The European Union faces the urgent challenge of tripling the decarbonisation rate of its building stock to meet its 2030 climate targets, which entails a 55% reduction in sectoral emissions compared to 2022, says a report published by Bruegel. Despite the potential of energy renovations to cut heating bills by up to 85%, structural barriers persist, including high upfront costs, a lack of clear economic incentives, and administrative complexity.

The new Emissions Trading System (ETS2), set to take effect in 2027, aims to address these distortions by introducing stronger price signals for fossil fuels. However, without decisive action by Member States to implement the Energy Performance of Buildings Directive (EPBD), there is a significant risk that households will face energy costs comparable to or exceeding those experienced during the 2022 energy crisis.

To bridge the estimated €149 billion annual investment gap through 2030, the report advocates a mix of grants, preferential loans, and energy performance contracts, with priority given to the worst-performing buildings, often occupied by vulnerable consumers. It also calls for reforming energy taxation, phasing out fossil fuel subsidies, and mobilising the banking sector through public guarantees and accessible financial products. Additionally, the expansion of one-stop shops is recommended to streamline the renovation process and improve data collection on energy efficiency.