Carbon impact on wallets and budgets: A significant jump in housing prices will push for energy renovation

The European Union does not give up on the (overly) ambitious goal of becoming a carbon-neutral economy by 2050, but the cost of that is increasing every day. As is well known, Brussels adopted a binding target to reduce net carbon dioxide emissions by at least 55 percent by 2030 at the end of 2020. To achieve this more ambitious climate goal, the European Commission concluded that it is necessary to increase contributions from all sectors. Therefore, as part of the revision of the EU Emissions Trading System (ETS) Directive, it proposed to extend trading to buildings and road transport.

In short, these two new sectors will have to invest in reducing their emissions if they want to save significant money that could potentially be taken away by the emissions trading system. However, energy renovation of buildings and increased purchase of electric or hydrogen vehicles also requires huge money. To mitigate the social consequences of the green transition on the financially most vulnerable groups, the Commission proposed the establishment of a Social Climate Fund three years ago as part of the ‘Ready for 55’ package of measures. According to the Brussels administration, it will be financed from the sale of emission units at auction in the total amount of 65 billion euros, and an additional 25 percent will be obtained from national resources. This raises the total amount to almost 87 billion euros.

Investment Opportunities

Senior expert associate at the Society for Sustainable Development (DOOR) Anamari Majdandžić explains that, according to the regulation establishing the Social Climate Fund, Croatia should have approximately 1.94 billion euros at its disposal.

This money should be directly used to assist vulnerable households, micro-enterprises, and transport service users, who will be most affected by the inclusion of greenhouse gas emissions from buildings and road transport into the emissions trading system.

– The regulation requires member states to develop a social climate policy plan that will define not only particularly vulnerable user groups at the national level but also measures to mitigate vulnerability. The Ministry of Environment and Green Transition is responsible for developing the plan. The Ministry has also appointed a working group to assist them in the development – says Majdandžić.

There is not much time for preparation as the plan must be completed and sent to Brussels for approval by June next year.

Danijela Ošust from the Sector for Industry and Sustainable Development of the Croatian Chamber of Commerce is also a member of that working group. She says that the domestic economy can use funds from the Social Climate Fund for a wide range of investments that will support the green transition.

– Specific investments include energy renovation of buildings, support for access to energy-efficient housing, including sustainable social housing, decarbonization of heating and cooling systems, and promoting the use of low and zero-emission vehicles, as well as developing affordable and sustainable public transport options – claims Ošust.

Precise Determination

According to her, funds from the Fund will be drawn based on achieved key goals and stages that will be defined in the national social climate policy plan.

– The plan must be approved by the European Commission, and disbursements will be conditioned on the achievement of measures such as energy renovation, decarbonization of transport, and emission reduction – Ošust states.

Majdandžić believes that the establishment of this fund and the measures planned with it will greatly contribute to combating energy poverty and poverty in transport, provided that the user groups are well defined in the national plan and that the state regularly announces renovation programs and provides regular support precisely to those users who need it most.

– Unfortunately, until now, the regularity of such calls has been one of the main challenges as the only call for renovation for energy-poor households was announced in 2020, and the program currently being implemented targets only buildings owned by the state or local government units in areas of special state concern – says this expert.

Money for Renovation

In the future, she assesses, stronger efforts need to be made to reduce energy poverty because the new emissions trading system will significantly increase both housing prices and energy prices, which almost one-fifth of Croatian citizens who already live on the edge of poverty will find it difficult to afford or will not be able to afford at all.

According to available information, over the past ten years, more than a thousand multi-family buildings and twenty thousand family houses have been energy renovated in Croatia. As emphasized by the president of the Association of Apartment Building Co-owners in the city of Zagreb, Zdravko Vladanović, by 2016, 470 multi-family buildings and about 13 thousand family houses had been renovated as part of the Environmental Protection and Energy Efficiency Fund’s competition.

– Since 2016, the energy renovation of multi-family buildings has been carried out by the Ministry of Physical Planning, Construction, and State Property through EU funds, and so far about 800 multi-family buildings and 70 buildings damaged in the earthquake have been renovated. The evaluation process for 565 applications submitted in June this year is underway. The non-repayable funds for this allocation process amount to almost 100 million euros. The government adopted the Energy Renovation Program for Multi-family Buildings until 2030 in 2021, and the estimated investments are two billion euros – Vladanović states.

Funds are Not Eternal

In the last eight years, most of the money needed for such renovation has come from public sources, primarily from European funds. Although this will also be the case in the coming years, Zdravko Vladanović believes that, looking long-term, such generous sources of funding for energy renovation of buildings will not last forever.

– At some point, this will also be limited, and funding will shift predominantly to co-ownership communities in multi-family buildings. We must be aware of this and therefore take advantage of this opportunity as much as possible. I will also say that such generous funding from public sources is currently intended only for the quick, happy, and skillful. In this entire complex process, it is important to know that the expected law on the management and maintenance of buildings after January 1, 2025, will greatly facilitate lending as communities of co-owners will be established in multi-family buildings in the status of a legal entity. This will generally and significantly facilitate administrative and judicial procedures, which have so far been quite complicated – Vladanović believes.

Urgent Need

As Vladanović explained, the primary task of energy renovation is to reduce energy losses through the external envelope of the heated space.

– This involves insulating the entire envelope of the heated space, i.e., external walls, roofs, walls and ceilings towards unheated spaces, floors, and replacing external joinery. In addition to construction measures, energy renovation includes heating systems, replacing lighting in common areas, and installing renewable energy systems. The average cost of renovating a four-story building up to 1500 square meters is 500 thousand euros. I emphasize again that comprehensive energy renovation is the only correct way and method to treat dangerously ‘sick’ buildings. Such renovation involves not only the usual replacement of the facade with thermal insulation and replacement of joinery but also a much more cost-effective replacement of the energy source, for example, replacing an oil or gas boiler with heat pumps, reconstructing the boiler room, thermal station, pipe distribution, photovoltaic power plants on the roof, and installing ventilation. These mechanical and electrical measures can reduce the return on investment to up to ten years if the facility is used year-round, and with subsidies, the payback period is reduced to three to four years – Vladanović asserts.

Energy renovation pays off in multiple aspects, says Vladanović, adding that energy renovation is no longer a choice but an urgent need.

– In addition to savings on energy, living conditions are significantly improved, investments in building maintenance are reduced, property value increases, and energy renovation can also lead to improvements in the building, primarily meaning increased earthquake resistance, fire resistance, and the installation of elevators in buildings where possible – explains this expert.

As things stand, the previously low awareness and skepticism of local co-owners of buildings towards energy renovation will evidently be ‘forced’ to change due to increasing housing costs.