Greenhouse policies

20 March 2008

In A New Position Paper, Fiec has warned the European Commission and Member States that unless dramatic measures are taken to address dysfunctional markets in energy efficiency, its ambitious plan to cut greenhouse gas emissions will fail.

FIEC's reaction follows the decision by the Heads of State and Governments meeting in Brussels in March to proceed with the European Commission's Action Plan to cut greenhouse gas emissions by -20% by 2020, compared to the base year of 1990. Without any doubt, this decision is excellent news for the construction industry. Europe's built environment – mostly buildings – accounts for over 40% of energy demand and about one third of all emissions, making it the largest single emissions source and quite rightly the priority target for reductions.

Buildings therefore offer the greatest scope for improving energy efficiency, and also have the potential for the most cost-effective improvements. However, such renovations are currently carried out in a piecemeal fashion, which is not cost-effective, and these improvements are generally taxed by way of VAT, which is utterly counterproductive. This lack of coherence and ‘joined-up thinking' threatens the success of the Action Plan.

The major source of greenhouse gas emissions from buildings is related to heating and cooling them. Reducing these emissions requires alterations to the fabric of buildings, which will obviously be more difficult and therefore expensive than carrying out the equivalent work on a new build project. This will mean there is a longer pay-back period for such improvements, which will make them more difficult to finance.

Nevertheless, it is here that the greatest potential for energy savings and emissions reductions lie, so it is here that requires the greatest effort. Reducing CO2 emissions through renovation also requires a coherent framework, rather than the current piecemeal approach which is not as cost-effective as it could be.

FIEC also regrets that the Action Plan fails to propose adequate measures to address the fundamental problem of the dysfunctional market in energy efficiency. Persuading building owners to invest in improved energy performance is often prevented because of the lack of economic incentives – either the measures required are too expensive or the price of energy is too cheap, or both. If the Commission's Action Plan is to stand any chance of success, this “dysfunction” needs to be addressed and rectified as a matter of urgency.

Incentives

FIEC believes that energy performance certificates – that will soon become commonplace following the enactment of the Energy Performance of Buildings Directive – must be linked to a series of tax incentives and subsidies. There are a number of ways in which this could be done.

First, all building renovations should be free of VAT. The only condition should be that on completion the building must achieve a pre-determined level of energy performance as laid-out in the original energy performance certificate.

Second, there should be subsidies for the renovation work, the level of which should be set by each Member State individually.

Third, there should be preferential tariffs for energy supply on a graduated rising scale that would penalise excessive energy consumption, thus incentivising energy efficiency and taxing carbon emissions that can be cost-effectively avoided.

Transport

FIEC also believes that absolute priority must be given to cutting emissions from buildings since any serious attempt at cutting emissions from transport and industry will either fail or damage future economic growth. Cutting emissions from buildings on the other hand is immediately and technically feasible and has only beneficial effects such as reduced pollution, job creation, increased comfort and lower fuel bills.

FIEC Position

FIEC is therefore calling on the Commission and Member States:

• when reviewing the reduced rates VAT Directive which comes to an end in 2010, to ensure that a reduced level of VAT can continue to be applied so that it does not discourage the renovation of buildings for which owners undertake commitments to raise their energy efficiency;

• to judiciously offer inducements in the form of subsidies and/or tax relief on construction work that specifically raise the energy performance of existing buildings;

• to encourage, or if necessary legislate, to oblige energy providers to offer graduated scales of energy supply tariffs to occupiers of those buildings energy certified to a high standard that promote the rational use of energy and correspondingly penalise avoidable carbon emissions (promote thrift – discourage waste!)

Europe's built environment – mostly buildings – accounts for over 40% of energy demand and about one third of all emissions, making it the largest single emissions source

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