4. Michael MacBrien.European Green Deal.Warsaw 2023.ppt

4. Michael MacBrien.European Green Deal.Warsaw 2023.ppt

1. European Green Deal
Now we know what the deal is, it’s time to value
Michael MacBrien
Adviser to TEGOVA, editor of European Valuer,
director general of the European Property Federation and
founding partner of MacBrien Cuper Isnard European Affairs
PFVA/TEGOVA European Valuation Conference
Warsaw, 16 June 2023

2. Context
The EU has been regulating energy efficiency in buildings since the first
Energy Performance of Buildings Directive of 2002.
What it achieved was significant, but no game-changer. Basically:
•An energy performance certificate when buildings are sold or rented
out (2002)
•An obligation to do some energy efficiency renovation whenever a
major renovation is undertaken (‘major renovation’ = renovation of more
than 25% of the outer shell or costing more than 25% of the value of the
building), first for buildings over 1000m² (2002), then for all buildings
(2010)
•New buildings have to be near-zero energy buildings (NZEB) (2018)

3. By 2012, there was also another directive (the Energy
Efficiency Directive) imposing energy renovation of 3% of
government buildings per year
3% per annum is double the normal renovation rate, but the loopholes
were significant.

4. Markets never noticed any of this, and therefore, nor did
valuers.
Nor should they.
Valuers follow the market.
They analyse it.
They interpret it.
They don’t make the market. They can’t create ‘energy efficiency value’
out of nowhere.
It was hard work getting the European Commission to understand that.

5. And then came 2021:
The European Green Deal and the European Climate Law
The Green Deal is the strategic child of Jacques Delors and Lord
Cockfield’s 1985 Big Bang 300+ laws to complete the Single Market.
All the Green Deal legislation was tabled in July and December 2021 for
the entire economy: buildings, industry, the digital economy, transport
and farming.
And all sectors must reduce emissions by 55% by 2030.
And that’s what put the lock on the building sector …

6. The fact that the 2030 55% GHG reduction target
can only be reached by covering all those sectors
makes it impossible to ‘shift’ the burden from
buildings to the other sectors
•First, because of the share of buildings in the overall equation (36% of
EU GHG emissions and 40% of energy consumption)
•And second, because the other sectors are being hit just as hard,
causing rapid and hyper-expensive reorganisation of whole industries.
We now see that it wasn’t politically or practically possible to
increase their burdens to alleviate buildings. You see how the
German car industry kicked and screamed about the 2035
combustion engine cut-off. No way were they going to make it 2030
so that buildings could have some slack.

7. For buildings, it’ll be another six months before
the last brick is in place, but we have enough to be
sure that the job will be done
The revolution of the decarbonisation of the European building stock
flows from a four-pronged approach:
1.Horizontal EU energy efficiency and renewables targets Done deal
2.Building renovation regulation
A.Revision of the Energy Efficiency Directive’s Article on the exemplary
role of public bodies’ buildings Done deal
B.Revision of the Energy Performance of Buildings Directive
3.Extension of the EU Emissions Trading System to buildings Done deal
4.EU funding for building renovation Semi-done

8. Done deal
1. Horizontal EU energy efficiency and renewables targets
(Energy Efficiency Directive and Renewable Energy Directive)
Energy efficiency: A reduction of energy consumption of 11.7% in 2030
compared to 2020
Renewable energy: The share in energy from renewable sources in the Union’s
gross final consumption of energy in 2030 is raised from 22% today to 42,5%.

9. These targets are very high impact for the building sector
Because although the figures concern all sectors of the economy,
as buildings are – as we saw – by far the biggest source of emissions
(36%) and energy consumption (40%),
the targets can never be met without major building emissions
reductions and switch to renewables.

10. 2. Building renovation regulation
2.A. Revision of the Energy Efficiency Directive (EED)’s Article on the
exemplary role of public bodies’ buildings
2.B. Revision of the Energy Performance of Buildings Directive (EPBD)

11. Done deal
2.A. Revision of the Energy Efficiency Directive
(EED)’s Article on the exemplary role of public
bodies’ buildings
A lot was at stake here, because if governments pulled back on their own
obligations, how could they possibly have imposed anything on the
private sector and individual citizens in the EPBD?
That’s why in the end they came through and the result is spectacular:

12. Energy Efficiency Directive Article 6
Exemplary role of public bodies’ buildings
Existing Directive
3% of buildings owned and occupied
by central government must be
renovated each year to the level of
the minimum energy performance
requirements of the EPBD.
Revised Directive
3% of buildings owned by public
bodies must be renovated each year
to nearly-zero energy building
(NZEB) level.
NB: New buildings (necessarily zero-
emission under the new EPBD)
replacing buildings demolished less
than two years before count toward
the 3%.

13. Energy Efficiency Directive Article 6
Exemplary role of public bodies’ buildings
Existing Directive
Buildings rented by government
from private sector landlords:
 
Nothing
Revised Directive
Buildings rented by government from
private sector landlords:
“Where public bodies occupy a building that
they do not own, they shall negotiate with the
owner, in particular when reaching a trigger
point such as renewal of rental, change of
use, significant repair or maintenance work,
with the aim of establishing contractual
clauses for the building to become a nearly
zero-energy building.”

14. 2.B. Energy Performance of Buildings Directive
New buildings
Existing Directive
Since 2021*, all new buildings have
had to be near-zero energy buildings
(NZEB).
* The Directive dates from 2018, but the
obligation only kicked in as of
01.01.2021.
Revised Directive
All new buildings to be zero-emission
Deadlines still under discussion:
Parliament:
•New public buildings: 2026
•All new buildings: 2028
Council:
•New public buildings: 2028
•All new buildings: 2030

15. Energy Performance of Buildings Directive (EPBD)
Minimum Energy Performance Standards (MEPS)
Existing Directive
The renovation obligation only kicks
in when the owner freely decides to
do a major renovation.
Revised Directive
Commission Proposal: An absolute
obligation to renovate the 15%
worst-performing public and private
building stock (EPC ‘G’) by 2027,
2030 or 2033 according to the type
of building or ownership. (to F & E)
Parliament: Same as Commission
only tougher (to E and D)

16. MEPS: Council of Ministers (1)

17. MEPS: Council of Ministers (2)
Single family houses:
•No renovation obligation for those who stay in their homes or inherit
them
•For homes that are sold, rented, donated or converted after 1 January
2028, the buyer, landlord, beneficiary of the donation or converter has
to renovate to EPC class D within five years of the sale, rental, donation
or conversion

18. MEPS: Council of Ministers (3)
Council threw in an obligation on each member state to end co-
ownership requirements for unanimity decisions on building
renovations.
An amazing incursion into a ‘sovereign’ national policy area.

19. EPBD: Rooftop solar installation
An ‘extra’ introduced by the Commission in May 2022, five months after
the Directive was tabled:
Mandatory rooftop solar installation by end 2026 (new public and non-
residential), end 2027 (existing public and non-residential) or end 2029
(new residential).
The only real estate exempted is:
•Existing residential
•Public and commercial buildings smaller than 250 m² or with low solar
potential (limited access to light, etc.)
This comes with further EU regulation limiting the length of permitting
for rooftop solar installations, including large ones, to a maximum of
three months. Another infringement of member state ‘sovereignty’.

20. Done deal
3. Extension of the EU Emissions Trading System
(EU ETS) to buildings
This was conceived as the essential third pillar of building
decarbonisation: making fossil fuel energy gradually and constantly more
expensive to pressure people into renovating.
But early on, the European Parliament got cold feet … understandably.
They feared backlash once people saw that an EU mechanism was
freezing them out of their homes.
There was talk about putting it off for residential until 2029 and even of
dropping it altogether, but in the end, they watered it down.

21. EU ETS for buildings (EU ETS II) – The water-
down
If the price of an allowance in EU ETS II rises above 45 EUR/ton, 20
million additional allowances will be released to increase the supply on
the market.
My understanding is that that will be
 like a carbon tax but won’t be a
high enough price signal to incentivise major renovation because the
actual CO2-avoidance costs range between 100-300 EUR/ton
 
in the
building sector.
Of course, the war has provided the price signal big time so for the
foreseeable future this a not an issue.

22. Semi-done Deal
4. EU funding for building renovation

TEGOVA’s EU funding pitch: with the Energy Commissioner’s cabinet,
the European Parliament and the Council of Ministers
“There has to be an EU solution guaranteeing access for all EPC ‘G’ and
‘F’ level EU homeowners and microenterprises to affordable long-term
funding for deep home and microenterprise renovations. The EU political
and financial authorities must find a way of working with retail banks to
offer millions of unified EU Renovation Loans backed with public
guarantees and linked to the buildings’ value.”

23. Remember, we asked for “unified
EU Renovation Loans backed
with public guarantees”
Energy Efficiency Directive Done deal
The Commission shall evaluate whether an energy
efficiency mechanism at Union level, with the
objective to provide an EU guarantee, technical
assistance and associated grants to enable the
implementation of financial instruments, and
financing and support schemes at national level,
could support in a cost-effective way the
achievement of the Union energy efficiency and
climate targets, and, if appropriate, propose the
establishment of such a mechanism.
To that end, the Commission shall submit by ... [30
March 2024] a report to the European Parliament
and the Council, which may be followed, if
appropriate, by a legislative proposal.
EP amendment to EPBD
The Commission and the
European Investment Bank
shall ensure access to finance
at favourable conditions,
facilitating the deployment of
financial instruments and
innovative schemes, such as a
European renovation loan or
a European guarantee fund
for building renovations.

24. How TEGOVA is adapting valuation standards
and guidelines
We already have EVS 6 Valuation and Energy Efficiency:
“A legal obligation to renovate a building to a higher level of energy
efficiency by a fixed date or at a certain inflection point (e.g. rental, sale)
creates an unavoidable major cost that impacts Market Value, as the
owner at that date or inflection point will have to pay for renovation
works.
Valuers must be aware of these legal deadlines and inflection points and
when they appear, must estimate the cost of a renovation deep enough
to meet the required new level of energy efficiency or future
requirements that are sufficiently close to coming into force and
consider the extent to which these costs affect the Market Value at the
date of valuation.”

25. Easier said than done!
How do you do that and, very importantly, how do you do it cost-
effectively within the framework of what you’re being paid for the
valuation?
EVS 2025 will contain a Guidance Note to flesh out EVS 6.
But some of TEGOVA’s 71 member associations from 38 countries aren’t
waiting around …

27. And the European Valuation Standards Board
intends to learn from them
For instance, in the article in the current issue of European Valuer by
Alfredo Sanz Corma, President of the Spanish General Council of
Technical Architecture:
“Valuers have to sound out the market and detect the growth in value of
properties caused by their energy characteristics and performance.
They also need to be able to estimate the reduction in energy bills as
well as the cost required to make the energy improvement. They do so
by considering aspects such as grants in addition to tax breaks and the
possibility of financing energy improvement work.”

28. It’s not good enough to write standards and
articles – Our valuers need to be seen to be
on top of all this
And that of course means TEGOVA’s valuation elite: REVs and TRVs.
It doesn’t matter that those recognitions have really taken off and that
we’re getting more and more requests for REV status from valuers in
countries that don’t have an REV-awarding TEGOVA member association
because their bank clients are demanding it.
We need to do whatever it takes – guidance, training, conferences, CPD!
– so that our REVs and TRVs master energy efficiency valuation, the great
professional challenge of our time and something that the European
authorities expect of us, especially the European Central Bank, if we
want to be sure that they keep on giving EVS precedence over all other
standards.