the application of the EPBD would be missed. In the absence of changes, the remaining cost-effective potential in existing buildings would continue untapped and a significant share of the buildings in the EU would continue to perform below adequate performance levels. There may be also other missed potential in the absence of changes to the EPBD, due, for instance, to the insufficient uptake of smart technologies in buildings and the limited use of new standards. According to the EU Reference scenario 2016 (REF2016), which takes into account global and EU market trends and the energy and climate policies already adopted by the EU and its Member States, the distribution of final energy consumption across sectors will remain broadly identical, keeping with around 40% of the final energy consumption for these two sectors. Without further action, the limited decreasing trends for final energy consumptions in the households and tertiary sector (-0.5% per annum) would slow down between 2020 and 2030 (-0.3 to -0.4% per annum) and will return to an increasing trend between 2030 and 2050 (+0.1% per annum).

As illustrated in Annex 3, significant untapped cost effective final energy saving potentials can be expected in all EU Member States. The analysis in Annex 3 confirms that 64 – 76% of these 2030 saving potentials lay within the scope of the EPBD. 3.Why should the EU act? 3.1.Subsidiarity and proportionality The EPBD is based on Article 194(2) of the Treaty on the Functioning of the European Union, the legal base for a Union policy to promote energy efficiency and energy saving. EU intervention on energy efficiency of buildings expanded prudently, only where it was justified and leaving significant flexibility to Member States. The EPBD respects subsidiarity by setting a common minimum framework and leaving implementation and adaptation to national and local conditions to Member States, with significant margin for taking into account the local conditions. Just as products' efficiency, the EPBD works through a combination of minimum standards (driving the market towards higher efficiency) and labelling (stimulating the creation of a market for energy efficient buildings). However, the EPBD leaves the development of these instruments to the national/regional/local authorities, under the principle of subsidiarity. For instance, Member States are free to: Adopt a calculation methodology for the energy performance of buildings, at national or regional level, provided that it fulfils a general framework; Define the set-up and management of the EPC schemes, in light of achieving the objectives proposed in the Directive; Differentiate or not the minimum requirements for new and existing buildings, different building categories, designated functions, age groups of the buildings. The cost optimal framework methodology ensures a common ambition level across the EU without establishing uniform performance requirements; Member states remain responsible for taking appropriate measures to: Avoid negative effects on the quality of the indoor environment, Design the supporting measures in such a way that, e.g. these contribute to reducing energy poverty, split incentives, financial support, etc. The EPBD addresses the information barrier by ensuring informed decisions on buying, renting and investing in buildings. The Directive does not directly mandate investments and, under the EPBD, building owners remain single decision-makers to invest or not. The increasing mobility of Europeans and the increasing number of businesses having operations across the EU are valid reasons to examine the need for more harmonisation. At the same time, the building market, especially the housing market, is generally local and buildings are stationary. Building typologies and local and climatic conditions also vary across Europe. Construction products and services, heating, air-conditioning and lighting devices, as well as on-building renewable systems, smart controls, building automation systems, smart meters, etc. are an important part of the internal market. Larger markets for efficient technologies can have a positive impact on the cost-optimality of minimum energy performance requirements. For example, the evaluation revealed that this market can be affected by how the energy performance of buildings is calculated and if national/regional methodologies consider, or not, all technologies, in particular emerging efficient technologies, at the same level playing field. It is therefore not a surprise that, during the public consultation, construction industry and stakeholders operating cross-border (e.g. owners of service-providing chains such as supermarkets, hotels, multinational companies, etc.) called for more unified and comparable methods for the calculation of energy performance and for common principles for building regulations. Similarly, more comparability of energy performance measurements across the EU is demanded by the finance industry. Standardisation and improvement of buildings certification and an open source EU Buildings energy database are called for to facilitate the financing of energy efficiency investments at EU level. Comparable methods of measuring energy performance of the buildings would mean a significant decrease of administrative burden of investors and would e.g. facilitate the re-financing of bundled investments in energy efficiency, with positive impacts on interest rates.

Subsidiarity and proportionality of measures are fully discussed and justified within this impact assessment, in particular in Annex 6 for individual measures and in Section 6.3 when presenting the comparison of policy options. 3.2.Macroeconomic and other benefits EU action on energy performance of buildings has a positive impact on the competitiveness of related sectors and ultimately on growth and jobs. Overall, the building sector has a significant impact on economic activity in other sectors. Building services, business activities and the supply of raw material and equipment are responsible for 70% of overall building output. Also, a strong EU building sector is also important for its leadership outside of the EU. The value chain of the building sector goes beyond the building work itself. Since the adoption of the EPBD in 2010, new technology developments and cost reduction of efficient and on-building renewable energy technologies were observed. Furthermore, a stable and long term EU regulatory framework is the top first investment driver for building renovation identified in the EEFIG report. EU action can tackle the problem of the sub-optimal rate of improvement of buildings’ energy performance; however, building renovation has many other benefits, notably economic (security of supply, GDP), social (employment, energy poverty, affordability of housing, health) and environmental (pollution). It contributes to EU policy goals on climate change, energy security, environment and growth and jobs. Energy poverty is a serious problem in the EU. It is linked to general poverty and results from a number of underlying conditions including health, social inclusion and low income issues. The following chart presents one of the consequences associated to energy poverty, the inability to maintain indoor comfort in winter.



