ETC ST Report 2025/2: Residential energy renovations: benefits and enablers for a just transition

06 Feb 2026

Johanna Bürger, Anna Heuber, Hannah Bartels, Jouni Räihä, Bard Rama, Astrid Buchmayr

To achieve GHG emission reduction targets of the EU for the entire building sector, estimated investment need amounts to EUR 200 billion yearly until 2030. Observed investment in 2023 was 73 billion, computing to a current yearly investment deficit of EUR 127 billion (I4CE, 2025). This underscores the need to accelerate investment in this sector and secure public funding to leverage private sector investments.

Housing prices, energy prices and the cost of capital play a critical role in shaping investment dynamics and affordability in the building sector. For energy renovations and heating electrification, relative competitiveness of electricity vis-à-vis fossil generation is particularly important. Recent developments in these issues have hindered fast progress in energy renovation activity.

This project was initiated to address the decarbonisation of existing residential buildings by exploring the often-overlooked socioeconomic dimensions of energy-efficient renovation efforts.

Building on a brief analysis of the social context, stakeholder landscape as well as EU policy framework of energy renovation, this report explores the social, economic, and environmental impacts of energy renovation. The report furthermore analysed key barriers and enablers for decarbonisation of existing residential buildings, including equity-focused innovative financing as well as country case studies, and examines how a just transition can be achieved across diverse regional and socio-economic contexts.
The analysis was informed by targeted literature reviews and expert interviews, conducted through an iterative participatory process with continuous exchange with relevant voluntary experts from the EEA-EIONET network and from key EU level institutions. Key steps included workshops to refine the scoping note and validate the report’s conclusions, written feedback on the intermediary draft report and scoping note as well as expert interviews with national experts from EIONET and from relevant institutions.

Financial and economic challenges, benefits and enablers

At individual project level, high upfront costs, long payback periods, split incentives (e.g. lessors bear costs, tenants benefit from savings) and limited access to suitable financing are key financial obstacles, especially for low-income households. Country case studies confirm these barriers, including a lack of financial resources and savings, insufficient and poorly targeted funding schemes, and a general lack of effective incentives.

Whereas Member States increasingly acknowledge the need to integrate distributive, procedural, and recognitional justice into financing instruments, implementation often falls short. Their financing mixes are strongest on distributive justice (grants/loans), weaker on procedural justice (co-design, transparent rules), and thinnest on recognitional justice (tenure, disability, digital exclusion). The Affordable Housing Initiative can learn from examples of good practice such as Estonia that targets worst 43% stock to prioritise vulnerable households (BUILD UP, 2025), Finland that engages advocacy groups for older adults, disabled, migrants (BUILD UP, 2025) and Spain that dedicated energy-poverty panel in consultation (BUILD UP, 2025).

To realize the full potentiality of innovative financing instruments, such as On Bill Schemes (OBS), regulators may adapt the existing framework, in which agents operate, including measures related to capital lending requirements, risk assessment approaches as well as the tightening of Minimum Energy Performance (MEPS) (BPIE, 2022) as well as coordination and combination of private financing instruments and public funding schemes, which are linked to direct energy efficiency improvements (Oeko-Institut e.V., 2023).

Although the need to improve the targeting of funding is widely acknowledged, in practice this often proves to be the greatest challenge. Integrating Justice Principles into policy design and implementation is particularly difficult, as it requires finding a balance between simple measures, prone to misallocation, and more sophisticated targeting mechanisms that demand considerable administrative effort. These demands frequently collide with limited national administrative capacities and the absence of integrated data (AK Europa, 2025; Jüngling et al., 2025).

Continuous monitoring and impact assessment of distributional outcomes are crucial. Current frameworks often miss this, calling for better targeting, continuous evaluation, and monitoring of who actually benefits from subsidies.

While economic incentives for private households and other demand-side stakeholders are crucial to drive energy renovations, policy makers must also account for the social cost effectiveness, including the substantial economic benefits both in short and long term. The Healthy Homes Barometer 2022 by RAND Europe estimates that improving poor indoor climates in residential and public buildings across Europe could generate over EUR 600 billion in economic benefits by 2050, mainly through productivity gains (RAND Europe, 2022). A very central economic co-benefit of energy renovation is that it strengthens Europe’s security and sovereignty by reducing energy dependence and vulnerability to geopolitical shocks.

