Mandatory energy performance certificates & equipment labels (EPC)

Energy performance certification - sometimes also referred to as building energy labelling - aims to inform prospective buyers or tenants about the level of energy efficiency of a particular building compared to other buildings of the same kind. Energy performance certificates (EPCs) display the results of a professional assessment of a building’s energy performance (also known as building energy rating), thus making energy use visible and raising awareness about energy saving potentials. The availability of EPCs to prospective buyers or tenants should be mandatory to enhance market transparency. Consequently, EPCs are an important means for establishing energy performance as a relevant purchasing, rental or investment criterion and can thus increase the demand for, and supply of, low-energy buildings.

Summary

In order to create incentives to take action, i.e. to invest in actual energy efficiency improvements, it is crucial that – besides displaying the energy performance rating – EPCs also feature reliable and easy-to-understand recommendations as to how the building’s energy performance could be cost-effectively improved. This is especially true in case of existing buildings, but possibly also for new-built: If the energy rating takes place before construction begins, it could be required to do a lifecycle cost analysis of different options for making the building more energy-effcient and show this on the EPC. The recommendations given should include important steps of implementation as well as information on lifecycle costs and benefits of the different options, and the rating that can be acheived by implementing the energy efficiency improvements. Such highly informative EPCs can also be required before financial incentives or soft loans for investments to improve energy efficiency are provided, and maybe even a second time after implementation.

In policy practice, two distinct types of building energy labels can be observed: comparative labels and endorsement labels.
Comparative labels rate a building’s energy performance as compared to other buildings of the same type and also to BAT of this building type. This is usually done using an A-G scale as known from the EU energy label for appliances, or some other form of numeric ranking (e.g, 1-5 stars), or alternatively through a sliding-scale indicator without classification. The idea behind this is that it is much easier to understand, remember and compare a simple rating than actual energy consumption values (CLASP 2004).
Endorsement labels (or positive labels), on the other hand, are awarded only to buildings that reach a specified level of energy performance beyond the current minimum standards (e.g. LEED, Energy Star New Homes, Green Mark, PassivHaus, etc.). Endorsement labels are voluntary per definition (since their function is to distinguish certified from non-certified buildings).
This text is only about comparative EPCs. Comparative labelling can either be mandatory by law so that all buildings must have a label at point of sale or lease, as required for instance in the EU; or it can be organised on a voluntary basis such as: the Australian NABERS rating, or the HERS index in the US. We strongly recommend making EPCs mandatory in order to also achieve full market transparency for buildings that are not (so) energy-efficient. However, voluntary comparative labelling can be an option in countries where energy efficiency policy is still in its early stages and / or markets are not ready. In such cases, voluntary EPCs can pave the way for a later introduction of mandatory labels.
The barriers that this instrument aims to overcome are mainly the large and widespread deficits in terms of information, awareness and motivation. People are – often for the first time – made aware of a building’s energy consumption level and the related environmental and financial impacts, and also of the potential for improvement, by means of an EPC.
Impartial quality assurance is essential for a good performance of an EPC scheme, especially for giving confidence to building owners / tenants in the information provided by the EPCs. Consequently, considerable effort should be invested in the development and validation of accurate assessment methodologies and the software tool to be used by assessors (IEA 2010, p. 27). In addition, independent qualification and accreditation of assessors is key to ensuring both accurate energy performance ratings and investor / user confidence in these.
As with most measures primarily aimed at informing and motivating end-users, it is difficult to quantify the energy saving impact of an EPC scheme. Besides, different surveys have shown that a certification scheme by itself does not necessarily lead to any action - at least not to the extent necessary to realise a significant share of the potential (IEA 2010, p.19). Consequently, an EPC scheme should be embedded in a comprehensive policy package. When implemented in combination with minimum energy performance standards (MEPS), financial incentives, financing instruments, and further information and advice programmes, EPCs can make an important contribution to activating actual improvements of buildings. On top of that, education and training for building professionals is essential for ensuring a high quality of such improvements. Actually, there is a mutual reinforcement between the above mentioned complementary instruments and the EPCs: Not only do the former increase the effectiveness of the latter, but the energy ratings also form the basis for other instruments. For instance, EPCs can be a means of demonstrating compliance with MEPS. The eligibility for financial incentives can be made conditional on a certain rating being reached, or the ratings can be used to select demonstration buildings.