The quality and energy performance of buildings have a major impact on affordability of housing and on energy poverty. Energy savings and efficiency improvement of the housing stock would enable many households to escape energy poverty. EU action is needed to address common underlying market and regulatory failures that could contribute to tackle energy poverty, taking into account the responsibilities of Member States in this regard. This issue is also highlighted in the recently adopted European Parliament resolution of 14 April 2016 on meeting the antipoverty target in the light of increasing household costs. 3.3.Energy and climate Climate change, security of energy supply and environmental protection are challenges that cannot be sufficiently addressed at national level only. Energy efficiency and on-site renewables in buildings provide part of the solution of these problems and the instruments that have already been adopted at EU level reflect this need for EU action. More specifically, there is a strong Union dimension that justifies setting a common ambition level for energy efficiency in buildings as a way to ensure that the EU as a whole achieves its GHG reduction targets in the most cost effective way. The buildings that people will use in 2050 already exist or are being designed and built now. As highlighted by financial institutions, mobilising low-carbon investments in buildings requires a strong, stable and effectively enforced EU regulatory framework which ensures the good use of EU funds to leverage private funds and provide technical assistance at national and regional levels. The role of the EU is crucial to make sure that the regulatory framework across the EU reaches comparable ambition levels and is consistently enforced. The underlying market and regulatory failures prove to be similar in all EU MS. The Directive 2002/91/EC and Directive 2010/31/EU played an important role to ensure that all Member States have energy efficiency requirements related to new and existing buildings in their building codes, based on cost-optimality. These minimum requirements are used in reference for the use of EU Funding under the Cohesion Policy and play an important role to ensure that EU funding is focused on the effective delivery of Europe 2020 objectives and targets. Similarly, the role of the EU is fundamental to tackle common barriers across Member States preventing the development of the energy services and Energy Performance Contracting market in the EU. The evaluation identified that additional EU added value is brought through the support to national regulators, stimulating research and innovation at a higher scale, support to the single market integration for building products and services (including financial services) and international leadership in the field of energy performance of buildings. Action at EU level offers a better leverage in mobilising the sector around a common ambition and offer higher expected market outcomes than in a fragmented market. The setting of a pan-European ambition for all new buildings to be of nearly zero-energy by 2020 has proved to set a 'future-proof' vision for the sector and mobilise stakeholders accordingly. Similar market signals were found to be missing for the existing building stock, which represents the largest share (95%) of the cost-effective potential. Finally, buildings are an important part of the non-ETS sector. To achieve the 40% reduction target for greenhouse gas emissions in 2030, established in line with the cost-effective pathway described in the 2050 Roadmaps, the non-ETS sectors (buildings, transport and agriculture) need to cut emissions by 30% (compared to 2005). Achieving the 2050 target of at least 80-95% reduction requires that the residential and tertiary sectors together reduce their GHG emissions by 88 to 91% (compared to 1990 levels). The impact assessment underpinning the non-ETS proposal demonstrated that in a cost-effective GHG reduction scenario for the EU, all Member States need to improve energy efficiency in a similar way and without an EU legislative instrument for buildings not all Member States would act (e.g. some can meet their Effort Sharing target without additional action). Even if there are no classic cross-border effects of national policies on energy efficient buildings, EU measures on energy efficiency in buildings allow individual Member States to fulfil their obligations under the Effort Sharing Decision more easily and cheaply. One or several Member States not acting in the area of buildings would imply overall higher GHG abatement costs for the EU as a whole. 3.4.Coherence