Behavioural and social challenges, benefits and enablers

BPIE (2024a) notes that while all EU Member States acknowledge energy poverty in their renovation strategies, less than half have established clear targets for reducing it, and only 35% of long-term renovation strategies include proper financing provisions for vulnerable categories.

At the same time key socioeconomic obstacles for energy renovation lie in behavioural and social factors as many homeowners lack awareness, trust, and motivation, often favouring short-term affordability over long-term savings, even when support is available. Moreover, country case studies highlight the importance of consistent policy frameworks and institutional trust as critical enablers for successful renovation programs.

To overcome behavioural barriers to energy renovation, confidence and trust must be strengthened through the provision of clear, tailored information and support from reliable sources. Trusted intermediaries such as local installers, non-profit organisations, and one-stop shops that offer comprehensive advice and coordination services are essential in reducing perceived risks and guiding homeowners through the renovation process.

Scaling One-Stop Shops (OSS) for a Just Transition works best for low-income households when they are proximity-based and embedded in municipal social services (Cattaneo et al., 2024; Habitat for Humanity International, 2024; OpenGela, 2022; Ramboll, 2022). A coherent, inclusive, and context-sensitive approach is needed to advance effective and just energy renovations in Europe.

The social benefits emerge mostly for the inhabitants, mainly in terms of better health, sustainable cities and communities and reduced inequality due to lowering of energy poverty, which underlines the potential of awareness and communication campaigns to boost motivation for the uptake of energy renovations. Vulnerable groups (like low-income households, the elderly, or people living in poor housing) are the main beneficiary from relief from high energy costs (EC, 2025c), health and well-being improvements from energy renovation (O’Connor et al., 2024; EEA, 2023), greater climate resilience (EEA, 2025). Besides the social benefits, social safeguards are critical as without attention to equity, renovations risk increasing displacement, inequality, and social exclusion.

A just energy renovation strategy must simultaneously address distributional (e.g. subsidies effectively targeting low-income households), procedural (ensuring all stakeholders, including tenants, have a meaningful role in planning renovation programs), and recognitional justice (adapting programs to the specific needs of vulnerable groups, as detailed in the following paragraph).

Holistic policy design

A holistic assessment of environmental, social (including health), and economic costs and benefits can shift the focus from mere short-term cost-effectiveness of energy renovation to broader long term social cost-effectiveness, while ensuring that public support is allocated efficiently.
The revised Energy Performance of Buildings Directive (EPBD/2024) emphasizes the consideration of environmental and health externalities of energy use and the comparative methodology framework for cost optimality has been recently revised by the Commission. While the Commission Delegated Regulation 2025 provides a well-designed methodology, it can´t be seen as a fully holistic assessment tool as it lacks consideration of wider societal benefits such as reducing energy poverty and touches behavioural aspects and social vulnerabilities only to very limited extend. Therefore, it should be applied as part of multi-criteria decision-making together with other types of Life Cycle Assessments (LCAs) for buildings, such as Social LCA.

To effectively steer the distributive impacts of renovation, it is important that all relevant costs and benefits, social, economic, and environmental, are systematically and mandatorily considered in policy design and implementation, while avoiding double counting and capturing reinforcing effects. More integrated governance, linking tax ministries, regional governments, and local authorities, as well as energy building experts, economists, environmentalists, social policy specialists, and city planners, is essential to avoid fragmentation and deliver fair outcomes. Where data is already available, a stronger integration is needed, particularly through the digitalisation of archives. To relevantly target the right households, data on income level, energy consumption, energy bill and CO2 emissions need to be used as joined criteria for support eligibility.
Policy design should explicitly account for the heterogeneity among target users. Addressing Just Transition in renovation policies implies an intersectional approach and ensure that vulnerable groups are explicitly included in eligibility, targeting, and delivery design: Low-income tenants, homeowners without mortgages, marginalized communities, elderly & persons with disabilities, women-headed households, uncontracted tenants, middle-income households and rural households. Going beyond a just funding of energy renovations, energy renovation should be made an integral part of social protection benefits to increase societal resilience. While affordability is the primary goal of the Affordable Housing initiative, co-benefits of energy renovation such as energy poverty reduction, decreased vulnerability, and reduced inequality have value in their own right, as they directly improve people’s well-being, while also supporting uptake of renovation measures and enhancing societal resilience.