Note: In some countries, mandatory EPC schemes are (discussed to be) set up in a different way. It is not so much about mandatory labelling of energy consumption but about mandatory energy savings and their certification, which can be the basis for trading: for designated large buildings and also factories, a baseline for specific energy is defined and an improvement of performance (i.e., an absolute or percentage energy saving) mandated for a target year or period (e.g., four years in advance). A trading can be established to allow balancing the over- or underachieved by individual entities subject to the scheme. This is, however, not the kind of Energy Performance Certificate Scheme this bigEE dossier discusses. Here, EPC means mandatory comparative rating and labelling, and possibly mandatory disclosure of buildings' specific energy consumption.

Advantages and disadvantages

Advantages

Increased transparency in building sales and letting
Improved data (collection) on buildings and their energy use, which is also useful in other contexts
Relatively low fiscal impact as compared to, e.g., financial incentive schemes
Job creation

Disadvantages

As with most policies targeting information barriers, it is very difficult to generate any evidence of a direct energy savings impact, thus making it very difficult, if not impossible to quantify benefits and evaluate cost-effectiveness of the policy as a stand-alone instrument. It should rather be evaluated as part of the package targeting energy efficiency in buildings.
Defining assessment methodologies and tools, and setting up the administrative system requires considerable effort. As soon these pre-conditions have been established, though, the administrative costs are rather low.
Depending on the price of an EPC, public acceptance may be an issue.

Implementation tips

The EPCs need to be clear and transparent, easily understandable to non-experts. Further, they should only be valid for a limited amount of time, e.g., for a maximum of 10 years.
The impact of the EPC scheme can be improved if information on energy costs is also presented, instead of only stating the level of energy consumption on the EPC. This is because the latter is a measure most building users are not familiar with in the sense that they are unable to derive cost implications from a kWh figure (cf. CPI 2011).
EPCs should include specific and detailed proposals for actions to improve the energy performance of the particular building, including estimates of the associated costs and benefits.
Complementary training and accreditation of assessors is an absolute must for successful implementation. Ensure that a sufficient number of assessors are trained and accredited before launching the scheme.
A mechanism for control and enforcement needs to be established to ensure compliance with the scheme.
A national register / central database of EPCs should be set up to ease administration and monitoring of the scheme, as well as quality control. An additional benefit of such registers is that the data collected can also be used for national statistics, and for monitoring and evaluating other building-related policies.
Consultation and involvement of key stakeholders in the design and implementation of the scheme allows for a smooth introduction and operation.
Regularly adjust the certification scheme according to technological progress and market transformation.
The target groups should be made aware of the EPC scheme and its implications, e.g. through information campaigns. It should further be legally required to display the EPC in all forms of advertisements for building sales and letting.
Complementary incentives (e.g. subsidies, tax exemptions, eco-tax) for stimulating action will increase the effectiveness of the EPC scheme.

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Aim of policy or measure

Energy performance certification aims to inform buyers or tenants about the level of energy efficiency of a building as compared to other buildings of the same type and also to BAT of this building type. EPCs enhance market transparency and can contribute to establishing energy performance as a relevant purchasing criterion and subsequently increasing the demand for energy-efficient buildings.

Worldwide implementation status and governance level

Worldwide implementation status
EPCs are mandatory throughout the EU due to the requirements set out in the EPBD.
Even though building energy labelling as such is found to be widespread in other world regions, voluntary endorsement labels are far more common there (e.g. LEED, BREEAM, HK-BEAM, Energy Star New Homes, Green Mark, Green Star). Another example of mandatory comparative labelling is the Commercial Building Disclosure scheme in Australia.

The website http://www.buildingrating.org/ offers information on building energy performance rating and disclosure practices worldwide. The website provides a policy map and tools to compare local policies.

Governance level
An EPC scheme should be implemented at national or supra-national level.

Sectoral focus

EPCs can be introduced for all sectors. Different assessment/calculation methodologies need to be developed for each sector though.