The evaluation concluded that there is internal coherence in the Directive. The provisions related to the setting of minimum requirements for new and existing buildings, on EPCs and on more general measures to address market barriers focus on different and complementary aspects. These provisions support each other and should be implemented so that they work in synergy. The evaluation also concluded that EPBD work in synergy with other relevant EU legislation: The objective of the EPBD to support the increase of building renovation depth and rates is supported by other EU legislation; inter alia, by the EED and by the European Structural Investment Funds (ESIF) regulatory framework; The obligations arising from the EPBD to set and ensure minimum energy performance requirements for building elements, on the one hand, and the EU legislation on ecodesign and energy labelling energy efficiency of products, on the other hand, were found coherent; The provisions of the EPBD naturally drive the use of renewable energy sources, consistently with Directive 2009/28/EC; As mentioned before to achieve the 40% reduction target for greenhouse gas emissions in 2030, established in line with the cost-effective pathway described in the 2050 Roadmaps, the non-ETS sectors (buildings, transport and agriculture) need to cut emissions by 30% (compared to 2005); The EPBD and Directive 2014/61/EU (in particular Article 8 "In-building physical infrastructure") can be mutually supportive by creating respectively the demand and the offer for high-speed electronic communication networks. Moreover, the future Fitness Check of the Construction Sector (due in 2017) looks at EU legislation on energy efficiency and renewable energy, internal market, environment, and health and safety and its impact on the competitiveness and sustainability of the sector. Corroborating the outcome of the evaluation of the EPBD, the supporting study for the construction fitness check concerning EU legislation in the fields of Internal Market and Energy Efficiency (version: 13 July 2016) shows that there is great synergy with regard to the objectives and effects of the EED, EPBD and RES. The study indicates that EU legislation had a positive impact to increase the demand for energy efficient construction products and for energy efficiency-related professional services, and positive effects across the whole supply chain, resulting in a meaningful contribution to sustain the level of activity during this difficult period for the construction industry. The costs associated with higher energy performance standards are supported by building owners who benefit from lower energy consumption and/or from higher value of their building on the market. The cost-optimal methodology informs the setting of cost-effective minimum energy performance requirements, which are in line with the current energy saving potential of the different national/regional specific building typologies. The study points out that improved coherence for EPCs, inspections and energy audits could be sought in the national implementation of the EPBD and EED. This question was addressed in the Commission Communication on implementing the Energy Efficiency Directive and its accompanying Staff Working Document, where the link between the obligations on energy audits in large enterprises under the EED and the obligations to issue Energy Performance Certificate for buildings for rent or sale are explained. The measures are complementary: a building EPC is one of the inputs to energy audits, which have a broader scope. The above-mentioned Staff Working Document provides guidance for Member States to ensure that national transposition measures exploit synergies between both pieces of legislation, including in relation to training programmes for the qualification of energy auditors and independent experts. Increasing building renovation depth and rates can contribute to the sustainability and competitiveness of the construction sector, e.g. by improving environmental performance and creating business opportunities in line with the Strategy for the sustainable competitiveness of the construction sector and its enterprises. The energy performance of buildings during their operation is only one element of the much broader environmental performance of a building over its life-cycle. The Communication on resource efficiency opportunities in the building sector paves the way to more global approaches to consider environmental impacts throughout a building's life cycle. This includes taking account of both embodied and operational energy during the life cycle of a building. Similarly, this Communication as well as the recent EU Action Plan for the Circular Economy stresses the importance of recycling of construction and demolition waste, already laid down in the Waste Framework Directive. This waste stream makes up about a third of EU total generated waste. To enable recycling, selective demolition where materials are easily separated at the end of life stage is imperative. This in turn requires considerations at the construction and renovation stages, with suitable materials being put together for easy disassembly. Failure to do so is likely to result in increased land filling of construction and demolition waste. These considerations are particularly critical during renovation. Recycling construction materials, as opposed to ending up in landfills, is crucial to the circular economy. These manufacturing, recycling and end-of life aspects are, however, outside the scope of the EPBD. Nevertheless, if implemented with care, the EPBD can work in synergy with the circular economy and resource efficiency objectives. Ways to preserve and, whenever possible, to reinforce these existing internal and external complementarities and synergies is an integral part of the objectives of the present impact assessment. 4.What objectives should be achieved? 4.1.General and specific objectives The objective of the EPBD is to promote the improvement of the energy performance of buildings within the Union, taking into account outdoor climatic and local conditions, as well as indoor climate requirements and cost-effectiveness. The EPBD defines the energy performance of a building as the amount of primary energy needed, in the use phase, to meet the energy demand associated with a typical use of the building, which includes, inter alia, energy used for heating, cooling, ventilation, hot water and built-in lighting (mainly in non-residential buildings). As presented in the Inception Impact Assessment roadmap, the general objective of the review of the EPBD, including the 'Smart Finance for Smart Buildings' Initiative is to promote greater take-up of energy efficiency in the buildings sector and deliver cost-effective greenhouse gas emission reductions as well as to contribute to ensuring security of energy supply in the Union. Specific objectives of the initiative are (1) to address the shortcomings identified by the evaluation of the EPBD so as to ensure it remains fit for purpose (REFIT component); and (2) to consider the need for additional measures relating to energy efficiency and the use of renewable energy in buildings, with a 2030 perspective; (3) to deliver improved access to funding and stimulate investments ('Smart Financing for Smart Buildings'). 4.2.Links to problems and drivers

