ZEROCARBONBUILDINGS2050SUMMARYREPORTJULY2020ACKNOWLEDGEMENTSThisreportistheoutcomeofasix-monthlongendeavourofdeepanalyticalworkconductedbyCEDelft,withsupportfromClimact.Itsaimistohighlighttheimportanceandurgencyofdecarbonisingthebuildingsectorinordertoachievenet-zeroeconomytargetsinlinewiththeEU’scommitmentunderthe2015ParisAgreement.ItassessesthepoliciesandinnovationneededtoachieveafullydecarbonisedEUresidentialbuildingsectorby2050,makingthecasefornewpoliciestargetingthesectorattheEU,nationalandlocallevels.Theresearchershavenotundertakennewmodelling,butinsteadusedexistingmodellingresults(asfoundinthe2019ECFreport“TowardsFossilFreeEnergyin2050”)asthebasisforthedevelopmentofapolicyandinnovationroadmapthattakesanintegratedperspectiveontheresidentialbuildingsector.Thisreportwaspreparedby:CEDelft:KatjaKruit,JoeriVendrik,PienvanBerkel,FennekevanderPoll,FransRooijersClimact(modelling):QuentinJossen,HuguesdeMeulemeesterProjectcoordination(EuropeanClimateFoundation):RenéeBruel,StijnCarton,AdelineRochet,TingZhangTheEuropeanClimateFoundationwishestothankthefollowingindividualsandorganisations:PallasAgterberg(Alliander),MeredithAnnex(BloombergNEF),AntoniBielewicz(ECF),AndreasGraf(AgoraEnergiewende),EricaHope(ECF),ClemenceHutin(FriendsoftheEarthEurope),FemkedeJong(Eurima),QuentinJossen(Climact),AlexandraLangenheld(AgoraEnergiewende),BrookRiley(Rockwool),PaolaMazzucchelli(EUREC),AudreyNugent(WorldGreenBuildingCouncil),ThomasPellerin-Carlin(InstituteJacquesDelors),TheodoraPetroula(CANEurope),OliverRapf(BPIE),JanRosenow(RAP),StefanScheuer(StefanScheuerConsulting),PeterSweatman(ClimateStrategy&Partners),forthevaluablefeedbacktheyhaveprovidedontheproject.Thewillingnessoftheseorganisationsandexpertstobeconsultedinthecourseofthisworkshouldnotbeunderstoodasanendorsementofitsanalysisandconclusions.Reportdesign:www.noble.studioDISCLAIMERThisreportcommissionedbytheEuropeanClimateFoundation(ECF)aspartoftheNet-Zero2050series,aninitiativeoftheECFwithcontributionsfromaconsortiumofexpertsandorganisations.Theseriesaimstobuildavisionandevidenceforthetransitiontonet-zeroemissionsocietiesinEuropeandbeyondbymid-centuryatthelatest,inlinewiththeParisAgreementobjectives.TheECFisfundedsolelybyprivatephilanthropicorganisationsanddoesnothaveanyfinancialtiestoEUpoliticalbodiesortoprivateentities.Withacknowledgmentofthesource,reproductionofallorpartofthepublicationisauthorised,exceptforcommercialpurposes.Formoreinformation,pleasecontact:ting.zhang@europeanclimate.orgCONTENTSEXECUTIVESUMMARYINTRODUCTIONKEYFINDINGSBUILDINGENVELOPEFOREXISTINGBUILDINGSSWITCHINGTOZERO-CARBONHEATINGREDUCINGEMBEDDEDEMISSIONSOFBUILDINGMATERIALSTIMELINESTIMULATINGINNOVATIONTOACHIEVEDECARBONISATIONREFERENCES489202225262629/3EXECUTIVESUMMARYTheParisAgreementcommitscountriesaroundtheworldtolimitingglobalwarmingtowellbelow2°Cabovepre-industriallevels,withanaspirationtargetoflimitingthetemperatureincreaseto1.5°C.Thecostoffailingtoreachthesetargetswouldbecatastrophic,andconsiderablyhigherthantheinvestmentneededtodeliverthem.TheEUmustfullydecarboniseitseconomyby2050inordertofulfilitscommitmenttotheParisAgreementobjectives.Thisrequiresboldactionacrossallsectors,andinnonemorethanbuildings.Energyuseinbuildingscurrentlyaccountsfor36%ofgreenhousegas(GHG)emissionsintheEU(EuropeanCommission,2019)makingbuildingsoneofthelargestcontributorstoEUGHGemissions.Initslong-termstrategyfor2050(2018),theEuropeanCommissionrecognisestheneedforanear-completedecarbonisationoftheEU’sbuildingsectortomeetitsclimategoals.Atthesametime,Europeancitizenshavealottogainfromthedecarbonisationofbuildings,includingemployment,health,lowerhouseholdenergybillsandsystemcostsavings(ElementEnergy&CambridgeEconometrics,2019).Despitethenecessity,benefitsandurgencyofdecarbonisingbuildings,itisoneofthesectorsthathasarguablyseentheleastprogresstodate.Withover513.5millionstakeholders1,whoselivesandbehaviouraredirectlyimpactedbychangesrelatedtobuildings,itisnotoriouslydifficulttoimplementpoliciestodecarbonisethesector.1PopulationofEU-28on1January2019(https://ec.europa.eu/eurostat/statistics-explained/index.php/Population_and_population_change_statistics#EU-28_population_continues_to_grow)/4ZEROCARBONBUILDINGS2050:SUMMARYREPORTThemomentumandopportunitiesforrapidemissionsreductionarethere.EuropeissettingouttoimplementtheEuropeanGreenDeal,startingupitsRenovationWave,revisingkeyDirectivesaswellasseekingtorecoverfromthelargesthealthandeconomiccrisisofthelastcentury.Tohelppolicy-makersatdifferentlevelsinEuropecapturethismomentum,thisreportrecommendsafirst-everlong-termroadmapofpoliciestodeliveressentialcarbonreductionsintheresidentialbuildingsector.Thereportfindsthattherearethreekeyareastotargetinordertosetthesectoronatrajectorytozeroemissions.Theseare:reducingenergydemandthroughrenovationofthebuildingstock,shiftingtozero-carbonenergycarriers,andapplyingtheprinciplesofcircularitytothebuildingsupplychain.Eachoftheseareaswillrequirepolicy-makerstointroduceacombinationofnewregulatoryandpricingpolicies.TheneedforthesepoliciesisurgenttoputEuropeontherighttrack,asthereareverylimitedrenovationwindowsleftbefore2050.ThefigureonPage7providesanoutlineforapolicypackagethatwillputthebuildingsectoronatrajectorytozeroemissions./5MAINPOLICYMESSAGESCurrentpoliciesfocusingonincentivesandinformationarenotenoughtoachievefulldecarbonisationoftheresidentialbuildingsector.Additionalregulatoryandpricingpoliciesaswellasinstrumentsthatsupportthedeploymentofinnovationareneededtoreachthefullemissionreductionpotential.TheareasthathavethelargestGHGemissionreductionpotentialare:•Reducingenergydemandbyimprovingtheenergyperformanceoftheexistingbuildingenvelope•Switchingtozero-carbonfuelsforheating,includingaswitchinheatingsystems•ReducingembeddedcarboninconstructionandrenovationmaterialsThesearealsotheareasthatlackeffectivepolicymeasuresthemost,bothatEUandnationallevels.Acomprehensivepolicypackage,builtontheexistingregulations,needstobedevelopedandimplementedbytheEUandindividualMemberStates.Itshouldattheleastcontainthefollowingcomponents:•Minimumenergyperformancestandardsforexistingbuildingsthatapplyatkeymomentsinthebuilding’slifetime,suchassaleandchangeoftenants,oraresetatacertainmomentintimeandsubsequentlytightenedovertime•Regulatorypoliciestopromoteheatingfuelsandappliancesswitching,suchas:•AcapontheCO2emissionsofenergycarriersforretailenergysuppliers•Localorregionalheatingplanstoimplementdirectelectrificationofheatinganddistrictheating•Arapidandequitabletransitionoutoffossilfuelheatingsystems•Abanontheuseoffossilfuelsforheatingandcookinginnewconstructions•CO2-basedtaxation/pricingofenergycarriersforheating(viarevisionoftheEnergyTaxationDirective),incombinationwithaschemethatusestherevenuestosupportlow-carbonmeasuressuchasdeeprenovation,especiallytargetinglow-incomehouseholds•Emissionsrequirementsoverthelifecycleofconstructionandrenovationprojects,productsandmaterials•Supportingpoliciestofacilitatethetransition,includingfinancialsupporttoalleviateenergypovertyFulldecarbonisationwillrequireaconcertedinnovationeffort.Thiscallsfortargetedtoolstoincentiviseanddeployinnovation,increasinginnovationcapacityinsomeareasofthebuildingsectorwhileaddressingthefragmentationofthemarketandcreatingademandforinnovativesolutions.Thereisnotimetowasteinintroducingthesepolicies.Becausethelifetimeofmostinvestmentsinthebuildingsectorisverylong,delayingactionmeanspassingupkeyinvestmentmoments.Missingthiswindowcreatesthethreatofhigheroverallcostsforsociety./6ZEROCARBONBUILDINGS2050:SUMMARYREPORT/7ACOMPREHENSIVEPOLICYPACKAGETOREDUCEEMISSIONSFROMTHEBUILDINGSECTORTOZERO-140MT-291MT-81MTBUILDINGENVELOPE-REGULATORYINSTRUMENTSEnergyperformancerequirements:•forowner-occupiedbuildings(atminimumatsale)•forrentalbuildings(newtenantsand/orplannedrenovation)HEATINGFUELSWITCH-REGULATORYINSTRUMENTS•Caponcarbonemissionsofenergycarriers•Localheatingplanswithobligationfordistrictheating•Banonfossilfuelsforheatingandcookinginnewconstructions•Phasingoutnewfossilfuelheatingsystemsovertime-135MTMATERIALS-REGULATORYINSTRUMENTSLifecycleemissionrequirementsforconstruction/renovationprojectsandmaterials+COPRICING-PRICINGINSTRUMENTS-77MTRENEWABLEELECTRICITYAPPLIANCEEFFICIENCY+SUPPORTINGPOLICIES-FINANCIALANDINFORMATIONINSTRUMENTSFinancialsupporttoacceleratechangeandmitigateenergypovertyEmbeddedemissionsPOSSIBLEEMISSIONSREDUCTIONOF725MtINTRODUCTIONWithover36%ofEUGHGemissionsattributedtobuildings,effortstodecarbonisethebuildingsectorareattheheartoftheEU’spledgetoachieveanet-zeroeconomyby2050.Butunlikethetransitionthathasbeenunfoldingandgainingspeedinthepowerandtransportsectors,changeinthebuildingsectorhasbeenmodesttodate.AspartoftheEuropeanClimateFoundation’s(ECF)Net-Zero2050series,thisreportaimstohighlighttheimportanceandurgencyofdecarbonisingthebuildingsectorinordertoachievenet-zeroeconomytargets.Centredaroundresidentialbuildings,itmakesthecasefornewpoliciestargetingthesectoratEU,nationalandlocallevel,showingthepotentialofthosepoliciestoreducecarbonemissions.ThegeographicalscopeofthereportistheEU-282anditcoversbothoperationalandembeddedemissions.TheECFcommissionedCEDelfttoanalysethepotentialforemissionreductions,drawingonexistingdataoncurrentandprojectedemissionsfromthebuildingsector,andutilisingazero-emissionsscenariodevelopedbyClimactusingtheEUCalcmodel.Basedontheseoutcomes,aframeworkwasdevelopedforanalysingpolicyneedsandgaps.ExamplesofnationalpolicieswerepulledfromcasestudiesofPoland,SpainandtheNetherlands.Finally,innovationneedswereidentifiedinconsultationwithanexpertpanel.Thissummaryreporthighlightsthekeypolicymessages.ThefullbackgroundreportbyCEDelftcanbefoundseparatelyonline.3The2020COVID-19crisisoncemorehighlightstheneedforgoodqualityhomes,aspeoplearespendingalargepartoftheirlivesinside.Theimportanceofhighlyefficient,comfortablehomescannotbeunderestimatedforimprovinghealthandqualityoflifeandreducingenergypovertyandcarbonemissions.UpgradingthequalityoftheEUbuildingsectorishighlylabour-intensive.Theinvestmentthereforeprovidesemploymentintimeswhenitismostneeded.Developingnewandstrengtheningexistingpoliciesinthebuildingsectorcanprovideastimuluswithimmediateaswellaslong-termbenefits.TheEUhasrecognisedtheeconomicbenefitsofinvestingingreenbuildingsandisembarkingonaboldnew“RenovationWave”planaspartoftheEuropeanGreenDeal.Inaddition,theNextGenerationEUEconomicRecoveryplansandtheMultiAnnualFinancialFrameworkprovideanot-to-be-missedopportunitytodevelopandimplementeffectiveEUandnationalpoliciesthatwillleadtosignificantGHGemissionreductionsinthebuildingsector.2TheUKwillleavetheEUattheendof2020,butiscommittedtoreachingclimateneutralityby2050.3https://www.cedelft.eu/en/publications/2474/net-zero-buildings-2050/8ZEROCARBONBUILDINGS2050:SUMMARYREPORTKEYFINDINGSCurrentpolicieswillonlyreducebuildingemissionsby30%in2050TheEUisnotpresentlyonthepathtofulldecarbonisationofthebuildingsectorby2050.TheEuropeanreferencescenario(EuropeanCommission,2016),whichtakesintoaccounttheenergypoliciesadopteduntil2016,showsthatinabusiness-as-usualscenario,GHGemissionsfromtheresidentialbuildingsectorwillhavedecreasedbyonly30%by2050,seeFigure1.Eventhiscanonlybeachievedifpoliciesareimplementedcorrectly.Thatisnotthecaseatpresent.Forexample,Europeisnotontracktoreachits20%energyefficiencytargetin2020duetosubstandardimplementation(EuropeanEnvironmentAgency,2019).Whilethis2050projectiondoesnotincludethepoliciesadoptedundertheCleanEnergyPackageastheyareyettobeimplementedatthenationallevel,itisclearthatcurrentpolicieswillnotleadEuropetonet-zerobuildingsinthedesiredtimeframe.2020203020402050SpaceheatingandcoolingHotwaterCookingAppliancesEmbeddedemission1000900800700600500400300200100030%withcurrentpoliciesCOemissions(Mt)725MT1026MT70%notaddressedbycurrentpoliciesFIGURE1:BaselineannualCO2emissionsofresidentialsector(direct,indirectandembeddedemissions).CalculationwithEUCalcbasedon(Röck,2020)and(EuropeanCommission,2016)Adrasticreductioninbuildingsectoremissionsiscrucialbothfromtheperspectiveofreachingfulldecarbonisationofthewholeeconomyaswellasfromacostperspective.AstudybyAgoraEnergiewende(ifeu,FraunhoferIEEandConsentec,2018)showsthatthereisnoviablealternativetoaggressivelyreducingemissionsfromthebuildingsector.Thisisconfirmedbyanearlierstudyinthisreportseries,“TowardsFossilFreeEnergyin2050”(ElementEnergy&CambridgeEconometrics,2019),whichhighlightsinparticularthatbuildingefficiencymeasures,incombinationwithsmarttechnologies,arecriticaltokeepingtheenergytransitionaffordable,bothfromasystemcostpointofviewaswellasfromaconsumerbillone.Anincompletedecarbonisationofthebuildingsectorby2050meansthatothersectorswillhavetoreduceemissionsfurther./9Decarbonisationofresidentialbuildingsrequiresmeasuresthattargetallareas:efficiencyofthebuildingenvelope,heating,appliances,energycarriersandmaterialsFulldecarbonisationofthebuildingsectorby2050requireshighlyambitiousmeasuresineveryareaofthebuildingsector.Inordertodeterminethecontributionofdifferentmeasures,azero-carbonscenariowasdevelopedbyClimactusingtheEUCalcmodel.ThisisamodelofemissionsattheEuropeanlevel,basedonuser-definedambitionlevelsfordifferentleversthatinfluenceemissions.Forthisstudy,thehighestambitionlevelswerechosenforallleversinthebuildingsector4andadditionalassumptionsweremadefordecarbonisationofpowerandindustrytoresultinazero-emissionscenariofor2050.Embeddedemissionswerebasedoncarbonintensitiesofconstructionandrenovationmaterials(Röck,2020).Embeddedemissionsfromappliances,infrastructureandrenewableelectricitywerenotincluded.Reductionsinembeddedemissionsfromdecarbonisedindustry(productionandend-of-life)arecountedasannualemissionsreductionstobeabletocomparethemwithoperationalemissions.4Exceptforthedemolitionrate,whichwasreducedfrom1%to0.4%peryear./10ZEROCARBONBUILDINGS2050:SUMMARYREPORTTheleversweregroupedintofivemainareaswherethebuildingsectoremissionscanbetargeted.ThesestepstowardsfulldecarbonisationareshowninFigure2.Thisfigureshowsthenetreductionpotentialofeachmainarea,comparedtothe2050referencescenario.Thefivetargetareasare:1.Buildingenvelope:Improvementofthebuildingenvelopeofexistingandnewbuildingstoreduceenergydemandforheatingandcooling.Arenovationrateof3%andaverageenergysavingsof55%wasassumed.Buildingenvelopemeasuresalsoleadtoanincreaseofembeddedemissionsduetotheuseofmaterials.2.Heatingfuelswitch:Decarbonisationofremainingheatingdemandbyswitchingtoorusingzero-carbonenergycarriersforheating(renewableelectricity,districtheating,zero-carbongasandsustainablebiomass).5Thisswitchencompassesbothdecarbonisationoftheenergycarrier(fuel)aswellasadifferentheatingsysteminthebuilding,andoftenalsoneworadaptedinfrastructure(seeBox1).3.Applianceefficiency:Replacementofelectricalapplianceswithmoreefficientones.64.Renewableelectricity:Decarbonisationofremainingelectricityusebyswitchingto100%renewablepower.5.Decarbonisedmaterials:Useofrecycledandzero-carbonmaterialsinconstructionandrenovationandswitchto100%decarbonisedindustry.5Takingintoaccountthatbiomassandzero-carbongashavelimitedavailability,thesewereassumedtohavelowsharesoftotal.6Appliancesarealsocoveredunderheating(moreefficientheatingappliances)anddecarbonisedmaterials.FIGURE2:AnnualGHGemissionsin2050referencescenarioandnetreductionpotentialofdifferentareas,basedonEUCalc700600500400300200100-725MTOFCOSpaceheatingHotwaterAppliancesCookingEmbeddedemissionsPOSSIBLEEMISSIONREDUCTION-77MT-135MT-140MT-291MT-81MTBuildingenvelopeHeatingfuelswitchRenewableelectricityApplianceeciencyDecarbonisedmaterials39%11%11%19%19%BuildingenvelopeembeddedemissionsCONTRIBUTIONTODECARBONISATIONBUILDINGSEMISSIONSIN2050WITHCURRENTPOLICIES700600500400300200100-725MTOFCOSpaceheatingHotwaterAppliancesCookingEmbeddedemissionsPOSSIBLEEMISSIONREDUCTION-77MT-135MT-140MT-291MT-81MTBuildingenvelopeHeatingfuelswitchRenewableelectricityApplianceeciencyDecarbonisedmaterials39%11%11%19%19%BuildingenvelopeembeddedemissionsCONTRIBUTIONTODECARBONISATIONBUILDINGSEMISSIONSIN2050WITHCURRENTPOLICIES/11BOX1:HEATINGFUELSWITCHHeatingofbuildingscurrentlyreliesheavilyonfossilenergycarriers(gas,oilandcoal).Switchingtozero-carbonenergycarriers(renewableelectricity,districtheating,zero-carbongas,sustainablebiomass)isessential.Thisswitchencompassesachangeinthebuildingsystem,infrastructureandenergyproduction.Thesecomponentsoftheenergysystemforheatingdifferperenergycarrier-seeTable1.Consequently,differentenergycarriersentaildifferentinvestmentdecisions:forexample,heatingwithelectricityrequiresthebuildingownertoinvestinaheatpump,whiledistrictheatingrequiresacollectiveinvestmentinadistrictheatingnetwork.ELECTRICITYDISTRICTHEATINGZERO-CARBONGASBIOMASSBuildingsystemHeatpumporelectricheatingHeatexchangerGasburnerBiomassboilerInfrastructureReinforcementofelectricitynetworkHeatnetworkGasnetworkBiomasspelletsupplyEnergycarrierRenewableelectricityproductionSustainableheatsourcesZero-carbongasproductionSustainablebiomassproductionTABLE1:ComponentsoftheenergysystemforheatingbydifferentenergycarriersZero-carbongasandbiomassareheatingoptionswithsignificantlimitations.Zero-carbongascouldbebiomethaneor(green)hydrogen.Biomethaneisproducedfrombiomass;however,theavailabilityofsustainablebiomassishighlylimited.Estimatesforthetotalpotentialforsustainablebiomethanevaryfrom7%ofthecurrentnaturalgasdemand(ICCT,2018)to18%(Navigant,2019).Theavailabilityofbiomassandbiomethaneforbuildingsisfurtherlimitedduetodemandfromothersectorssuchasindustry,powerortransport,whichmaydriveuptheprice.So-calledgreenorzero-carbonhydrogenishydrogenproducedfromrenewableelectricityandhasotherlimitations,asitisnotyetavailableatscale,meaningitsfutureavailabilityandcostremainuncertain.Othersectorslikeindustryandshippingwhichseefewerdecarbonisationalternativeswillalsoneedtobegivenahigherpriorityforusinggreenhydrogen.Itisclearfromthesefiguresthatthemostimportantareasforreducingemissionsofthebuildingsectorarethebuildingenvelope,heatingfuelswitch(seeBox1)andbuildingmaterials.Thereforethisreportwillfocusontheseareas./12ZEROCARBONBUILDINGS2050:SUMMARYREPORTENERGYCARRIERBIOMASSBuiltenvironmentcharacteristicsInwhichtypesofcountries/areas/buildingsisthissolutioncost-ecient?•Newconstructions•Wellinsulatedbuildings•Lowheatingdemand•Urbanareas•Concentratedheatingdemand•Suitableforhighheatingdemand•Existinggasinfrastructure•Suitableforhighheatingdemand/Poorlyinsulatedbuildings•Ruralareas•Lowdensityheatingdemand•Lacking/downgradedgas/electricinfrastructure•Insulationcostsrelativelyhigh•Reinforcedelectricitynetworks•Operationcostsdistributorhigh•Costsforhouseholdslow•Hydrogencurrentlytooexpensiveforbuiltenvironment•Gasinfrastructurecanbereused:lowcostsCostsanddistributionbuilding,infra,heating/coolingappliances,source•Appliancecostslow•UnknownnecessaryinfrastructurecostsMainbarriersandlimitations•Highupfrontcostsofinsulationandheatpump•Resistanceofowners/residentsduetohassle,disruptionandaesthetics•Increasedelectricitydemandandhighpeakdemand;impactongridandrenewableproduction•Collectiveinvestmentsneeded•Highupfrontcostsheatnetworkandrenewableheatsources•Resistanceofowners/residentsduetomonopolyofheatcompanies,high(perceived)costs,nuisanceduringconstruction,lackofcontrolovercomfort•Absenceofrenewableheatsourceclosetonetwork•LimitedavailabilityandcompetingdemandsfromothersectorsHydrogen:•Highcostofproducinggreenhydrogen•Costformodifyinggasnetworkandappliancesforhydrogen•Publicperceptionchallengesregardinguseofhydrogeninhomes•Limitedavailabilityofsustainablebiomassandcompetingdemandsfromothersectors•AirpollutionandrelatedhealtheffectsHeating/coolingappliances•Heatpumporelectricheater•Airconditioningorheatpump•Heatexchanger•Gasburnerorhybridheatpump-gassystem•Biomassburners•Electricitygrid(reinforced)•Districtheatingnetwork•GasnetworkInfrastructure•IndividualtransportationofbiomassZERO-CARBONGAS(HYDROGENORBIOMETHANE)ELECTRICITYDISTRICTHEATINGProductionofenergycarriers•Renewableelectricityproduction•Wasteheat,geothermalheat,collectivesolar•Sustainablebiomassorhydrogenproduction•SustainablebiomassproductionWhenidentifyingpossiblepolicylevers,itisimportanttorealisethatacombinationofheatingsolutions,determinedbylocalfactors,imposesthelowestoverallcosttosociety.Inotherwords,thereisnoonesinglesolution,suchaselectricheatpumps,thatwillbebestforallbuildings;rather,acombinationofelectrification,districtheating,gasandbiomasswillbenecessary.Althoughsteeringtowardsjustasinglesolutionisfeasible,thisimplieshighercoststosociety.Policy-makersshouldthereforebewaryofincentivisingspecificenergycarriersandheatingappliancesattheexpenseofothers.Onlyifaparticularenergycarrierplaysaprominentroleinthecountryshoulditbeprioritisedviapolicy.TABLE2:ComponentsoftheenergysystemforheatingfordifferentenergycarriersZero-carbongasshouldthereforebeconsidereda‘lastresort’solutionforbuildingswithexistinggasinfrastructurethatalsocannotbeadequatelyinsulated,suchashistoricbuildings,andpossiblyaspartofahybridheatingsolutionthatwillrunondecarbonisedelectricityforthebiggestpartoftheyear.Gasnetworkdecisionsneedtoconsiderthescarcityofandcompetingdemandsforzero-carbongasesaswellaslock-ineffectsandprioritiseallotheroptions,includingenergyrenovationsofbuildings./13Specificmomentsforinvestment(triggerpoints)shouldbeseizedfordecarbonisationUtilisingspecificmomentsinthelifetimeofinvestments–triggerpoints-whenthecostandhassleassociatedwithbuildingrenovationarelesssubstantialiskeytominimisingthemainbarriersforincreasingrenovation.Thebuildingrenovationrateanddepthneedtoincreasesharplyinordertoreachthepaceofbuildingdecarbonisationnecessarytoreachzeroemissionsby2050.Currently,therenovationrateacrosstheEU-28is1%peryear.Thedeeprenovationrateismuchlower,at0.2-0.3%(EuropeanCommission,IPSOS,Navigant,2019).AccordingtotheEuropeanCommission,approximatelyEUR125billioninadditionalyearlyinvestmentsintheresidentialsectorareneededtoreachtheEU’scurrent2030renewableenergyandenergyefficiencytargets(EuropeanCommission,2019).Giventhereare215millionresidentialbuildingsintheEU,thisamountstoanaverageofEUR600/yearadditionalyearlyinvestmentsperbuilding.Inaddition,decarbonisationmeasuresinbuildingscanleadtodisruptionandhassleforthebuildings’occupants.Thesehurdlescanbediminishedbychoosingtriggerpointsforrenovation:keymomentsinthelifeofabuildingwhencarryingoutenergyrenovationsislessdisruptiveandmoreeconomicallyadvantageousthanatothermoments(BPIE,2017).Triggerpointsoffergreatpotentialtoincreasetherenovationrateanddepth.Triggerpointscanbethesaleorchangeoftenancyofahome,non-energyupgrades(e.g.newkitchen,retouchingofexternalfaçade,addinganextension),achangeinhouseholdsituation(e.g.familyexpansion,childmovingout,rentingaroom),butalsoregular(mandated)buildinginspections.Propertytransfersaregoodmomentstoundertakedeeprenovationsbecausenewownersoftenwanttomakechangestotheirnewhomeanyway,andmaynotbelivinginthehomeyet,creatinglesshassle.Figure3showstheaveragefrequencyofsomeofthesetriggerpoints.7Lastpointbefore2050TriggerpointI.ECONOMICLIFETIMEOFINVESTMENT01020304050HEATINGAPPLIANCESELECTRICAPPLIANCESGASDISTRIBUTIONNETWORKNEWRESIDENTIALBUILDINGII.TRIGGERPOINTSFORRENOVATION01020304050HOUSETRANSACTIONS(SALE)CHANGEOFTENANCY(RENTAL)REGULARINSPECTIONS(E.G.OFHEATINGSYSTEMOROFBUILDINGPERFORMANCEE.G.BIENNIAL)III.TIMELINEOFINVESTMENTMOMENTS201020202030204020502060LIFETIMEOFNEWBUILDINGSHOUSETRANSACTIONS(SALE)LIFETIMEOFHEATINGAPPLIANCESLIFETIMEOFINFRASTRUCTURECHANGEOFTENANCY(RENTAL)REGULARINSPECTIONSyearsyears20YEARS12YEARS50YEARS50YEARS29YEARS18YEARS2YEARS20YEARS50YEARS50YEARS29YEARS18YEARS2YEARS7Frequencyofsalesbasedon221millionhouseholdsinEU(Eurostat,2020),65%ofhomesareowner-occupied(HousingEurope,2017)andapproximately5millionhousetransactionsperyear(EuropeanCentralBank,2020).Frequencyofchangeoftenancybasedon25-44%oftenantsmovedinfiveyears(Eurostat,2017).Regularinspectionsareanexampleofbiannualinspections.FIGURE3:Triggerpointsforinvestment/14ZEROCARBONBUILDINGS2050:SUMMARYREPORTThelifetimeofinvestmentsdeterminesthemomentatwhichnewinvestmentscantakeplaceatlowestcost.Ifinvestmentsneedtobemadebeforetheendoftheeconomiclifetime,thisincursextracosts(strandedassets).IRENA(2017)estimatesthatglobally,thecostsofstrandedassetsinthedecarbonisationofthebuildingsectorwilldoubleifpolicyactionisdelayedfrom2020to2030.Forindividuals,theendofthetechnicallifetimeisthenaturalmomenttoreplaceappliances,suchasgasboilers.Inadditiontotheeconomicopportunity,thisreplacementmomentisoneofthefewmomentsforpolicytobeenforced,suchasefficiencystandardsfornewappliances.Figure3,basedon(AgoraEnergiewende&AgoraVerkehrswende,2019),showstheeconomiclifetimeofanumberofinvestments.Thesetriggerpointsaremomentstopromptthebuildingownerorotherinvestortomakethedecisiontorenovateandinvestindecarbonisationmeasures.Figure3-IIIgivesanillustrationofthefrequencywithwhichdifferenttriggerpointswilllikelyoccurbefore2050.Thisshowstheurgencyofcapitalisingonthesemomentstotriggerchangebefore2050:sometypesoftriggermomentsmayonlyoccuroncebetweennowand2050.Failingtograspthisopportunityandtakingmeasuresatalatertimewouldincurhighercostsandmoredisruption.Capturingtriggerpointsforrenovationisnecessarytoincreaseboththerateanddepthofrenovation.Onaverage,3%ofdwellingsneedtoberenovatedeachyearinordertoreachanaverageenergydemandreductionof54%throughout(theassumptioninthemodellingwithEUCalc).However,Figure4showsthatthisaveragecanbereachedindifferentscenarios.Iftheenergydemandofdwellingscanbereducedbyanaverageof60%everytimetheychangeowners(representing1.7%ofthedwellingsperyear),renovationassociatedwithotherkeymomentswouldnotneedtohappenatashigharenovationdepth.RenovationactivityUntappedpotentialRenovationdepthRequiredrenovationrateAVERAGERENOVATIONDEPTHconsideredintheEUCalcmodelAVERAGERENOVATIONDEPTHresultingfromtheabovescenario(in%ofenergysavings)RENOVATIONACTIVITYtriggeredatkeymomentsinfourscenarios,andadditionalrenovationstotriggertoreachequivalentannualenergysavings(%dwellings/year)AVERAGERENOVATIONDEPTH(%ofenergysavings)AtsalesAtothermomentsAtrentrotations-60%-54%-51%-38%-23%-20%-40%-20%2.5%2.5%0.2%2.9%3.9%6.3%7.3%3.5%3.5%2.2%3.5%5.3%3.5%7.3%1.7%1.7%1.7%1.7%FIGURE4:Differentrenovationratesanddepthsatkeymomentsreachdifferentaverageenergysavingsinfourscenarios/15AbroadrangeofregulatorypolicyinstrumentsareneededinordertoreachthefullemissionreductionpotentialinthebuildingsectorRegulatoryinstrumentssuchasnorms,standardsandminimumrequirementsareneededtoensurethatmeasuresaretakeninallareasofthebuildingsectortoreachitsfulldecarbonisationpotential.Informativeandfinancialpolicyinstruments,onwhichmanycountriesandtheEUrelyfortheareaswiththelargestemissionreductionpotential,arenotenough.Thesepolicyinstruments,whenwell-designed,willstrengtheneachanotherovertime:•Informativeinstrumentssuchasinformationalcampaigns,technicalassistanceandtrainingcreateawarenessandenableinformeddecisions,butdonotcreateaneconomicorlegislativeincentivetosteerbehavior.•Financialsupportsuchassubsidiescreateaneconomicincentivefordecarbonisationmeasures.However,notallpeoplemakeuseoffinancialsupportevenifitisavailableandwell-designed.•Financinginstrumentsprovidetheabilitytoinvest,butonlyapplywherethereisalreadyaneedordesiretotakemeasures.•Pricing(ofe.g.CO2)createsalevelplayingfieldforzero-carbonsolutionsandamarketforinnovation.Pricingmeasureshaveawiderscopethanfinancialstimulusbecausetheyapplytotheentiremarket.However,notallpeoplerespondtopricesignals(priceinelasticity)orareabletorespond,e.g.duetosplitincentivesbetweentenantandlandlord.