Related sectors

services: In the services sector, we further recommend that the use of so-called Display Energy Certificates is made a requirement, which means that EPCs must be publicly displayed and renewed regularly, e.g. every five years.
residential: In the residential sector, we further recommend that the use of so-called Display Energy Certificates is made a requirement, which means that EPCs must be publicly displayed and renewed regularly, e.g. every five years.
industrial: In the industrial sector, EPCs may not be that relevant because the vast majority of industrial buildings are build-to-suit. However, industrial companies also have buildings with standard uses, such as headquarters and other offices, storage facilities, laboratories, canteens, etc.

Related options

The focus is on the overall performance of buildings (shell, construction, orientation, and installed systems) and integrated building design. Theoretically all technologies/options for improving building energy performance are targeted, albeit only indirectly, since an EPC by itself does not necessarily lead to any improvement measures being undertaken.

Target group

Related target groups

Property development company
Manufacturer of prefabricated houses
Architect
Engineering consultant
Real estate agent
Investor-occupier
Investor
User
Energy consultant

Beneficiaries

Direct beneficiaries
Direct beneficiaries of introducing an EPC scheme are investor-occupiers and tenants, as they are provided with relevant information on a building’s energy performance and on opportunities to save energy costs. Furthermore, energy assessors and energy assessment training providers benefit from an increased demand for their services.

Indirect beneficiaries
Manufacturers of energy saving equipment, components, and materials, as well as construction companies and architects with relevant skills may benefit indirectly (provided that EPCs trigger improvement actions).

Direct beneficiaries

Investor-occupier

Indirect beneficiaries

Manufacturer
Architect
Construction company

Barriers addressed

Relevant barriers

Knowledge and information barriers: Knowledge / information barriers of investor-occupiers, investors, users, and real estate agents are addressed: Information and search costs with regard to a building’s energy performance and improvement options are reduced significantly, and asymmetric information between owners and buyers / tenants is overcome.
Lack of interest and motivation in energy efficiency-improvement: Lack of interest in / motivation for energy-efficiency improvement is also targeted: Investor-occupiers, investors, users, but also developers and financiers may be motivated to take action on improving their buildings.

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Preconditions for implementation

Before implementing an EPC scheme, sufficient resources need to be dedicated to, and capacities be available for organising and funding the steps of implementation (see below). Therefore, structural preconditions for implementation include:

Agencies or other actors responsible for design and implementation
An agency or several agencies for developing the EPC scheme, for training and accreditation of building assessors, for outreach to the public, for monitoring compliance and quality of the EPCs and for any other elements of the implementation process.

Funding
The funding and staffing required for these agencies.

Steps of design and implementation

Actors

Policy Design: Government in consultation with stakeholders and scientific experts
Policy Implementation: Specifically trained and accredited energy assessors rate the buildings and issue certificates. A public agency organises training and accreditation of assessors, monitors the scheme, and controls compliance

For a comprehensive yet practical guidance on how to design and implement an EPC scheme, we strongly recommend consulting the IEA Policy Pathway on Energy Performance Certification of Buildings. Key steps of policy design include (IEA 2010):

Define objectives, scope (new and/or existing buildings; which sectors), and assessment method (asset vs. operational rating)
Establish policy framework and action plan for delivery: involve and consult with all relevant stakeholders, establish an implementation group, set realistic timeframes, adopt action plan and stick to it
Secure necessary resources for development and implementation: develop a comprehensive administrative system with integrated data collection capabilities, assess institutional capacity, allocate financial and human resources, test systems and processes in advance of launch

Another excellent, and even more condensed, guidance on the critical issues of design and implementation can be found in BPIE 2010 and is displayed here:

