According to the Renovation Wave Strategy, the buildings sector must contribute a 60% emission reduction to achieve the EU’s 2030 climate target. This requires a steep increase of deep renovations from currently 0.2% to 3% annually and a well-designed bundle of policies to overcome the distinct barriers of the sector. To achieve ambitious reductions in the non-emissions trading system (ETS) sectors (to which buildings and transport currently belong), the introduction of an EU-wide CO2 price in the buildings and transport sectors is currently debated within the European institutions.

In particular, an introduction of an ETS for transport and buildings, either by extending the current EU ETS or by setting up a separate scheme for buildings and transport, is currently being discussed. Both options would imply a transfer of the compliance mechanism at least partly from the Member States to an Emissions Trading Scheme and the regulated parties, and thus a reform of the Effort Sharing Regulation (ESR). Alternatively, national targets under the ESR could be strengthened to reflect the new climate protection targets.

This briefing shows the role of a carbon price to reduce carbon emissions in the buildings sector based on existing literature, market insights of the building sector and experiences from European countries. The paper then explains the implications for the design of a carbon price regime – either a carbon tax or an emissions trading scheme – and the resulting changes to the compliance mechanism for carbon reductions in the building sector.