The evaluation and the above problem definition confirm the relevance of the review's general objective. Large energy saving potential is identified for 2030 and the transformation of the building stock is found to be relatively slow. Under the current trend the potential will only be partially achieved. The relevance of the specific objectives of the review are also confirmed by the evaluation: (1)Although the EPBD is found to be fit for purpose in its objective, scope and intervention logic, the evaluation identified scope for simplifying and streamlining outdated measures: a.The technical, environmental and economic feasibility of high-efficiency alternative systems that becomes an implicit obligation with the requirement to only build nearly zero-energy buildings; b.The expected effects of the regular inspection of heating and air conditioning systems could be more efficiently achieved with the support of technology; (2)The evaluation also identified the possibility to enhance compliance through fine tuning of existing provisions and better linking them with financial support and to modernise the EPBD in light of technological developments. Improvement of the EPBD must also consider possible additional measures in order to: a.Make buildings further contribute to the energy system and to the decarbonisation of the economy; b.Tap other benefits in conjunction with the energy transformation of the building stock; (3)The lack of sufficiently attractive financing products on the market is part of the reason for limited renovation rates. This specific objective associated 'Smart Finance for Smart Buildings' Initiative is explored in more details in Section 2.4. 4.3.Complementarities The proposed objectives complement each other and ensure better energy performance of existing and new buildings and accelerated progress. There are synergies between the specific objectives of the review: further enhancing the removal of barriers and streamlining and modernising outdated provisions will maximise the role of the EPBD in raising renovation rates and in facilitating financing into building renovation. Similarly, facilitating the uptake of smart technologies and innovation in buildings will help in contributing to tapping the saving potential of more efficient building operation and in facilitating the development of clean mobility. The 'Smart Finance for Smart Buildings' Initiative does not directly require legislative intervention. The three pillars of the initiative are already being addressed by supporting initiatives and projects. The present impact assessment looks at supporting measures directly linked to the EPBD and to its Article 10 on financial incentives and market barriers. 5.What are the options to achieve the objectives? On the basis of the evaluation report and wide stakeholder consultation, a number of actions were identified to address remaining barriers to energy performance in the buildings sector. 5.1.No-change option The no-change option does not assume that nothing will happen. This option implies continued implementation of the current EPBD and related regulatory and non-regulatory instruments and support measures such as sharing of good practices, stimulated by exchange platforms (e.g. Concerted Action), but no additional EU measures as a result of a revised EPBD. The ongoing implementation of the Directive would continue, for instance with respect to the common EU voluntary certification scheme (Article 11(9) of the EPBD) to provide market participants in the non-residential sector with a tool for the reliable comparison of buildings’ energy use across borders. The EPBD would deliver on NZEB and continuously reassess the cost-optimality and eventually tighten national minimum requirements in 5-years cycles. However, this option would not enable addressing the conclusions of the recent evaluation of the EPBD and would prevent simplifications of outdated provisions to be introduced, enhancing compliance through fine tuning of existing provisions and better linking them with financial support; and modernising the EPBD in light of technological developments and the need to accelerate renovation rates and support decarbonisation of buildings.

5.2.Simplification measures To remove outdated or inefficient provisions identified during the implementation of the current Directive, two simplification measures are identified on the basis of the evaluation. 5.2.1.Remove the mandatory study of the feasibility of high-efficiency alternative systems The Directive would be amended to remove the need to document and verify the assessment of alternative heating and cooling systems preceding the construction of new buildings. With the obligation for all new buildings to be nearly zero-energy buildings, the use of locally available high-efficiency alternative systems becomes an implicit obligation and this provision becomes an unnecessary burden. 5.2.2.Simplify the provision on regular inspections and ensure that their objective is achieved more effectively The Directive would be amended to simplify and modernise the provisions on inspections of heating and air-conditioning systems, benefiting of the technological progress. This measure would address the fact that inspections of the energy efficiency of heating and cooling systems tend to be burdensome, difficult to implement, and partially duplicating EPC’s recommendations. Many Member States have already opted out and taken the opportunity to implement alternative equivalent measures, as allowed by the EPBD. Measure 3A is considered as substitution measure to ensure that technical building systems' performance in operation is adequately maintained overtime. 5.3.Measures to address the problems A set of policy measures including non-legislative and legislative alternatives are considered in order to address the drivers of the problems identified above. The measures considered are detailed in Annex 6 and their key elements are as summarised below: 5.3.1.Measure 1: Accelerate the decarbonisation of buildings by significantly increasing renovation rates This measure intends to address some market failures and includes two sub-measures: 1A, send clear market signals by requiring Member States to set milestones for the decarbonisation of buildings by 2050 as part of their long term renovation strategies for mobilising investment in the renovation under Article 4 of the EED; and 1B (alternatively or additionally), a more direct intervention requiring Member States to oblige building owners to ensure that their properties reach a given energy performance standard before being sold or rented out. 5.3.2.Measure 2: Fine tune the implementation of minimum energy performance requirements This measure intends to address some regulatory failures and includes two sub-measures: 2A, providing guidance to member States to ensure more transparency of calculation methodologies based on cost-optimality, which ultimately will contribute to address the performance gap between calculated energy demand of existing buildings and actual consumption and informs the sector about upcoming requirements to improve their uptake; and 2B, amending the cost-optimal methodology set up in Delegated Regulation (EU) No 244/2012 to (i) include additional benefits; and (ii) go beyond cost-optimal levels of minimum requirements. 5.3.3.Measure 3: Modernisation using smart technologies and simplification of outdated provisions for the benefit of citizens

