EU needs to step up with the transition to more energy-efficient houses

Alexander Carlo
8 September, 2022

Winter is coming and it is bringing a cold awakening with it. The message is that prevention is better than cure. One thing is clear, we are in the midst of a severe cost-of-living crisis, as inflation is running rampant in almost all western countries. Recent reports indicate that inflation reached a record 12% in the Netherlands in the month of August, the highest it has been in decades! One key component of this significant increase in inflation has been increasing energy prices, especially that of natural gas.

On Monday the 5th of September, the price for natural gas increased by a staggering 30% after the Russians announced that they would close the Nord Stream 1 pipeline indefinitely for maintenance. This is another chapter in the current energy crisis, which started last summer and has intensified with the Russian invasion of Ukraine. The price for gas on Wednesday 7th of September was €213 per MWh. Around the same time one year ago, the price was €53.91 MWh, constituting an approximately 300% increase year-on-year (see figure 1).

Figure 1

Graph 28 01

Data: Dutch TTF Gas Futures (TGV22) / Source: FactSet

We are now paying the price for our dormancy….literally
According to Eurostat data, natural gas accounted for 31.7% of the final energy consumption in EU households in 2020. Additionally, more than 50% of the buildings in Europe have been built before 1970, are not insulated properly, and are thus very energy inefficient. As a result, it should be no surprise that a lot of households across Europe are finding themselves in an incredibly dire financial situation. Let’s look at the UK, which is one of the most affected European countries. A recent article by Bloomberg documents that energy bills for households in the UK are set to increase by 80% from October. This is forcing households to take drastic measures to cut back on their energy bills, such as spending more time in the office and cooking fewer meals. There are even campaigns, like Don’t Pay, where people are joining together in the fight against increased prices, threatening to withhold payment on their energy bills if the government does not provide assistance.

Energy Efficient Houses: we didn't go for the carrot, so we get hit by the stick
The value proposition for energy-efficient houses has always been two-fold. First, energy-efficient houses would reduce unnecessary energy consumption and limit greenhouse gas emissions. This is crucial if we are serious about responding to climate change, as the built environment is responsible for approximately 40% of the global carbon emissions. The second argument is from the financial perspective, as energy-efficient housing provides significant savings on the energy bill of households. Yet, the investments and policies needed to foster the refurbishment of houses to make them more energy efficient, have been lackluster across the board. For that, we are now paying the highest price.

Prevention is better than cure
Tomorrow the EU energy ministers will convene for an emergency meeting, to discuss possible measures to reign in the increasing energy costs. According to EWA Krukowska from Bloomberg, these measures were primarily focused on putting caps on the price of energy generation. Given the current state, I completely agree that relief measures are essential to provide financial relief to the households that are suffering the most.

However, I hope that there is some focus as well on long-run solutions. For example, government agencies should revisit their building codes, with a focus on features for energy efficiency. Furthermore, governments should make space in their budgets for programs that subsidize the refurbishment of houses with the sole purpose of making them more energy efficient. Italy is already leading the way with its energy transition program, which includes tax rebates that can be transformed into a 100% upfront discount! The time to make the right decision is now, and I hope that the EU does it.