Guidance on the critical issues of design and implementation
Choice of Method	Measured or calculated rating Basis assessment or detailed assessment of a building Quality of assessment method (choices with regard to the level of accuracy and reproducibility) Software development by the state, or by market parties (possibly with requirements for the design or the calculation core which are set by the state, quality of the software should be guaranteed)
Design of the EPC	Content and presentation of the information on the EPC Label classes representation, scale Performance indicator for energy use Recommendations for energy saving measures (nature and quality of the recommendations)
Quality assurance	Education level of assessors and level of experience; training program set up by the government or setting general requirements for education level Accreditation/ certification of experts Registration of experts Independency of experts Quality control of issued certificates by control body and/or government or for instance energy agency (for example by sample control) Audit/performance check for registered assessors Registration of certificates; data storage by individual experts or central registration
Registration of EPCs	In regional or national database Important for quality assurance of issued EPCs Important for making monitoring and evaluation possible Very useful in enforcement system
Communication	Sound communication and promotion campaign (specified for different target groups/stakeholders) specifically concerning EPCs raises awareness Alignment with other communication initiatives on energy efficiency and environment can also be helpful Knowledge centre for professionals, communication specifically directed to the professional stakeholder group Communication specifically to the end-user group (consumers, building owners) Dedicated state website with information (national/regional) Promotional material like brochures, TV/Radio commercials, media attention, information leaflets, posters, public campaign etc. Role of energy agencies
Enforcement	Penalties for experts when issuing incorrect EPCs (fines or losing accreditation/registration) Balance between penalties and chance of being caught Penalties: obstruction of process (buildung/use permit, transaction process) and/or fines Points of action in the process to link penalties to Enforcement linked to the EPC registration system/database

Source: BPIE 2010, p.24

In addition, further key steps of implementation are (IEA 2010):

Provide training and support: develop a training strategy as early as possible, assess capabilities of existing professionals, training accreditation systems and programmes, demand high pre-qualification standards for assessors and establish an appeal system, retain control of training modules and materials, and of examination and registration process, ensure sufficient assessors are trained before launching the scheme
Raise awareness among industry and the public: ensure that all stakeholders have access to relevant information, develop ongoing information campaigns that target the general public
Collect data centrally, review and disseminate: collect data centrally in a comprehensive administrative system, use the data to monitor and review the certification process, review data and use to foster greater overall energy efficiency

By making the energy performance of a building visible and comparable and by highlighting improvement options and achievable savings, the policy aims to motivate building owners, buyers or tenants to take action to improve the building’s energy efficiency. In a more general sense, an EPC scheme tries to improve energy efficiency by establishing energy performance as an important quality criterion in building transactions.There are two distinct approaches for rating a building’s energy performance: asset-rating and operational rating. ‘Asset rating’ or ‘calculated rating’ relies on a theoretical calculation of energy consumption based on building characteristics, installed HVAC and lighting systems and an assumed default usage pattern. It is, therefore, the preferred choice as it enables a transparent and comparable rating of buildings. However, the approach cannot capture the effects of buildings and installed systems not behaving as designed, or the impact of occupants’ behaviour and therefore the actual consumption may – sometimes substantially – deviate from the calculated one. In contrast, ‘operational rating’ or ‘measured rating’ is based on actually metered consumption and thus also able to reflect occupants’ behaviour and good operation. Operational rating may be recommended for existing large commercial or public buildings, whereas asset rating is adequate for new buildings (since there is no metered data, yet) and for existing residential buildings, where potential buyers / tenants benefit more from a rating of the energy performance of the building as such than from past occupants’ metered consumption (IEA 2010, p. 22f.).

Quantified target
A certain number of EPCs issued (depending on the amount of building transactions) could be set as a target.

Co-operations of countries
For countries that are planning to introduce a mandatory EPC scheme, it could be helpful to exchange experiences and lessons learnt with EU countries, as these have gathered considerable experience with setting up such schemes (due to the EPBD requirements), especially in terms of calculation methods and software tools for assessing buildings. Policy design and implementation costs can be reduced significantly, if existing international standards, methods, and tools are adapted to the respective national circumstances instead of developing new ones from scratch (IEA 2010, p. 27).