This measure intends to address some regulatory and market failures and includes three sub-measures: 3A, as a replacement of the outdated provisions on inspection obligations, mandatory installation of electronic monitoring ability for large central systems in multi-family house buildings, and installation of building automation systems in big non-residential buildings; 3B, modernising provisions on technical building systems to progress on smart technologies by introducing a smartness indicator for all buildings at the moment of transaction (sale or rent); and 3C, supporting electro-mobility by requiring that newly constructed buildings and specifically their parking places have the necessary electric infrastructure in place to enable the later installation of smart charging points (i.e., parking lots prepared to receive charging points). 5.3.4.Measure 4: Enhance financial support and information to users through reinforced energy performance certificates This measure intends to address some market failures and includes two sub-measures: 4A, a) reinforcing current requirements for independent control systems and energy performance certification by defining a minimum list of information to be collected and registered regional or national EPC databases and minimum requirements for databases in particular the regarding the facility for voluntary disclosure of actual energy consumption; b) reinforcing the link between energy performance certification and financial support by requiring that when renovation works are supported by public funding, an EPC is issued after renovation works, which would ensure efficient financial support and enable the alignment of the intensity of public financing support to the achieved depth of renovation; 4B, setting up an harmonised template for EPCs based on a common list of parameters/indicators shown on the certificate, such as calculated annual final energy use, share of renewable energy used, past (climate corrected) final energy consumptions and energy expenditure, comfort levels (as proposed in Measure 2B) or the level of smartness (as proposed in Measure 3B). Figure 5 presents a problem tree, linking problem types, drivers and policy measures.



Table 14 in Annex 6 presents the target groups, the type of obligation and the scope of the different measures in detail. These measures work equally well for all buildings types, unless indicated differently. Annex 6 also develops further the analysis on subsidiarity and proportionality aspects of individual measures. 5.4.Bundling of measures into policy options Table 2 presents the grouping of the proposed measures presented above, into policy options. The grouping of measures into policy options is based on the instruments needed for the implementation, in particular: Implemented via soft law (Option I); Implemented via targeted amendments of the current EPBD (Option II, the preferred option); Requiring a fundamental revision of the current EPBD (Option III).





Measures Reference: No-change option Option I: Enhanced implementation and further guidance Option II: Enhanced implementation including targeted amendments for strengthening of current provisions Option III: Enhanced implementation towards further harmonization and higher ambition Measure 1. Accelerate the decarbonisation of buildings by significantly increasing renovation rates 1A

1A 1B Measure 2. Fine tune the implementation of minimum energy performance requirements 2A

2A

2A

2B Measure 3. Modernisation using smart technologies and simplification of outdated provisions for the benefit of citizens 3A(*)

3B (**)

3C (**) 3A

3B

3C Measure 4. Enhance financial support and information to users through reinforced energy performance certificates 4A

4A

4B (*) This measure includes a simplification component addressing outdated provisions in Articles 6, 7, 14, 15 and 16 of the current Directive (**) These two measures modernise current provisions in light of technical development and the need to support smart technologies and electro-mobility 5.4.1.Reference scenario for modelling policy options The EPBD is co-delivering in synergy with other energy efficiency legislation (EED, Ecodesign, Energy Labelling) and financial support under the European Structural and Investment fund and financial support measures. As a consequence, the reference scenario assumes a set of boundary conditions for the policy environment as presented in Annex 4. 5.4.2.Option I: Enhanced implementation and further guidance This option considers the set of proposals that enhance the implementation of the existing regulatory framework without amending the Directive. It builds on the work being done at EU, national and regional levels to actively implement the Directive. Compared with the no-change option, it goes one step further in proposing soft law and guidance that could improve the implementation and enforcement of the legislation and the use of voluntary measures which have not yet been explored by Member States. With guidance for clarifying the calculation of the energy performance of buildings and the calculations and implementation of the cost-optimal levels of minimum requirements (Measure 2A), Option I proposes an answer to intensify implementation of the current legislation. In this case this would be accomplished, for example, by ensuring that the potential for the integration of renewable energy sources and the highly efficient systems are considered as required by the Directive. 5.4.3.Option II: Enhanced implementation, including targeted amendments for strengthening current provisions This option goes beyond measures in Option I and requires targeted amendments of the current EPBD to address the problem drivers more extensively. However, contrary to Option III, this option stays in line with the intervention logic of the current EPBD. Table 3 lists the drivers and indicates which measures of Option II are addressing them. Drivers Measure(s) addressing it Lack of understanding on energy use and potential savings 4A. Reinforced quality of energy performance certificates quality to enhance the financial support Limited activity in a post-crisis context 1A. Set milestones for the decarbonisation of the building stock by 2050 Split incentives 1A. Set milestones for the decarbonisation of the building stock by 2050 Lack of attractive financing products 1A. Set milestones for the decarbonisation of the building stock by 2050 Limited information on building stock 4A. Reinforced quality of energy performance certificates quality to enhance the financial support Limited uptake of efficient and smart technologies 2A. Clarify provisions on calculation methodologies and on implementation of cost-optimal levels of minimum performance requirements 3A. Document the initial performance of technical building systems and maintain their operational performance over time 3B. Framework for the introduction of a smartness indicator 3C. Support to electro-mobility Potential for improvement of the national implementation 2A. Clarify provisions on calculation methodologies and on implementation of cost-optimal levels of minimum performance requirements 4A. Reinforced quality of energy performance certificates quality to enhance the financial support Potential for simplification 3A. Document the initial performance of technical building systems and maintain their operational performance over time Potential to better avoid potential negative effects 2A. Clarify provisions on calculation methodologies and on implementation of cost-optimal levels of minimum performance requirements Option II addresses most drivers associated to market failures by: Sending a clear signal to the market regarding existing buildings by placing the long term renovation strategy within the ambition for the building sector to be decarbonised by 2050, with milestones in 2030; Developing a framework to support the flowing of financial resources into the buildings sector, in particular for building renovation; Developing a smartness indicator that informs consumers about the ability of buildings to operate more efficiently, monitor and control energy use and interact with users and the grids; Support the development of infrastructure to support the roll-out of electro-mobility solutions. Option II also addresses drivers associated to regulatory failures by:

