Brussels Briefing: MEPs vote to decarbonise Europe’s building stock

Mandatory mortgage portfolio standards are absent from the Energy Performance of Buildings Directive, while dairy farms are exempted from the revised Industrial Emissions Directive

Campaigners are celebrating after MEPs voted in favour of the EU’s Energy Performance of Buildings Directive, aimed at reducing emissions and energy use by the sector. Mandatory mortgage portfolio standards, which many had insisted were vital to align banks with the union’s renovation ambitions, were not included in the final text.

The law calls for new buildings to be zero emission from 2030 and to make the whole EU building sector climate neutral by 2050.

Buildings are responsible for 40 per cent of the EU’s energy consumption and 36 per cent of its greenhouse gas emissions, estimates the European Commission. Under the EPBD, a building’s emissions should be calculated based on its life-cycle global warming potential, including the making and disposal of construction products.

The rules call for EU member states to renovate 16 per cent of the worst-performing, non-residential buildings by 2030 and the worst-performing 26 per cent through minimum energy performance requirements by 2033. Countries will have to put in place measures to reduce the energy use of buildings, with the directive setting down a 16 per cent reduction for residential buildings by 2030 and a 20-22 per cent decrease by 2035.

Further, under the EU solar standard, included in the EPBD, member states will have to deploy solar panels on public and non-residential buildings where technically and economically suitable, starting from 2026 and on all new residential buildings by 2030.

Countries will also have to outline how they will decarbonise heating systems, with a view to phasing out fossil fuels in heating and cooling by 2040. Subsidising standalone fossil fuel boilers will be banned from 2025.

Encouragement for financial institutions

The directive does not include mandatory mortgage portfolio standards, as in earlier drafts. Instead, the agreed text calls on EU member states to “promote the effective development and use of enabling funding and financial tools, such as energy efficiency loans and mortgages for building renovation, energy performance contracting, pay-as-you-save financial schemes, fiscal incentives, for example, reduced tax rates on renovation works and materials, on-tax schemes, on-bill schemes, guarantee funds, funds targeting deep renovations, funds targeting renovations with a significant minimum threshold of targeted energy savings, and mortgage portfolio standards”.

The commission has also pledged to adopt a delegated act establishing a voluntary framework to encourage financial institutions to increase lending for energy performance renovations. By the end of March 2025, the EU executive will likewise publish an analysis of the “effectiveness and appropriateness” of available financing instruments aimed at improving the energy performance of buildings, including from the European Investment Bank and public finance institutions.

Continuing the recent trend by EU policymakers of omitting the farming sector from environmental regulations, countries can opt to exclude agricultural, and heritage, buildings from the new rules.

Mathilde Nonnon, sustainable finance policy officer at the World Wide Fund for Nature’s European policy office, said the failure to include mandatory mortgage portfolio standards was “regrettable as they would have required banks to scale up energy efficiency loans to homeowners, and ensure equal footing among mortgage lenders”.

“The EPBD is an incomplete puzzle and a missed opportunity to mobilise crucial private funding,” she added. “Nonetheless, the introduction of a delegated act to promote and mainstream green lending practices is a positive step forward. This initiative is essential for enhancing the financial accessibility of home renovations for households.”

MEPs and campaigners also underlined the wider societal and economic benefits that should come from action to reduce emissions from buildings.

“Action on buildings is required, whether you look at it from the social, energy dependency or economic angle, and regardless of your political colour,” said Adrian Joyce, secretary-general of the European Alliance of Companies for Energy Efficiency in Buildings. “The EPBD ticks a lot of boxes, offering answers to the climate and energy price crises and providing positive perspectives for a new generation of workers.”

MEP Ciarán Cuffe, the parliament’s main negotiator on the directive, said the EPBD “shows clearly how climate policy can have real and immediate benefits for the less well-off in our society”.

“This law will help bring down energy bills and addresses the root causes of energy poverty, while delivering thousands of high-quality, local jobs,” he said in a statement.

The solar standard was welcomed by industry. SolarPower Europe senior policy adviser Jan Osenberg said it “puts the power in citizens’ hands” and “enshrines the energy transition into the places where we sleep, work and live”.

“As the grid catches up to the energy transition, installing energy generation where we use energy will also help the grid, by keeping electricity local and empowering citizens with the information and technical ability to use electricity smartly,” he added.

The directive must be formally endorsed by the European Council before it becomes law.

Industrial emissions reductions

Many environmental campaigners also uttered a sigh of relief on Tuesday when MEPs voted to adopt a revised version of the the Industrial Emissions Directive, amid fears that centre and far-right politicians would act to weaken the proposed text.

The agreed rules will set mandatory emissions levels for industrial sectors and obligatory environmental performance targets for water consumption. Mines and large battery factories will also be covered by the directive, as will pig and poultry farms. Further, the public will have greater access to EU permits and local polluting activities through a new EU Industrial Emissions Portal. However, cattle farms remain exempt from the directive, with the commission due to review their situation and possible inclusion in 2026

Companies that fail to comply with the rules could face penalties of at least 3 per cent of their annual EU turnover.

“Finally! The European parliament said yes to the much-awaited Industrial Emissions Directive, a key to address objectives on climate and clean industry,” said non-profit Climate Action Network Europe on X. “Even though far from civil society’s expectations, it still is a cornerstone to kick off the much-needed industry transformation.”

MEP Radan Kanev from the centre-right European People’s party grouping in the parliament said the vote showed the “parliament’s commitment to the zero-pollution goals of the Green Deal and the health of Europeans”, and that “those goals can be achieved without placing an additional administrative burden on businesses and especially on European farmers”.

However, for nature campaigners the omission of dairy farms from the directive was just another sign of the EU failing to subject the farm industry to the same rules as other sectors.

“The farm lobby’s attempt to derail pollution controls law has failed,” wrote BirdLife Europe director Ariel Brunner on X. “But the approved law gives a complete free ride to intensive cattle breeding, one of Europe’s most polluting industries.”

The law must be adopted by the council, before being published in the EU Official Journal and entering into force 20 days later. Member states will then have 22 months to comply with the directive.