•Regulatoryinstrumentsensurethatdecarbonisationmeasuresaretaken,triggerpointsareutilised,andnewcustomsandhabitsareformed.Regulatoryinstrumentssuchasstandardsandminimumrequirementsserveasbackstoppoliciestoensurethatthefullpotentialismet.Inaddition,variouspolicyinstrumentscanbeemployedtostimulateinnovation,discussedlaterinthisreport.Whenthesepolicyinstrumentsarecombinedinacomprehensivepolicypackage,theyenable,incentivise,andensurefulldecarbonisation.Together,thepoliciesformacomprehensivepathwaytowardsdecarbonisation,seeFigure5.FIGURE5:PathwayofpolicyinstrumentsShareofbuildingsdecarbonised2050100%RegulatoryinstrumentsSupportingPoliciesInformativeinstrumentsFinancialsupportFinancinginstrumentsInnovationpoliciesPricinginstruments/16ZEROCARBONBUILDINGS2050:SUMMARYREPORTRenovationofthebuildingenvelopeandafuelswitchforheatingwillcontributethemosttothefulldecarbonisationofthebuildingsector,butareinsufficientlyaddressedbycurrentEUpolicyThereisacleardiscrepancybetweenwhatisneededfordecarbonisationandwhatexistingEUpoliciesaretargeting.ThefollowingcurrentEUDirectivessettargetsforemissionsreductionandproposedifferenttypesofpolicyinstrumentstoaddresstheareasdefinedabove:•ThebuildingenvelopeistargetedbytheEnergyPerformanceofBuildingsDirective(EPBD),whichintroducesminimumenergyperformancerequirements(MEPRs)fornewbuildings.Italsorequiresminimumenergyperformancestandardsformajorrenovationofexistingbuildings.Inaddition,mostMemberStatesaddressthetargetof0.8%annualreductionofenergyuseintheEnergyEfficiencyDirective(EED)withmeasurestargetingbuildingrenovation(buildingenvelopeorheatingappliances),butthetypesofpolicyinstrumentschosenvariesperMemberState.MemberStatescanchoosebetweenobligationschemesandalternativeinstrumentssuchasenergyorCO2taxes,financialincentivesandvoluntaryagreements.Inmanycases,regulatorypolicyinstrumentsarenotchosen(Rosenow,etal.,2015).•Switchingtozero-carbonheatingfuelsispartoftheRenewableEnergyDirective(REDII)intheformofanindicativetargettoincreaserenewableenergyforheatingby1.3%annuallybetween2020and2030.TherearenopricingorregulatorypoliciesatEUlevelthathelpreachthistarget,butMemberStatesareresponsibleforimplementation.•AppliancesaresubjecttoenergyefficiencynormssetbytheEcodesignDirectiveandbytheEnergyLabellingRegulation.•DecarbonisationofelectricityistargetedbyREDII.TheEnergyTaxationDirective(ETD)setsaminimumtaxforenergy,butthisdoesnotincentivisedecarbonisationofenergycarriers,asitisnotbasedonthecarbonintensityoftheenergycarrier.EmissionsfromelectricityproductionareincludedintheEUEmissionsTradingSystem(ETS),butthepricesignalsaretoolowtobeanenergyefficiencyincentiveforhouseholds.•BuildingmaterialsareincludedintheConstructionProductsRegulation.TheCircularEconomyActionPlanconsidersaddingcircularityrequirements,butthisstilldoesnotincluderequirementsforproductionemissions./17/18190376-ZEROCARBONBUILDINGS2050-3JUNE2020Inshort,sometargetareasareaddressedbyregulatorypoliciesontheEUlevel,whileothersarenotcoveredatallonthislevel,leavingtheimplementationtotheMemberStates.AsshowninFigure1,existingpolicieswillonlyreduceGHGemissionsby30%by2050.TheEUisalsonotontracktomeetits40%GHGreductiontargetfor2030,evenwithadditionalplannednationalpoliciesandmeasures(EuropeanEnvironmentAgency,2019).ThesegapsinthecurrentEUlegislationforeachareaaresummarisedinTable3,withthefocusonregulatorypolicyinstrumentsthattriggermeasuresneededtoreachthetargets.PerformancerequirementsfornewbuildingsandmajorrenovationsEciencyrequirementforheatingappliancesEciencyrequirementsfornewappliancesCaponemissions(ETS)CaponemissionsfromETSsectorsPerformancerequirementsforexistingbuildingsCaponemissionsforheatingfuelsObligationorbanofheatingsystemsBanonfossilfuelinnewconstructionsLifecycleemissionsrequirementsBUILDINGENVELOPEHEATINGFUELSWITCHAPPLIANCESELECTRICITYBUILDINGMATERIALSExistingpolicyGapsAsthistableillustrates,bindingregulationsarelackingincurrentEUpoliciesinthreeareas:8•Buildingenvelopeofexistingbuildings•Heatingfuelswitch•Buildingmaterials8Thisdoesnotmeanthatcurrentpolicyinstrumentsforappliancesandelectricityaresufficientlyambitioustoreachthefullpotentialfortheseareas,butatleastpoliciesareinplaceandcouldbestrengthenedtoreachthefullemissionreductionpotential.TABLE3:Gapsinregulatorypolicyinstrumentsineachtargetarea/18ZEROCARBONBUILDINGS2050:SUMMARYREPORT/19Figure2showsthattheseareashavethelargestemissionreductionpotential,whileatthesametimetheyhavetheweakestsetofpoliciesontheEUlevel.ItiscurrentlyuptotheMemberStatestoimplementstrongpolicyinstrumentsintheseareastoachievedecarbonisationinbuildings.Forappliances,regulatoryinstrumentshavebeeninplaceforalongtime,andasaresulttherehasbeenalargeincreaseintheefficiencyinappliances.Therefore,theremainingreductionpotentialisnowmuchlowerthanitwasbeforethesepolicieswereintroduced,althoughthereisstillamplereductionpotential.Sucheffectivepoliciesarelackinginotherareasofthebuildingsector.Inviewofthedifferenttypesofpolicyinstrumentsdiscussedintheprevioussection,itshouldbenotedthattheEUisnotgoingbeyondsupportivepolicies(information,financialsupport)inmostareas,whilestrongerpolicies(pricing,regulatoryinstruments)areneedednowtoutilisethetriggerpointsinthebuildingsectorandlimitcostsforsociety.Inordertoreachzero-carbonbuildingsby2050,pricingandregulatorypoliciesneedtobeputinplaceandstrengthenednowBystrengtheningandexpandingthesetofpoliciesforthebuildingsector,emissionsreductioncanbebroughtonamuchsteepertrajectory.IncurrentEUpolicies,thebuildingenvelopeofexistingbuildings,heatingfuelswitch,andbuildingmaterialsareonlytargetedbyfinancialincentivesandinformativeinstruments.ThishasnotledtotheincreaseindemandforbuildingrenovationorthelevelofheatingfuelswitchingthatisneededtoputEuropeonapathwaytozeroemissionsby2050.ThereforeEuropeanditsMemberStateswillhavetoexploreandimplementpoliciesthatarefurtherdownthepolicypathwayinFigure5,namely,pricingorregulatorypolicies.Weproposeapolicypackagethatconsistsofpricingandregulatorypolicies,tobeimplementedbytheEU,withindividualMemberStates.Thepolicypackageshouldatleastcontainthefollowingcomponents:•Minimumenergyperformancestandardsforexistingbuildingsthatareappliedatkeymomentsinthebuilding’slifetimesuchassaleandchangeoftenants,oraresetatacertainmomentintimeandsubsequentlytightenedovertime•Regulatorypoliciesforswitchinginheatingfuelsandappliances,suchas:•CaponCO2emissionsofenergycarriersforenergycompanies•Localorregionalheatingplanswithinstrumentationtoimplementdirectelectrificationofheatinganddistrictheating•Aphasingoutoffossilfuelheatingsystemsovertime•Abanontheuseoffossilfuelsforheatingandcookinginnewconstructions•CO2-basedtaxationofenergycarriersforheating,viarevisionoftheETD,incombinationwithusingtherevenuestosupportlow-carbonmeasuressuchasdeeprenovations,especiallytargetinglow-incomehouseholds•Lifecycleemissionsrequirementsforconstructionandrenovationprojects,productsandmaterials•Financialsupporttosupplementthesegeneralpricingandregulatorypolicies,suchasre-investmentofrevenuesinbuildingrenovationandzero-carbonheating,inordertoavoidunintendedconsequencessuchasexacerbatingenergypoverty.Thefollowingsectionswillelaborateonthedifferentpartsofthepolicypackage./19BUILDINGENVELOPEFOREXISTINGBUILDINGSBindingenergyperformancerequirementsareneededtoincreasedemandforbuildingrenovationandovercomethebarriers.Sofar,policiesforexistingbuildingsaremostlybasedoninformingandfinancialsupportmechanisms.Theyhavenotledtoanincreaseintherenovationrate.Newenergyperformancepoliciescanbeintroducedintheshorttermandcanbeimpactfulifsetattherightlevel.Atthesametime,theEUandMemberStates’nationalrecoveryprogrammescanhelpfinancethenecessaryinvestmentstocomplywiththesebindingenergyperformancerequirements.Underexistingpolicy,MEPRswilltakeeffectfrom2021,butwillapplytonewbuildingsonly(EPBDNearlyZeroEnergyBuildingsregulation).Thesemustbeexpandedtoexistingbuildingstoincreasetherateanddepthofrenovationsandcreatedemandforhighlyefficientbuildings.MEPRsneedtoharnesstriggerpointsforrenovation:forprivatelyownedbuildings,standardscanapplytothemomentofsale,whileforprivaterentaltheycanapplytothemomentatwhichthebuildinggetsnewtenants.Ifabuildingdoesnotconformtothestandard,itwillbeineligibleforsaleorrentinguntilrenovatedtothatstandard.Forsocialhousing,standardscanadditionallybelinkedtorenovationplansrequiredbythe(national)governmentaccordingtopre-determinedtimelines.Box2providessomeexampleoftheapplicationofMEPRs.TheRenovationWaveproposalsshouldbeusedtointroducethisinstrument,andthenationalrecoveryplanscanprovidethenecessaryshort-termstimuluspackagestoimplementthisatnationallevel.Inmanycases,buildingswillnotchangeownershiportenancyfrequentlyenoughbefore2050.Therefore,energyefficiencyrequirementsmayalsohavetoincludebuildingsduringthesameownershiporrental,whilestrivingtokeepdisruptiontoaminimum.Asamatterofprinciple,therequirementsshouldbeappliedinamannerthatissociallyjust.Forexample,tenanciesshouldbeprotectedthroughrentregulationstomaintainaffordabilityafterrenovation./20ZEROCARBONBUILDINGS2050:SUMMARYREPORTInadditiontoregulatorypolicies,whichcanfunctionasbackstoppoliciestoensurethefullpotentialisreached,renovationcanbeincentivisedthroughinformation,financingandpricesignals.Pricinginstrumentscanconsistofpropertytaxesorsalestaxesbasedontheenergyperformanceofthebuilding,providingafinancialincentivetoimprovetheenergyperformance.However,thesepoliciesarenotsufficientontheirown:rathertheysupportregulatorypolicies,toincreasethespeedofuptakeand,inthecaseoffinancialsupport,reduceeffectssuchasenergypoverty.BOX2:MEPRSINTHENETHERLANDSANDSPAINTheNetherlandshasenergyperformancerequirementsforasubsetoftheexistingbuildingstock.ThesocialhousingsectorcommittedtoreachinganaverageenergylabelBby2020inavoluntaryagreement.Theshareofsocialhousingissignificant,comprising30%oftheresidentialbuildingstockintheNetherlands(HousingEurope,2017).Furthermore,anenergyperformancerequirementforexistingofficebuildingswasimplementedin2012.By2023,allofficebuildingsmusthaveenergylabelCortheywillnotbeallowedtobeusedasoffices.Intheory,thisregulationiseasiertoimplementforofficebuildingsthanforresidentialbuildings,becauseofficebuildingsoftenhavefive-yearleasecontracts(ING,2016).In2016,52%ofofficefloorspacewasestimatedtohaveinsufficientenergyperformance(EIB&ECN,2016).Asaresultofthislegislation,banksareactivelylookingto‘green’theirportfoliobyonlyofferingnewloansforbuildingsthatcomplytothestandardorthathaveaplantoimprovetheirperformance(ING,2016).ExamplesofMEPRsfornewbuildingsarewidelyavailable.TheNetherlandsimplementedanenergyperformancecoefficientrequirementfornewbuildingsin1995thathasbeengraduallyincreasedtoNearlyZeroEnergyin2020.Theenergyperformancecalculationispartofthebuildingpermitapplication.Thecoefficientisbasedontheestimatedtotalprimaryenergyconsumptionofabuildingbasedonaseriesofindicators,e.g.,heating,ventilationandlighting,adjustedtotheusefulfloorareaandtherenewableenergyproducedbythebuilding.Therequirementcanthereforebemetindifferentways,givingthedeveloperflexibilityinhowtocomplywiththerequirementindifferentcircumstances(vanEck,2016).Thisdesignalsoallowsforinnovation:newtechniquesthatwerenotknownwhenthepolicywasdeveloped,canneverthelessbeemployedtocomplywiththestandard.Adrawbackisthatthecalculationisfairlycomplex,requiringacomprehensivestudyonthepartofthedevelopersinordertocomplywiththelaw.InSpain,theTechnicalBuildingCodefornewbuildingsincludesrequirementsforsolarwaterheating,inadditiontorequirementsfortheenergydemand,heatingequipmentandrenewableenergyuseofbuildings(MinisteriodeFomento,2013).ThebuildingcodealsodistinguishesbetweenfiveclimaticregionsinSpain:agoodexampleoftheneedforregionalspecificityofnormsandstandards./21SWITCHINGTOZERO-CARBONHEATINGFUELSANDSYSTEMS75%ofheatingofthebuiltenvironmentisbasedonfossilfuels(gas,oilandcoal)(Eurostat,2018).SwitchingtodecarbonisedenergycarriersforheatingisthereforeessentialtoreduceGHGemissionsinthebuildingsector.Energycarriersforheatinglargelyfalloutsidethescopeofcurrentlegislation,despitethe(indicative)REDtargetofa1.3%annualincreaseinrenewableenergyinheating.TheonlyexceptionhereiselectricityproducedforheatingwhichfallsundertheETS.Thefuelswitchforheatingnecessitatesachangeinallpartsoftheenergysystemforheating:thebuildingheatingsystem(includingheatingappliance),infrastructure,andenergyproduction.Thenecessarysystems,however,varybasedonthealternativeheatingsolution,asshowninFigure3.Tostimulateaswitchtozero-carbonheatingfuels,acombinationofregulatoryinstrumentsandCO2pricingwillbemosteffective.Regulatorypolicyinstrumentsareneededtobothensurethatthetriggerpointsarebeingleveragedandtoserveasabackstop.TheREDsetsanindicativetargetof1.3%annualincreaseinrenewableheatingbetween2020and2030.ThefirstwayinwhichMemberStatescanimplementthisrequirementistodirectregulatoryinstrumentstowardstheenergycompanies,byimposingacap(permit)onthecarbonemissionsoftheenergy(electricity,gas,districtheat,coal,oil)thatanenergycompanysells.Thiscapisreducedtozeroovertime.Theemissionpermitsmaybetradedbetweenenergycompanies.Theadditionalcostsneededfordecarbonisationmeasurestomeetthiscaparepassedontotheenergyconsumers,whereithasthesameeffectsascarbonpricing.Toensurethepolicyiseffectiveanddoesnotleadtounintendedeffects,stricterdefinitionsoflifecycleGHGemissionsfromhydrogen,biomethaneandbiomassareneeded.ThissystemresemblestheEUETS,butrequiresaseparateemissionscap,asbuildingsectoremissionsarepartoftheEffortSharingRegulationandinclusionintheEUETSwouldhaveunwantedsideeffects(CambridgeEconometrics,2020).Adifferentwaytoimposemandatorynormsorobligationsforaswitchinheatingfuelisbytargetingconsumers.However,thisisdifficult,becausethecost-efficiencyofdifferentheatingsolutionsissituation-specific,andsomesolutionslikezero-carbongasescomewithsignificantlimitationsintermsofhowmuchcanbesustainablysourcedandwhatneedsothersectorshaveforthem.Inaddition,thelowestcostoptionsforsocietyareoftennotreflectedinthebusinesscasesforthesupplierorcostsavingsfortheconsumer.Localorregionalheatingplanscanovercomethischallengebyidentifyingoptimalheatingsolutionsandsteeringpoliciestowardsthisoutcome.Tomaketheseplans,localgovernmentsneedtoanalysethebuildingstocktodeterminewherecertainsolutionsareavailableandwhicharemostcost-efficientfromasocietalperspective.Theseheatingplansshouldbeco-developedwithresidentstoensurebroadsupport./22ZEROCARBONBUILDINGS2050:SUMMARYREPORTTheEEDrequireseachEUMemberStatetocarryoutanassessmentofthenationalpotentialofhighlyefficientdistrictheatingandcooling.Thispotentialneedstobeelaboratedintolocal,specificareas,andcanbecombinedwiththelocalorregionalheatingplansmentionedinthesectionabove.Inordertofollowupontheseplans,regionalorlocalauthoritiesneedtobegiventhemandatetoassignandimplementdistrictheatinginthoseareasifthissustainableheatingsolutionleadstothelowestcostforsociety(seeBox3).ThisrequirementintheEEDneedstobeturnedintoarequirementforMemberStatestosupportlocalandregionalgovernmentindevelopinglocalandregionalheatingplans.BOX3:POLICIESFORTHE‘HEATINGTRANSITION’INTHENETHERLANDSTheNetherlandshascommitteditselftophaseoutnaturalgasforresidentialheatingby2050,andit'sthefirstcountrytocommittosuchanambition(BloombergNEF,2020).Thissetsacleardirectionforpolicy-making.Currentpolicyinstrumentsincludeaswitchintaxationfromelectricitytogas,localheatingplans,andneighbourhoodsubsidyschemes.Municipalgovernmentsarerequiredtodevelopalocalheatingplanindicatingwhichalternativeheatingsolutionisthemostpromisingonaneighbourhoodlevel.Thissolutionshouldbebasedonlowesttotalcostsforsociety.Thenationalgovernmentassistswithtechno-economicmodellingandprovidessubsidiesformunicipalitiestoimplementachosenheatingstrategyinselectedneighbourhoods.Thelocalheatingplansarepartofalargersetofpolicyinstrumentsstillunderdevelopmentthatwillfurtherassistlocalgovernmentsinrealisingtheseplans,extendingfurtherthanthesesubsidyschemes.Thelocalheatingplansareanimportantstepindefiningastrategyforthedecarbonisationofheatingandforcommunicationwithanddedicatedsupporttoresidents.However,thecurrentsubsidyschemeshavenotyetresultedinsignificantimplementationoftheplans(AlgemeneRekenkamer,2020).Additionalpolicyinstrumentsareneededtoensuresuccessfulimplementationoftheheatingplans.Undertheconditionthatalternativeheatingenergycarriersandappliancesareavailableandaffordable,legislationcaninthelongertermbanfossilfuel-basedheatingsystemssuchasgasorcoalboilers,orevengasnetworksinspecificareas.Asteptomovetowardsaphasingoutoffossil-basedheatingsystemsistheimplementationofincreasinglystrictenergyefficiencyrequirementsfornewheatingappliances.Finally,heatingandcookingbasedonfossilfuelsneedstobebannedinnewconstructions.Bytheendof2020,newconstructionswillhavetobenearlyzeroenergy,resultinginverylowenergydemand.Thisremainingdemandshouldbecoveredbysustainableenergy.Inadditiontoregulatoryinstruments,policiesthatimpactpricingoftheenergycarrierscreateamarketincentivetoswitchtodecarbonisedcarriersaswellasforefficiencymeasures.Incontrasttosubsidiesorefficiencystandards,thisincentiveappliestoallenergyusers.Pricingimposesapriceortaxoncarbonwithintheenergycarrier(electricity,gas,oil,coal).WhileelectricitycurrentlyfallsundertheETS,gasanddistrictheatingdonot.Thecurrentenergytaxationsystem(ETD)isbasedonenergycontent,whilesomecountrieshaveexperiencewithacarbon-basedtax(CEDelft,2019).SwitchingtoaCO2-basedtaxationontheEUornationallevelwouldstimulatetheproductionanduseofrenewableenergycarriersforheating(CEDelft,2019)./23ACO2priceworksbestifitisimposedonallenergycarriers(electricity,gas,oil),whileremovingadditionaltariffsonelectricity,sothatthedifferentenergycarriersareputonalevelplayingfield.Thetaxcanbeleviedclosetotheproducerorattheenduser,butinbothcasesconsumerswillultimatelypaythetaxviatheirenergybills.ThepricingofCO2willincentiviseboththereductionofenergydemandandaswitchtorenewableenergycarriers.Inthecaseofgasforexample,aCO2taxwouldincreasethepriceofnaturalgas,butnotofrenewableoptions,creatingamorelevelplayingfieldforalternativessuchasrenewableelectricity,districtheat,orbiomethane.CalculationsfortheNetherlandsshowthataCO2priceofEUR43/tonwillreducetheuseofnaturalgasbyalmosthalfinacost-effectivescenario(CEDelft,2019).However,duetothelowpriceelasticityforheatingfuelsingeneral,pricingmustbeaccompaniedbysupportingandregulatorypolicies.AdrawbackofCO2-pricingistheincreaseofenergypovertyifnoadditionalmeasuresaretaken.Energypovertycanbealleviatedorpreventedthroughdeliberatepolicymeasures,supportingthegeneralpricingandregulatorypolicies:•Re-investmentofrevenuesandadditionalfinancialsupportofbuildingefficiencymeasurestargetedtowardslowerincomegroups,suchasmodernisationschemesformulti-familyblocksandprovidingfreeinsulationmeasures(seeBox4)•Energyallowance,e.g.throughenergytaxexemptionordeduction•Progressiveenergytaxation,whereanincreaseinconsumptioncorrespondstoanincreaseinunitprice.BOX4:ENERGYPOVERTYMEASURESUNDERTHEPOLISHCLEANAIRPROGRAMMEUnderthePolishCleanAirProgramme,specialrulingsareinplaceforenergy-poorhouseholds.MunicipalitiescanreceivegrantsfromtheCleanAirProgrammetosupportenergy-poorlivinginsingle-familyhomesbyinvestingininsulatingtheirhomesandreplacingtheirheatingequipment.Oneofthesolutionsformunicipalitiesisconnectingsingle-familybuildingswheretheenergy-poorresidetodistrictheating.99SeeStopSmogProgrammewebpage:https://czystepowietrze.gov.pl/stop-smog//24ZEROCARBONBUILDINGS2050:SUMMARYREPORTREDUCINGEMBEDDEDEMISSIONSOFBUILDINGMATERIALSExistingsupply-sidepolicieshavenotbeeneffectiveinreducingembeddedemissionsofconstructionandrenovationmaterials,whichcontributearisingpercentageoftotalresidentialbuildingsectoremissions.Embeddedemissionsarethecarbonemissionsassociatedwithmaterialsandconstructionprocessesthroughoutthewholelifecycleofabuildingorinfrastructure.Theycurrentlycontributeto8%oftotalemissionsfromtheresidentialbuildingsector,andthissharewillincreaseovertime(seeFigure1).CurrentindustrypoliciesregulatingtheproductionofconstructionmaterialssuchastheEUETShavenotreducedembeddedemissionsandtheemissionsreductionisnotontracktoreachitsobjectives(EuropeanEnvironmentAgency,2019b).Decarbonisationofmaterialsandindustryalsoneedstobedrivenbypolicytargetingthedemandside,byintroducingrequirementsforthebuildingsandconstructionsectorthatcreateamarketforlow-carbonmaterialsandproductsthatarelow-carbonandmayhavehigherpricesthanconventionalalternatives.Theserequirementsshouldtargetoperationalandembodiedemissions(“wholelifecarbon”)inanintegratedmannertoavoidhavingasituationwhererequirementsonembodiedemissionsdisincentiviseeffortstotackleoperationalemissions(WGBC,2019).Sucharequirementtargetstheobjectiveofdecarbonisation,whileleavingroomfordifferentsolutionstoreachthisobjectivetobeused,incontrasttosettingarequirementfortheuseofacertainspecificsolution(suchastargetsforapercentageofrecycledmaterialsorwoodbuilding).Inordertofacilitatethisbuilding-levelapproach,theLevel(s)frameworkwasdeveloped.Level(s)isavoluntaryreportingframeworkonbuildingsustainability.Theframeworkiscurrentlybeingtested(EuropeanCommission,2020).Afirststeptowardsincludingwholelifecarboninrequirementsistoexplorehowthiscanbeusedinprocurement,suchasdescribedintheEUCircularEconomyActionPlan.TheEPBDprovidesanopportunitytosetspecificrequirementsfortheclimateperformanceofbuildings.Itsscopecanbeextendedtosetcriteriaforbothoperationalandembodiedemissionsinthetransitiontonet-zerocarbonbuildings.Thiscanensurethatlifecyclecarbonemissionsareconsideredinthedesignofnewbuildingsandmajorrenovations./25TIMELINEThefulldecarbonisationofthebuildingsectorrequirescomprehensivepolicypackagesthatconsistofamixofpolicyinstruments,thattogethercreatedemandforandanuptakeofbuildingrenovation,zero-carbonheatinganddecarbonisedmaterials.Sincetheareaswithinthebuildingsectorallhavelonginvestmentlifetimesandothertriggermomentsoccurinfrequently(seeFigure3),pricingandregulatorypoliciesareneededurgentlysothattheseinvestmentcyclescanbeoptimised.Thereisapathwaytowardsmorebindingpoliciesthatcanreceivebroadsupport.Pricingandregulatoryinstrumentsneedtostartatalowlevelandbeannouncedwellinadvancesothatconsumerscanplanforthischange,supplychainscandevelop,andcompaniesandinvestorsknowwheretofocus.Inparallel,financialsupportisneededtofacilitatethetransitionandtoensurethatitisjustforall,includingenergy-poorhouseholds.Afterimplementation,thepricelevels,requirementsandstandardsneedtoincreaseorbestrengthenedbysettingintermediateobjectivesinlinewiththeEUtargets,toreach100%decarbonisationby2050,andthistimelineshouldbeannouncedinadvance.STIMULATINGINNOVATIONTOACHIEVEDECARBONISATIONTotransitiontoanet-zeroemissioneconomybyorbefore2050,allavailabletechnologieswillneedtobescaledupanddeployedatanexceptionalpace.Thistransitionalsorequiresrapidlyincreasingthereadinessanddeploymentofanextgenerationoflow-carbontechnologies,innovativeandenablingbusinessmodelsandcustomerengagement.Throughinnovation,renovationanddecarbonisedheatingcanbetransformedandacceleratedmuchlikewhathashappenedforsolarPVandLEDs.Innovationinthebuildingsectorgoesbeyondnewtechnologieslikeheatpumps,sensorsandlow-carbonbuildingmaterials,andalsoincludesproductinnovation(e.g.prefabricatedbuildingcomponents),businessmodelinnovation(e.g.theDutchEnergiesprongproject),andsocietalinnovation(e.g.acceptanceofnewtechnologiesoraesthetics).Inaddition,innovationisessentialtoreducethecostofdecarbonisationmeasuresandtoovercomeotherbarriersfordecarbonisation,suchasthehassleofrenovationsandlackofinformationabouttheperformanceofsolutions.Inaddition,innovationwillcontributetootherobjectivesbesidesdecarbonisation,suchasclimateresilienceandacirculareconomy.Inordertostimulatethisinnovationinthebuildingsector,policiesneedtogobeyondfinancingforresearchandinnovation(R&I).Regulatorypoliciesareneededtocreateapullfromthemarket.Thesepolicieswillnotonlyhelpdecarbonisationwithexistingtechnologyandbusinessmodels,butalsocreatetheneedormarketfornewsolutions.Inordertoscaleupinnovation,bothanimprovementoftheconditionsforinnovationonthesupplysideaswellasamarketdemandforinnovativedecarbonisationsolutionsareneeded.Policiessofarhavefocusedonfinancingschemesforresearchandinnovation,buthavenotchangedthemarkettocreatethisdemand.Financingschemesforinnovativeproductsareawaytocreatedemand,butarenotsufficientbythemselvesduetolimitedresponsefromthemarket./26ZEROCARBONBUILDINGS2050:SUMMARYREPORTTherefore,regulationisneededtotriggera“pull”fromthemarketandcreatealevelplayingfieldthatmakesinnovativesolutionscompetitive.OnesuchpolicyinstrumentisMEPRsorBuildingPerformanceStandardsforexistingbuildings.Thesesetaminimumstandardeverytimeahomeisrenovated,soldorrentedout,oratacertainmomentintime(suchastheDutchrequirementoncommercialbuildings).Standardscantargetthebuildingenvelope,equipment,oracombination.Thesestandardsneedtoconsistentlyimprovetowardsthenecessarylevelfor2050.Requirementsarealsoneededintheareaofembeddedemissionstocreatedemandfordecarbonisedmaterials.Onthesupplyside,innovationcanbestimulatedbytraditionalR&Ifunding,butcanalsobenefitfrommeasuresthattargetspecificbarriersinthebuildingsector:•Fundingforinnovationintheconstructionindustry:Theconstructionandrenovationsectorisdominatedbysmallandmediumenterprises(SMEs),whichoftenhavelimitedtimeandresourcesforinnovation.Therefore,thesebusinessesneedfinancialsupporttoinnovate.Subsidiesortaxincentivesforbusinessesthatformcollaborativeoffersadditionallyhelpintegratethesupplychain(seeBox5).•Creationofinnovationecosystems:Innovation“hubs”canconnectdifferentactorsintheinnovationvaluechain,includinguniversities,technologysuppliersandconstructioncompanies.BOX5:STIMULATINGINNOVATIONINPOLANDTHROUGHSMEGRANTSPolandhasdevelopedagrantschemetostimulatecoalboilermanufacturerstoswitchtoheatpumpproduction.TheIntelligentDevelopmentOperationalProgrammeisalargeinnovationsubsidyprogrammethatstimulatesresearchanddevelopment.Itisco-financedbytheEuropeanRegionalDevelopmentFund.Itincludesasubsidyprogrammeof200millionPLN(48millioneuro)forresearchinstitutions,consortiaandSMEstodeveloplow-emissionheatingtechnologies(NarodoweCentrumBadańiRozwoju,2019).Regulatorypoliciescanbemetwithresistanceifimplementedabruptly,butbacklashcanbepreventedinnumerousways.Policiesandframeworkscanbeco-designedwithcitizensandmarketpartiesusingcitizenconsultationpractices.Inaddition,standardsandnormscanbeintroducedatmoreacceptablelowerlevelsandstrengthenedovertime.Newbuildingswillalsohelpdrivechangeintheconstructionsector.Bydemonstratingthatbuildingscanbesmarter,moreefficient,morecomfortable,andhealthier,newbuildingscanprompthouseholddemandforbetterexistingbuildings.Atthesametime,contractorsanddeveloperswilldeveloptheexpertisetoapplysimilartechnologiesinrenovations./27Ifdemandiscreatedforinnovationinthebuildingsector,alargemarketcanbedevelopedinsideandoutsidetheEU,withmultipleco-benefitssuchasthecreationof(qualified)jobs,circularity,andshortersupplychains.Buildinginnovationcouldhaveatransformationaleffectasithashadinothersectors.Toachievethat,innovationneedstobestimulated,notonlybyfinancialsupportofR&Iprojectsanddemonstrators,butbysettingtherightframeworkfordeploymentthroughregulatorypolicies.Beyondpoliciestoincreasetechnology,businessmodelandsocietalinnovation,innovationinthepolicy-makingprocessitselfisneededtocreatemoreeffectivepoliciesandcitizensupport.Citizenconsultationandco-designofpoliciesareanexampleofthis.Also,policiescanbedevelopedthatareintegrativeintheirapproachinordertotargetmultiplebarriers(seeBox6).BOX6:INTEGRATIVEAPPROACHINTHEPAREER-CRECEPROGRAMMEINSPAINThePAREER-CRECEprogrammeisafundwhichgrantsfinancialaidandrepayableloanstoprojectsthatimprovetheenergyperformanceofbuildings.Apartfromfinancialaid,thePAREER-CRECEprogrammealsoofferstechnicalexpertise,helpwithproceduresandhelpwithidentifyingpartners.Therefore,asingleoperatorcanassistduringtheentireprocessofrenovationwhichmakesiteasierforhomeownerstoinvest(MinisteriodeFomento,2017)./28ZEROCARBONBUILDINGS2050:SUMMARYREPORTREFERENCESAgoraEnergiewende&AgoraVerkehrswende,2019.15EckpunktefürdasKlimatschutzgesetz,Berlin:snAlgemeneRekenkamer,2020.Resultatenverantwoordingsonderzoek2019MinisterievanBinnenlandseZakenenKoninkrijksrelaties,De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opeanclimate.org/net-zero-20502050@europeanclimate.orgPREVIOUSREPORTSINTHENET-ZERO2050SERIESINCLUDE:“NetZeroBy2050:FromWhetherToHow”(September2018)“FundingInnovationtodeliverEUCompetitiveClimateLeadership”(November2018)“Net-ZeroAgriculturein2050:HowToGetThere”(February2019)“TowardsFossil-FreeEnergyin2050”(March2019)“IndustrialTransformation2050–PathwaystoNetZeroEmissionsfromEUHeavyIndustry”andIndustrialTransformation2050–TowardsanIndustrialStrategyforaClimateNeutralEurope”(April2019)“PlanningforNetZero:assessingthedraftNationalEnergyandClimatePlans”(May2019).“ClimateLawsinEurope:GoodPracticesinNet-ZeroManagement”(February2020).