Improving the effectiveness of EPCs with measures that strengthen, modernise and further integrate the EPC schemes within a framework that aids compliance checking and effectiveness of financial support; Simplify the EPBD with measures that modernise the provisions related to regular inspections with ICT and repeal of the provisions related to mandatory documented feasibility study for efficient systems. 5.4.4.Option III: Enhanced implementation towards further harmonization and higher ambition This policy option includes the most ambitious measures explored, some of which going beyond the current intervention logic of the EPBD. Option III further addresses drivers associated to market failures by: Having a more direct market action to boost the activity and investments. In requiring buildings to reach a given standard before they are sold or rented, the intervention goes beyond the logic of setting minimum energy performance standards in building codes. Option III also further addresses drivers associated to regulatory failures by harmonising aspects so far left to subsidiarity: Additional sustainability co-benefits in the cost-optimal calculation framework; New targeted ambition for new buildings in 2030, beyond cost-optimality and including the mandatory setting for minimum requirements for the indoor environment; Further harmonisation of the EPCs. 6.How do the options compare? 6.1.Assessment of the impacts of the policy options Impacts of policy options have been assessed with the models and underlying assumptions explained in Annex 4. Annex 4 also describes and assesses the reference scenario against which the following results are presented. 6.1.1.Impacts of Option I The implementation of this option would contribute to the reduction of the demand for space and water heating final energy consumptions in residential and non-residential buildings of around 2 Mtoe by 2030 relative to the reference scenario. This would be a result of improving the national calculation methodologies, progress towards cost-optimal and easier enforcement of minimum requirements. Compared to the reference scenario, energy and climate results for Option I are presented in Table 4. Energy and climate by 2030 (Compared to the reference) Total final energy savings 2 Mtoe Increase of on-site renewable electricity generation 0.3 Mtoe (Net) primary energy savings 2 Mtoe Improvement of the average energy performance of the building stock 0.76kWh/(m².y) GHG emissions reduction 3.2MtCO2 Improvement of GHG emission per square meter 0.11kgCO2/m²

The macroeconomic impacts of this policy option are modest. Overall, there is a slight positive impact on GDP. The share of EU total final energy used in GDP by 2030 is small. This option will only contribute marginally to the competitiveness of European industry (mainly insulation and flat glass) by increasing their market, and have somehow an impact in renovation market for SMEs. EU additional energy related activity (roof insulation, windows replacement, building system upgrade, etc.) for the construction sector associated with this option is approximately €2bn. The option does not mandate or impose investment on households, businesses or public authorities. Additional activity results of decision taken by individuals based on better information. Overall, the impacts of this option, including on energy poverty, are rather small. Detailed macroeconomic impacts figures are presented in Annex 8. 6.1.2.Impacts of Option II The implementation of this option would contribute to the reduction of the demand for space and water heating final energy consumptions in residential and non-residential buildings. The estimated reduction of final energy consumption for space and water heating final energy consumptions in households and services is around 28 Mtoe by 2030 relative to the reference scenario. The full details and assumptions used for estimating the impacts of this option are presented in detail below and in Annexes 4 to 9. Compared to the reference scenario, energy and climate results for Option II are presented in Table 5. Energy and climate by 2030 (Compared to the reference) Total final energy savings 28 Mtoe Increase of on-site renewable electricity generation 2 Mtoe (Net) primary energy savings 30 Mtoe Improvement of the average energy performance of the building stock 8.06kWh/(m².y) GHG emissions reduction 38MtCO2 Improvement of GHG emission per square meter 1.32kgCO2/m² The relative impacts of the measures that compose this policy option are presented in Table 6. Measures Impacts on savings

in 2030 Impacts on annual energy expenditures in 2030 Impacts on associated construction activity (annual average for 2020 - 2030) Measure 1. Accelerate the decarbonisation of buildings by significantly increasing renovation rates 1A. Set milestones for contributing to the decarbonisation of the building stock by 2050 4 – 6 Mtoe 4 – 6 bn€/a 8 – 12 bn€/a Measure 2. Fine tune the implementation of minimum energy performance requirements 2A. Improve transparency of calculation methodologies and provide further clarification on the cost-optimal setting of minimum performance requirements 1 – 3 Mtoe 1 – 3 bn€/a 1 – 3 bn€/a Measure 3. Modernisation using smart technologies and simplification of outdated provisions for the benefit of citizens 3A. Document the initial performance of technical building systems and maintain their operational performance over time 5 – 7 Mtoe 5 – 7 bn€/a 2 – 4 bn €/a

