The Institut de la Finance Durable makes 21 recommendations for financing the decarbonization of the building industry
As part of the work plan of the Comité du financement de la transition écologique, the Institut de la Finance Durable presents its recommendations for financing the decarbonization of residential and tertiary buildings, whether private or public.In the ‘Action Plan for Financing the Ecological Transition’, published in May 2023, the Paris marketplace notes the low economic profitability of investment projects. At the request of the French Minister for the Economy and Finance, the Institut de la Finance Durable has continued its work on a sector-by-sector basis, to identify the obstacles and levers to financing the ecological transition, with an initial focus on decarbonizing the building industry. Following the mobilization of a multi-stakeholder group (over 50 companies and institutions) and hearings with more than 30 players in the sector, the IFD has formulated some concrete proposals. The building sector is one of the main emitters of greenhouse gases. The building sector’s carbon footprint represents nearly 25% of the total carbon footprint of the French population (17% of France’s GHG emissions in 2022 in building operations, mainly heating). The decarbonization trajectory for residential and tertiary buildings by 2030 is clear: switching energy carriers should account for over 60% of the total effort, insulation for 27%, and energy efficiency for 6%. Investments to decarbonize this sector must at least double if we are to meet our climate objectives by 2030. It is estimated that more than 30 billion euros of additional investment will be needed each year.The study identifies three major obstacles to decarbonizing buildings:1) An administrative and technical process that discourages project sponsors: Despite recent progress, the complexity of the administrative process for obtaining financial aid and then implementing the work is an obstacle in its own right.2) Low economic profitability of projects: Regardless of the project owner (household, local authority, private sector), the financial profitability of an energy renovation project is not guaranteed, as the payback period can exceed the lifetime of the installations. In addition, the objective of carbon efficiency needs to be extended beyond energy efficiency alone. 3) The conditions for mobilizing financing tools are not in place: Existing financing tools are still not sufficiently mobilized. The cash advances required can be too large for project developers to handle.In its report, the Institut de la Finance Durable makes 21 recommendations for financing the decarbonization of the building sector in France, in order to ensure its contribution to meeting greenhouse gas emission reduction targets.Firstly, to improve support for project developers, the principle of a one-stop shop for private individuals should be strengthened and extended to the tertiary sector (Proposal no. 1). Furthermore, in the case of condominiums, property managers could play a key role not only in the technical implementation of projects, but also in the design of the financing plan, with support to help them develop their skills in these areas (Proposal no. 4).In order to create the conditions for a sustainable market and improve economic equilibrium, public support for households needs to be massively increased. This can be achieved by substantially strengthening existing schemes such as MaPrimeRénov’, in order to achieve a virtually zero out-of-pocket cost for the most modest households, and by targeting the most cost-effective measures (Proposal no. 10). Alternatively, a tax deduction on the depreciation of the work carried out would enable the State’s budgetary effort to be smoothed over time (Proposition n°10 bis). The zero-rate eco-loan should also be strengthened, so that it can finance 100% of the investment effort, thereby minimizing the cash-flow effort (Proposal no. 11). For businesses, we need to accelerate the amortization of investments dedicated to renovation, in order to accelerate the roll-out of projects (Proposition 13).Lastly, we need to make available to project sponsors financial instruments tailored to their needs and respective issues. Renovating condominiums is a particularly difficult challenge. Specific solutions are therefore required: for condominiums, the conditions for contracting a collective loan need to be made more flexible, notably through the creation of a public guarantee fund to cover loans granted in the event of non-payment of debt charges by certain condominium owners (Proposition n°17). In the private sector, the BPI’s guarantee system should be extended to energy-efficient renovation of commercial buildings (Proposition n°21). The Institut de la Finance Durable will present its recommendations to the next Comité de financement de la transition écologique.