Monitoring and evaluation

Monitoring
Monitoring is very important to verify a correct implementation of the scheme. Monitoring and evaluation for a mandatory EPC scheme can have two subjects: compliance as well as impacts and costs.
Compliance monitoring is essential for the instrument to function. If a large number of building transactions happen without an EPC or if EPCs are inaccurate or even incorrect, this will undermine the effectiveness of the instrument.
The impact can be monitored quite well when counting the new building construction figures per energy rating category. However, there may – and should – be a package of instruments targeting energy efficiency of new buildings (see above). Therefore, new building construction figures per energy rating category will not only reflect the impact of the EPC scheme. Policymakers and evaluators will need to assess, whether it will be useful and possible to attribute shares of the overall impact to individual instruments such as an EPC scheme.
It is also essential to calculate not only energy but also cost savings and to evaluate barriers and incentives for future policies.
A national register (database) of issued certificates has proven very useful for monitoring purposes. Please also see the related good practice example, the Irish Building Energy Rating.

Evaluation
Monitoring the average specific energy consumption (SEC) of new buildings and or the share of m² built by rating class of an EPC is relatively easy (see above). Building permit authorities should have these data anyway from compliance checks on minimum energy performance standards, or they can be taken from a registry and database of EPCs if that exists. The resulting changes in average SEC or shares of energy-efficient building classes can be compared to a counterfactual that is estimated to have been the situation without the policies (see Monitoring and evaluation).
However, the question remains whether it is useful and possible to attribute shares of the overall impact to individual instruments such as an EPC. If that is desired, surveys of planners, investors, owners, and tenants of buildings should be done, asking them about what influenced their decisions.
Benefits and costs compared to energy-inefficient reference buildings should be assessed using demonstration buildings that are thoroughly analysed during the planning, construction, and use phase. In addition, programme costs for the EPC creation and implementation should be carefully monitored.

Policy dynamics and handling side-effects

Relevant individual dynamics and side-effects

Dynamic market transformation and/or innovation: In principle, a mandatory EPC scheme will stimulate innovation towards improved energy efficiency within the construction industry. However, if not enough incentives are provided for a fast market transformation, or if investors are not interested in a rating that is voluntary, frontrunners will not see the market rewards and others will not follow. Making the rating and certificate display mandatory is, therefore, crucial for an EPC to stimulate innovation.
Avoiding lost opportunities: By raising awareness about the relevance and impact of building energy performance and about the availability of improvement options, building owners, users and investors can be motivated to take this into account in (future) building transactions. In this way, lost opportunities, such as a building retrofit without installing thermal insulation, or energy saving equipment, can be avoided.
Minimising rebound effects: To minimise rebound effects (e.g., occupants increasing room temperature because they feel they live in a well-insulated, energy-efficient building), it is essential to accompany the EPC with educational and information campaigns on the effects of occupant behaviour.
Minimising snap-back effects: To minimise snap-back effects (e.g., that the market snaps back to a higher share of inefficient buildings), the EPC scheme should be open-ended and updated whenever minimum energy performance standards are revised.
Creating Spill-over effects: Actors whose awareness of and motivation towards energy efficiency improvement has been raised through a building energy label are more likely to consider energy efficiency aspects in other parts of their life as well (e.g. buy more energy-efficient appliances) and also to spread this knowledge to others, thus creating spill-over effects.

Sustainability aspects and co-benefits

In principle, a building energy label offers the opportunity to also rate other performance characteristics, like, water efficiency, material efficiency, waste management, quality of indoor environment and sustainable transport infrastructure, etc. Consequently, labels could be used to highlight the various (ecological as well as social) co-benefits that come with low-energy buildings.
This will convert an EPC into a broader Green Building certificate. More analysis and experience is needed to assess whether these additional features should be voluntary additions to a mandatory EPC, or which of these features could be added on separate scales.
Introducing an EPC scheme also creates jobs: for one, a certain number of qualified assessors are needed to issue the certificates, but also architects, contractors, etc. for implementing the recommended improvements will face a rising demand for their services.
Moreover, EPCs can increase the real estate value (BPIE 2010, p.17).

Implementation barriers

The following barriers are possible during the implementation of the policy:Lack of awareness

Lack of awareness of both building owners and buyers/tenants about the obligation to have a certificate at point of transaction can hinder full-scale implementation.

Low acceptance/ Low compliance

High costs of obtaining an EPC can lead to low public acceptance and possibly hinder compliance.

