What is the European Union's pathway to limit global warming to 1.5°C?

In 2023, fossil fuels (mainly gas) provided about 40% of the energy mix for the EU’s buildings sector. Positively, electricity has already reached 36% of mix. When combined with heat and biomass, electricity make up 60% of the energy mix in buildings. To align with the Highest Possible Ambition Scenario, the EU’s building sector needs to accelerate its shift to electricity, heat and biomass, to reach 70% collectively by 2030. Following this, electricity alone would need to reach 50% by 2035 and 70% by 2050, pushing fossil fuels out by 2040. After 2040, biomass would also need to be phased down.

Reduction of energy demand is driven by increased electrification leading to increased overall efficiency. Electrification will primarily be driven by scaling up efficient heat pump deployment, replacing inefficiency gas boilers. Further demand reduction, through greater efficiency, renovation and retrofitting of existing building stocks and new thermally efficient buildings need to increase.

EU regulations directly contributing to the decarbonisation and energy shift in buildings include the recently revised Energy Efficiency Directive which requires public sector buildings to reduce their energy consumption by 1.9% annually. The Energy Performance of Buildings Directive mandates that by 2030 all new residential buildings will be zero emission and energy use in existing buildings will be reduced by 16%.²2^,33 The Renewable Energy Directive requires an indicative non-binding target of at least 49% renewable energy in buildings by 2030.⁴4

These three Directives set indirect targets to improve energy efficiency in building and shift to renewable energy sources, but they do not set buildings-specific electrification targets or fossil fuel phase out dates.

The Renewable Energy Directive outlines a non-binding indicative target of 49% renewable energy consumption in buildings by 2030. In 2023, the residential building sector has already surpassed this consuming almost 60% from renewable energy (electricity, heat and biomass).⁵5 This implies that the EU could have chosen a more ambitious target in the Directive, but, positively, the momentum of the transition could put the EU on track to reach the 70% renewables target by 2030 outlined by the HPA scenario.

Roughly 90 million households in Europe are still reliant on oil or gas boilers and without an EU-wide ban on the installation of new gas boilers, more are added year after year.⁶6 This makes these households vulnerable to high oil and gas price spikes, such as those currently ongoing due to the Iran War. Before the war, about 9.2% of European citizens were not able to warm their homes.⁷7 Prior to the start of the war, it was estimated that switching from a gas boiler to a heat pump could save the average EU household USD 900 (EUR 780) annually from 2021. If 60 million more heat pumps are added between 2023 and 2030, gas demand in buildings could be reduced by 40% and heating bills could be reduced by 20% compared to a business-as-usual approach.⁸8

Apart from energy efficiency improvements, households and businesses could also make use of on-site renewables such as roof solar coupled with battery storage. This would increase the flexibility of renewables used in the wider energy system and reduce energy bills in the long term. Transitioning commercial and residential buildings involves costly renovations to improve energy efficiency. Government support to replace fossil fuel heating systems with heat pumps, district heating, or solar water heaters, can help ease the financial burden. Though support varies across EU member states and investments are often left to homeowners and landlords. There is currently a EUR 150 bn per year financing gap that needs to be closed by 2030 in order to meet the EU’s energy efficiency targets in buildings.⁹9

More recent regulations such as the EU Emission Trading Scheme II and Social Climate Fund,¹⁰10 which are set to come into effect in 2028 and 2026, respectively, will increase the cost of fossil fuels in households, disincentivising households to keep gas boilers. To avoid disproportionally burdening vulnerable low-income households, financial support from the Social Climate Fund would need to be implemented appropriately by member states. This would need to be completed without measures, such as reducing taxation on electricity for households. This can help accelerate the shift to electrification, which can reduce energy bills for households in the long term.