(Mandated 1 – 3 bn€/a) 3B. Framework for the introduction of a smartness indicator 8 – 10 Mtoe 8 – 10 bn€/a 5 – 6 bn €/a 3C. Support to electro-mobility N.C. N.C. 3 – 4 bn €/a

(Mandated 0.5bn€/a) Measure 4. Enhance financial support and information to users through reinforced energy performance certificates 4A. Reinforced quality of energy performance certificates quality to enhance the financial support 8 – 12 Mtoe 8 – 12 bn€/a 16 – 24 bn €/a TOTAL (all measures included as in Option III) 26 – 38 Mtoe 26 – 38 Mtoe 35 – 53 bn€/a

(Mandated 1 – 4 bn€/a) The share of EU total final energy used in GDP decreases by 0.3% by 2030, and between 515 thousand to 3.2 million households (from a total of 23.3 million households) would be taken out from energy poverty. This option contributes significantly to the competitiveness of European industry (mainly insulation and flat glass) by increasing their market by €23.8bn at EU level in 2030, and creating a renovation market for SMEs with a value between €80bn to €120bn involving about 220,000 retained/created jobs from the reference scenario in 2030. EU additional energy related activity (roof insulation, windows replacement, building system upgrade, etc.) for the construction sector estimated for this option is approximately €47.6bn. Only €1bn to €4bn would be directly mandated by the measures of this option, as presented in the table above. The majority of the estimated additional activity would result from investment decisions taken by national/regional/local authorities, organisations and individuals based on better information regarding energy performance of buildings. Therefore, it is clearly a cost-effective policy option considering the economic impacts, and even more positive when put into perspective all the other additional social and environmental benefits. Detailed macroeconomic impacts figures are presented in Annex 8. Taken together, the measures of this preferred policy option would reduce the administrative burden of the Directive by €98.1 million per year. Calculation of the impact on administrative burden for the preferred option can be found in Annex 9.

6.1.3.Impacts of Option III The implementation of this option would contribute to the reduction of the demand for space and water heating final energy consumptions in residential and non-residential buildings. The estimated reduction of final energy consumption for space and water heating final energy consumptions in households and services is around 72 Mtoe by 2030 relative to the reference scenario. Compared to the reference scenario, energy and climate results for Option III are presented in Table 7. Energy and climate by 2030 (Compared to the reference) Total final energy savings 72 Mtoe Increase of on-site renewable electricity generation 2 Mtoe (Net) primary energy savings 74 Mtoe Improvement of the average energy performance of the building stock 25.81kWh/(m².y) GHG emissions reduction 134MtCO2 Improvement of GHG emission per square meter 4.62kgCO2/m² The relative impacts of the measures that compose this policy option are presented in Annex 7, Table 15. As the share of EU total final energy used in GDP decreases by -0.7% by 2030, between 1.5 million to 8.3 million households (from a total of 23.3 million households) would be taken out from fuel poverty. This option will also contribute to the competitiveness of European industry (mainly insulation and flat glass) by increasing their market by €30bn at EU level in 2030, and creating a renovation market for SMEs with a value between €167bn and €250bn. It will retain/create more than 500 thousand additional jobs compared to the reference scenario in 2030. EU additional energy related activity (roof insulation, windows replacement, building system upgrade, etc.) for the construction sector associated with this option is approximately €101bn. Amongst these, €52bn to €59bn would be directly mandated by the measures of this option, mainly by the Measure 1B that introduces mandatory requirements to significantly reduce the number of very inefficient buildings. It is also cost-effective policy option considering the economic impacts but, with uncertain impact on the real estate market and probably stepping out of subsidiarity and proportionality limits of EU intervention. However, the additional social and environmental benefits of this option are proportionally higher; or significantly higher as the case of energy poverty alleviation, because the very inefficient buildings targeted by measure 1B are probably mostly occupied by low income people. Nevertheless, detailed statistical data on national building stocks, linked with socio-economic indicators is a precondition for setting obligations on building renovation; however, this data is currently not available. These types of data is being collected by some Member States in order to assess and/or design more ambitious interventions, as the proposed by Measure 1B. Detailed macroeconomic impacts figures for all the options are presented in Annex 8. 6.2.Comparison of the options Table 8 summarises the impacts of the different policy options. Reference: No-change option Option I: Enhanced implementation and further guidance Option II: Enhanced implementation, including targeted amendments for strengthening of current provisions Option III: Enhanced implementation towards further harmonization and higher ambition Additional final energy savings in 2030 - 2 Mtoe 28 Mtoe 72 Mtoe Additional associated construction activity in 2030 - €2.15bn €47.6bn (€1 – €4 bn

