Reinvigoration Instead of Decarbonisation?

With the triple obstacles of the Russian war against Ukraine, inflation, and a post-Covid slump, the global construction industry is attempting to correct itself and get back on track. As with many industries across the world, two forces are at play here: (1) the need to reinvigorate the market and – as a response to global climate concerns – (2) the need to decarbonise the industry.

German U-turn?

In Germany, Chancellor Olaf Scholz garnered attention when he announced his decision to postpone the implementation of stricter building insulation standards, known as EH40, which were originally scheduled to take effect on 1 January 2025. EH40 was aimed at limiting the energy consumption of buildings to no more than 40% of that of newly developed structures, with a focus on renewable energy sources.

Initially, it was estimated that the introduction of these regulations would increase construction costs by approximately 7.5%. However, recent estimates have suggested that the actual costs could be significantly higher. Instead of moving forward with EH40, Chancellor Scholz unveiled a new plan to revitalize a failing German construction market, which had seen a significant decline with a 23% decrease in building permits issued in 2023 compared to the previous year.

This plan involves a substantial investment of €18.9 billion in the sector until 2027.  The German government intends to expand access to affordable credit and introduce a “climate bonus” to incentivize the replacement of fossil-fuel heating systems with climate-friendly alternatives. Notably, the new plan also includes the relaxation of environmental standards and streamlining the building code approval process, allowing for the construction of buildings with the same parameters across federal states without the need for separate approvals.

British Reinvigoration?

A strangely similar (perhaps united) shift in approach has also been observed in the United Kingdom. Prime Minister Rishi Sunak recently announced a change in direction by stepping back from the goal of phasing out new gas boilers by 2030 and imposing stricter energy efficiency rules on landlords.

Additionally, this comes in tandem with the recent Rosebank oil field controversy whereby the approval of this oil and gas field is seen as a result of the weakening of incentives for energy companies to transition to renewables.

Polish Reinvigoration and Decarbonisation?

Meanwhile, in Poland, progress towards implementing recent amendments to the EU directive on decarbonisation is yet to be finalized. Despite this, the Polish residential market is experiencing significant growth, largely driven by a programme offering preferential mortgages. To date, there have been over 40,000 loan applications submitted, with more than 5,700 loans already granted, so far totalling over approximately €432 million in funding.

Preferential mortgages will continue into 2024 and, as a part of this programme, the first 120 instalments of the preferential mortgages will have fixed interest rates of 2% (plus the bank’s fees). The difference between the average interest rate and the 2% rate will be financed by the state. The mortgages are granted only for first-time homeowners with the maximum amount per apartment for a single person being approximately €108,000, and €130,000 for a family.

Trend-setters?

It seems decarbonisation efforts in the construction sector have faced setbacks in Germany and the UK, while Poland’s residential market has shown resilience through the incentivized mortgage programme instead of implementing EU decarbonisation directives first.

The path to sustainable construction continues to evolve in these countries, with a complex interplay of policies and economic considerations shaping their strategies. It is uncertain whether this trend of delaying decarbonisation until the real estate market revives will spread to other European nations or remain isolated.

Sebastian Janicki | Partner | Construction | Real Estate | Environment