How will tougher EU climate-change goals affect the real estate sector? To find out, PropertyEU spoke to Marc Lemaître, director-general for regional and urban policy at the European Commission.
Europe has always been a front runner in pushing the agenda of ESG policy globally. As climate policies and environmental regulations in the EU building sector are due to be tightened even further, the real estate sector will find itself on the brink of yet another demanding transformation.
The newly elected European Parliament, which had its inaugural session in July 2019, is pushing to raise the bar on climate action. The EU’s aim to be climate-neutral by 2050 is backed by 22 member states so far. The EU Parliament wants to raise the ambition of Europe’s 2030 goal of reducing greenhouse gas emissions from 40% to 55% to further demonstrate its commitment to the Paris Agreement.
The Directorate-General of Regional and Urban Policy (DG-REGIO) in the European Commission is at the centre of the regulatory and financial discussions that will impact the building sector. Led by Marc Lemaître, the DG REGIO is responsible for investing as much as €260 bn of funds through a Cohesion Policy, which is a strategy aimed at increasing economic development by stimulating public and private investment, especially in poorer member states.
Most of the budget in the current cycle has been invested in countries like Poland, Hungary, the Czech Republic and Slovakia where there has been a significant macroeconomic impact as GDP has grown by 2.5% per year on average. A smaller part of the budget goes towards pushing countries who are already shining like Sweden, Denmark and Finland to keep innovating in research and tech fields.
At his office in Brussels, Lemaître says: ‘Not everyone has woken up to the fact that, to address climate change we will need a very profound change to our economic model, our industrial base, our modes of transport, where we live, and so on.’
A raised ambition in the coming decade coincides with the next funding cycle starting in 2021. The impact of this will be seen until 2029 as the DG REGIO makes funding priorities that are critical to achieving the EU’s climate ambitions.
Impact on real estate sector
Buildings in the EU consume about 40% of the overall energy and contribute to 36% of greenhouse gas emissions. ‘Given its contribution to energy consumption, existing real estate stock has to be renovated profoundly to have a significant impact on energy consumption,' says Lemaître. ‘The stock is being renewed only at a very slow pace, about 0.4 -1.2% per year, and this needs to be accelerated,’ he adds.
‘We really see a fundamental need to mobilise especially the local level - the urban dimension - which is key for climate change considerations because it concerns not only real estate but also transport and the ability to organise things.’
At present, about 35% of the EU's buildings are over 50 years old and almost 75% of the building stock is energy inefficient. The Cohesion Policy has close to €30 bn allocated to energy efficiency measures. Renovation could reduce the EU’s total energy consumption by 5-6% and lower CO2 emissions by about 5%.
‘This is a part of the low-hanging fruit which we need to reap and not in 2045 or 2050, but now and in an accelerated way,’ Lemaître says.
It is clear that energy efficiency measures should be paying for themselves with the savings of the future. The real estate sector acknowledges this and investors in Europe are looking at ways to go above and beyond the current ESG regulatory requirements. Integrating this approach into business-as-usual will require more time, effort and capital. The DG REGIO has been exploring different financial tools to help move things along faster.
‘The coming period will see a simpler regulatory framework which will help put in place formulas that can help fund renovations with a mix of loans and grants,’ says Lemaître.
Tighter building standards
The EU’s upgraded ambitions will need to be supported by revised building standards and regulations. The Cohesion Policy’s focus is on renovation and everything that is co-financed by the DG Regio has to comply with EU standards of becoming nearly zero-energy buildings (NZEB). The EU is currently re-visiting all of its current legislation on environmental sustainability standards - such as energy efficiency, fuel efficiency, building standards - under the Green New Deal for Europe. Within a two-year time period the current legislation will be aligned with the EU’s overall raised ambition for climate action.
‘In the present period we have made a particular effort to ensure that we get value for money and get results for the money deployed,' says Lemaître. 'This funding cycle is aimed at achieving the renovation of one million households and tracking the impact of the deployed funds which needs to be clearly reported.
‘We agreed up-front about quantifiable targets with member states at the level of their operational programmes,' says Lemaître. ‘We have seen that thankfully not everyone has achieved their targets, because otherwise it would look a bit suspicious. But on the other hand, we have also seen some significant over-achievement, which does suggest that the ambition was set at a relatively prudent level in order to achieve it.’
Nord-Pas-de-Calais, the northernmost French region between the Picardy region, Belgium and the English Channel, has witnessed the decline of traditional industries such as coal, steel and textiles in the past few decades leading to an unemployment rate significantly higher than the French average. The 12,414 km2 region is home to 6.1% of France’s population, making it one of the densest. In-depth renovation of the extensive public housing stock, which is often a complicated process, was achieved through a mix of funding sources. The financial instrument that was implemented is largely based on loans rather than grants, making it a unique and noteworthy example.
JASPERS (Joint Assistance to Support Projects in European Regions) is a partnership between the DG REGIO and the European Investment Bank providing assistance to municipalities and government agencies to maximise the impact of EU funds. It advises on sector strategies at regional, national or local level, and helps prepare projects that comply with EU standards on all fronts.
The European Policies Research Centre (EPRC)
The EPRC is a leading institute in Europe for comparative research on public policy, with a particular focus on regional development policies. Recent projects have studied the implementation of low-carbon-related investment programmes in EU countries, the emergence of sustainable urban development strategies in European Structural Funds, and co-creation of economic strategies in coal-intensive regions in transition as well as rural areas.
This is Part I of the interview with the European Commission. Part II will appear in the November issue of PropertyEU magazine, when the Director General issues a call to arms to the property industry