mandated by the Option) €101bn (€52 – €59 bn mandated by the Option) Economic growth, incl. SMEs in 2030 - €2.4bn - €10.1bn €103.8bn - €143.8bn €197bn - €280bn Jobs retained/ created - 9k 220k 500k Energy poverty alleviation - 20k – 120k households 515k - 3.2M households 1.5M to 8.3M households Effectiveness The policy objectives are not fully met, and the opportunities for further enhancing the removal of barriers to energy efficiency, improving the effectiveness of the regulatory framework, are not exploited. The policy objectives are only partially addressed through guidance. Further opportunities identified in the evaluation are not considered. Continuation of slow improvement of building energy performance, similar to reference. Most of the policy objectives are addressed, and the cost-effective energy saving potential of existing buildings is ensured, but at the current rate of renovation and construction. The net administrative costs are negative. All policy objectives are addressed, and harmonisation of the implementation is achieved. The depth and rate of renovations is increased by gradual compulsory renovation of existing buildings. However it raises practical and subsidiarity concerns. Efficiency The impact of the EPBD remains relatively limited and in line with the findings of the evaluation and projections included in this impact assessment. The impacts of the EPBD are difficult to determine but appear to be very similar to the reference scenario, i.e. the no policy change option. The impacts are significant in all the 3 areas (economic, social and environmental). No significant changes to the existing framework, which allows for plenty of flexibility to Member States. The impacts are high mainly due to the more ambitious mandatory requirements introduced, increased harmonisation and by going beyond cost-optimality. Important contribution to energy poverty alleviation. Coherence Coherence with other instruments is kept but identified opportunities for improvement are not taken forward. The coherence of the EPBD in this option is similar to the no policy change option. The coherence of the EPBD in this option is significantly improved through better integration of existing provisions, links with financing, and related policies. The coherence of the EPBD in the option is similar to Option II. Subsidiarity No impact on current level of subsidiarity No impact on current level of subsidiarity Low impact on current level of subsidiarity High impact on subsidiarity Option I is mainly focusing on continuous enforcement of the current EPBD, while supporting Member States by providing guidance and support. The opportunity to address opportunities identified in the evaluation report and public consultation to further enhance the removal of barriers to energy efficiency in buildings is therefore missed. Option III includes ambitious measures for increasing the renovation rate and therefore the resulting impact is very high. Option III introduces a significant change in the building sector, in particular by making mandatory the renovation of thousands of buildings. However, this measure raises some issues such as (i) obligatory investment, which (ii) might not be considered cost-effective in a purely financial perspective; (ii) raises practical concerns (e.g. further harmonisation of energy performance calculation methodologies, or Energy Performance Certificates); and/or raise concerns regarding practical implementation (e.g. obligations to renovate buildings when changing ownership or tenancy, financial support of mandatory thermal building renovation, and mandatory training of builders and installers). However, Option III has significantly higher impacts than the other options, namely because of the introduction of the mandatory requirements for renovation. Member States could find useful exploring the opportunities offered by the additional policy measures proposed in Option III. In fact, some are already assessing and gradually putting in place building renovation requirements (e.g. Scotland regarding renovation of social housing) which have significant impacts not only in terms of energy savings, but also on energy poverty mitigation.

Option II is the preferred option because it is the best aligned with the outcome and findings of the evaluation of the EPBD and the existing European framework for climate and energy towards 2020 and 2030: It allows keeping the prudent and step by step expansion of the intervention scope underpinning EU action on buildings’ efficiency, with careful attention to subsidiarity, proportionality, and cost-effectiveness and leaving significant flexibility to Member States; It preserves the main objectives, principles and overall architecture of the Directive (minimum standards for all types of building works and labelling, underpinned by the cost-optimal methodology and nearly zero-energy building targets for new buildings) as it shows good performance and is supported by stakeholders, including Member States; It favours amendments of targeted nature, allowing for continued implementation of key provisions in the current Directive that are already delivering, and are cost-effective; It strikes a balance between guidance (e.g. to facilitate the uptake of minimum requirements in line with the current legislation) with limited legal revisions to introduce new focused provisions to modernise national regulations in the buildings sector and to address in particular the existing building stock (less tackled by the provisions of the current Directive) and the link to finance. This option introduces significant improvements to the EPBD and the overall regulatory framework for improved energy performance of buildings via targeted amendments, while allowing a high level of flexibility for the implementation at national level. However, and because of it high impacts, the measures in Option III appropriate for further investigation at national and regional levels than for implementation at European level today. 6.3.Subsidiarity and proportionality The measures of the preferred policy option generally keep the current level of subsidiarity left to Member States. Subsidiarity and proportionality concerns were carefully considered in the definition of these two new measures, as explained in detail in Annex 6. Subsidiarity and proportionality were important elements that led to the exclusion of measures in Option III. Most measures of the preferred Option II intend to: Clarify aspects that should be common practice (e.g. setting clear milestones in national long-term renovation strategies, requiring that adequate information is handed over to the building owner after intervention on a technical building system, public financial support linked to the level of energy efficiency improvement, etc.); Recommend best practises and set up common elements at EU level of approaches already shared by an important number of Member States (e.g. EPC registers/databases in practically all Member States); Improve transparency of implementation (e.g. on the calculation of the energy performance of buildings). Two fundamentally new measures are introduced by the preferred policy option: Smartness indicator: The measure builds on the provision of information and empowerment rather than direct obligation to install electronic monitoring. EU intervention is justified by the necessity to create a market of a sufficient size to improve the cost-effectiveness of investments in research and development. No investment is directly mandated by the measure; Support to electr