The following measures can be undertaken to overcome the barriers:Lack of awareness

More communication and promotion activities would be required to overcome the lack of awareness.

Low acceptance/ Low compliance

To overcome this problem, the benefits of getting an EPC must be communicated more widely, and also the fact that higher (but still reasonable) costs also mean higher quality/accuracy and usefulness be emphasised.

Furthermore, Amecke (2012, p. 13) concludes that financial implications for an energy-inefficient building should be included in an EPC document. In Australia, commercial buildings must not be advertised for sale, lease or sublease in print or online media without the Australian Building Energy Efficiency Certificate (BEEC). The government actively monitors the advertisement process.

In France, a notary needs to confirm that the EPC as well as other documents necessary for finalising a sales or lease contract have been exchanged (BIO IS 2013, p. 77).

Find out the potential impacts of this policy type alongside energy savings and cost effectiveness.

Achievable energy savings

EPC are just one, however important, instrument in a policy package including, i.a., personal advice to building owners, financial incentives, and regulations such as minimum energy performance standards for new build and in cse of renovation. It is therefore diffcult to attribute energy savings to EPCs alone.
Accordingly, “Concerning the actual or potential energy savings made by EPCs, no specific information is currently available because such information is not specifically monitored in Member States. There is no specific information available about the effectiveness of EPCs as an instrument for energy savings” (BPIE 2010, p. 30).

Expected costs

The costs of EPCs vary considerably between, and also within, countries. For instance in Europe, the cost for obtaining an EPC for residential buildings ranges from 45 to 800 Euros. Lower prices often go along with a lower quality of the EPC: Most of the lower priced certificates are only based on measured consumption, i.e. they rather give insight into the former tenants’/owners’ energy usage pattern than into the quality of the building’s fabric and installed systems. While on the one hand a lower price is likely to increase public acceptance, on the other hand, a high-quality EPC that provides more useful information to building owners and tenants is valued more. Therefore, a balance has to be found between quality/usefulness and price. For non-residential buildings, certificate prices vary significantly depending on size and complexity of the building (BPIE 2010, p. 35).

Expected cost savings

According to a study conducted by the BIO Intelligence Service (BIO IS) collecting data in Austria, Belgium, France, and the UK, monetary impacts of EPC schemes can be mixed. In the UK, a one-letter improvement in potential energy rating (e.g., from C to B) was even associated with a 4% lower transaction price, everything else being equal (BIO IS 2013, p. 115). This means a very high economic benefit for purchasers of the buildings, who will save both on the purchase price and the energy costs. Contrary to that, findings in Austria, Belgium, France and Ireland provide success stories for building developers. In France, an improvement of one-letter on the energy label, which is displayed on the EPC, means a higher transaction price of 4.3%.
Such an increase in transaction price will certainly be higher than the cost of the EPC. Still, it is likely that energy savings will outweigh the combination of both, making the policy cost-effective for building owners and or renters.

Authors

Aydin, Vera (Lead author)
Thomas, Stefan (Reviewer)

References and further reading

Amecke, Hermann (2012): The impact of energy performance certificates: A survey of German home owners. In: Energy Policy 46: 4-14
BIO Intelligence Service (2013): Energy performance certificates in buildings and their impact on transaction prices and rents in selected EU countries. Final Report. www.bigee.net/s/31bbpx
Buildings Performance Institute Europe (BPIE) (2010): Energy Performance Certificates Across Europe. From Design to Implementation. Brussels. www.bigee.net/s/1ic2de
BuildingRating.org: An initiative of the Institute of Market Transformation. www.bigee.net/s/249wzr
Collaborative Labeling & Appliance Standards Program (CLASP) (2004): Energy labeling and standard programs throughout the world. Report prepared by Lloyd Harrington and Melissa Damnics. www.bigee.net/s/2wwdf2
Climate Policy Initiative (CPI) 2011: The Effectiveness of Energy Performance Certificates – Evidence from Germany. Berlin. www.bigee.net/s/gpna44
International Energy Agency (IEA) (2010): Energy Performance Certification of Buildings. A policy tool to improve energy efficiency, Policy Pathway Series. Paris.