Riho Terras: European renovation directive steamrolling private owners

Riho Terras.
Riho Terras. Source: Priit Mürk/ERR

The Energy Performance of Buildings Directive (EPBD) undermines the right of ownership as laid out in the European Charter of Fundamental Rights. Private property is sacred and attacks against it need to be fought off, MEP Riho Terras writes.

The energy performance directive will lay down a renovation obligation aimed at improving the energy efficiency of buildings currently worst off in those terms. It is part of the "Fit for 55" plan to reduce CO2 emissions. However, it fails to answer a simple question: if owners are obligated to renovate their properties, where should the money come from?

If the person does not have the money needed for renovation, they will have to borrow it. If they fail to renovate their building, its value will fall, which is especially painful if the property was purchased using a loan based on its initial price. The ban on renting out unrenovated property is especially draconian.

The Estonian Constitution provides that everyone is in charge of possessing, using and disposition of their property. The Supreme Court has found that the right to the free possession, use and disposition of property ensures the free market. What will become of this democratic fundamental right if we basically prohibit owners from taking decisions regarding their property?

Where will money necessary for renovation come from?

The directive will create a colossal construction bubble. It amounts to renovating 40 percent of the EU housing fund in the next ten years. In Estonian context, it will mean the need to renovate 350,000 homes/residences/apartment buildings.

The accompanying pressure will drive up construction prices and raise the question of the availability of qualified workforce. All on the backdrop of the energy crisis and the Ukraine war. Colleagues from Germany have suggested it costs on average €100,000 to renovate a household, which can in some case exceed the total property value. Estonian and EU homeowners estimate that executing the renovation plan will cost €350 billion annually.

The obligation also forces northern Member States to invest more as energy is inevitably a bigger expense in this part of the world. This will lay considerably bigger obligations on some Member States and add to inequality. What is more, less wealthy Member States will already find the directive harder to comply with.

The proponents of the renovation obligation claim that the cost of the measure is irrelevant as it will lead to lower heating and energy bills. However, homeowners are free to renovate their properties as is. The reason many don't is lack of resources, which an obligation to renovate hardly solves. Instead, the new obligation works to undermine the right of ownership and fosters distrust in the EU.

What next?

The European Parliament will vote on the directive on March 14. At least punishments for property owners have been taken out of the directive. That said, penal measures are still prescribed in the Council position, meaning that it cannot be ruled out they will make the directive after the Parliament and Council negotiations.

Even if the penalties are not applied immediately, they will probably be introduced in 2027 after the directive is reviewed and updated. This despite the fact that the European Commission's own Legal Service has questioned the justification of measures and corresponding effects analyses. The service is an independent watchdog and does not follow the Commission's political guidelines. This clearly suggests that the directive is purely ideological instead of being based on rational or practical considerations.

Let us emulate the Americans

When it comes to hitting climate targets, the EU has been preferring the use of the stick over the carrot from day one. What we get are orders, bans and new obligations, instead of motivation schemes and support measures. If voluntary renovation is not happening fast enough for the green transition and we need to speed up the process, this needs to be done using the carrot.

The energy and climate part of the Americans' over 700 billion Inflation Reduction Act holds around 370 billion. It includes tax breaks, benefits and fixed energy prices for the next decade. That is how the Americans go about the green transition.

In Europe, we have bans in its place and vital support measures are few and far between. Recent signals concerning the latter have been vague. While it is said that ECB-backed loans for green targets will happen, no concrete steps can be seen. Even if schemes will eventually be put together, they will rather not be enough, looking at the total volume of investments. Were they in line with actual needs, no obligation would be necessary as people would be motivated to renovate their property voluntarily.

Therefore, we need to ensure necessary financial resources before laying down new obligations. In addition to state and KredEx measures, we could also have local government housing fund support. Estonian local governments can open counseling centers to support buildings' energy efficiency. All of it is a matter of priorities.

EU and Estonian politicians must finally realize that planned climate targets can only be met in a human-centered way and with respect for core values. Private property is sacred and leftist measures of coercion and menace will not prove effective.


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Editor: Marcus Turovski

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