Interview: the skeptic's view on Low-carbon buildings & retrofits — what would change their mind

Buildings account for approximately 40% of global energy consumption and 37% of energy-related carbon dioxide emissions, making the built environment one of the most consequential sectors for climate mitigation. Yet despite decades of energy efficiency programs, retrofit rates remain stubbornly low at roughly 1% annually across most developed economies—far below the 3% minimum needed to meet Paris Agreement targets. This synthesized expert perspective draws from conversations with building scientists, retrofit practitioners, and policy analysts to present the skeptic's case for why current approaches are failing, alongside the evidence-based rebuttals that might change their minds.

The skeptic's position is not that building decarbonization is unimportant—rather, it's that current strategies are misallocated, economically unrealistic, and technically oversimplified. Understanding these critiques is essential for practitioners who want to design interventions that actually scale.

Why It Matters

The urgency of building retrofits has never been clearer, yet progress remains painfully slow. According to the International Energy Agency's 2024 Global Status Report for Buildings and Construction, the buildings sector's direct CO2 emissions reached 3 Gt in 2023, while indirect emissions from electricity and heat generation added another 6.8 Gt. Despite ambitious policy announcements, global building energy intensity improved by only 1.8% in 2023—well below the 4% annual improvement required under net-zero scenarios.

Heat pump adoption offers a bright spot: global sales exceeded 23 million units in 2024, with European markets showing particularly strong growth following the energy price shocks of 2022-2023. However, this growth masks significant regional disparities. While Nordic countries have achieved heat pump penetration rates above 60% for new construction, emerging markets in Asia, Africa, and Latin America continue to install fossil fuel heating systems at accelerating rates.

Building codes represent another critical battleground. As of 2025, approximately 80 countries have mandatory building energy codes, yet enforcement remains inconsistent, and only 26% of these codes include provisions for existing buildings. The EU's Energy Performance of Buildings Directive (EPBD) recast, adopted in 2024, mandates minimum energy performance standards for existing buildings for the first time—but implementation timelines extend to 2030 and beyond.

The scale of the challenge is staggering: approximately 75% of the EU's building stock is energy inefficient, and 85-95% of today's buildings will still be standing in 2050. Without dramatic acceleration of retrofit rates, the built environment will lock in decades of additional emissions.

Key Concepts

Deep Retrofits vs. Shallow Measures

A fundamental tension exists between "deep retrofits"—comprehensive upgrades targeting 60-80% energy reduction—and the incremental "shallow measures" that dominate current practice. Skeptics argue that deep retrofits are economically unviable for most buildings, with typical costs of €400-800 per square meter in European markets. The counterargument emphasizes that shallow measures often fail to address thermal bridging and building physics holistically, creating "stranded assets" that require costly re-intervention within 15-20 years.

The ESCO Model and Its Limitations

Energy Service Companies (ESCOs) offer performance-based contracts where savings finance upgrades, theoretically eliminating upfront cost barriers. However, practitioners report that ESCO models work poorly for residential buildings due to transaction costs, measurement complexity, and the difficulty of aggregating small projects. The model has shown success in commercial and public buildings with predictable usage patterns, but skeptics correctly note that residential buildings—which constitute 75% of floor area in most markets—remain underserved.

Performance Gaps

One of the most significant critiques concerns the gap between designed and actual energy performance. Studies consistently show that low-energy buildings consume 30-150% more energy than predicted, while retrofits frequently deliver only 50-70% of promised savings. This "performance gap" undermines investor confidence and makes it difficult to structure financing around guaranteed outcomes. Skeptics argue that until the industry addresses this gap through improved commissioning, occupant engagement, and post-occupancy verification, large-scale investment will remain elusive.

Embodied Carbon Considerations

As operational carbon decreases through efficiency measures, embodied carbon—emissions from manufacturing, transporting, and installing building materials—becomes proportionally more significant. Retrofit skeptics argue that certain deep retrofit strategies may have carbon payback periods exceeding 20-30 years when embodied carbon is properly accounted for. Proponents counter that lifecycle assessments increasingly favor retrofit over demolition-and-rebuild, with typical embodied carbon savings of 50-75% compared to new construction.

Heat Pumps vs. Fossil Boilers

The transition from fossil fuel boilers to heat pumps represents the single largest operational carbon reduction opportunity in buildings. However, skeptics raise legitimate concerns: heat pumps perform poorly in uninsulated buildings, requiring expensive fabric-first interventions; they may strain electrical grids not designed for peak heating loads; and upfront costs of €8,000-15,000 for residential systems remain prohibitive for many households. The rebuttal notes that coefficient of performance (COP) improvements now enable efficient operation even in moderately insulated buildings, and that grid reinforcement costs are lower than continued fossil fuel subsidies.

Building Retrofit KPIs: Benchmark Ranges

Metric	Poor	Acceptable	Good	Excellent
Energy Use Intensity (kWh/m²/year)	>200	100-200	50-100	<50
Retrofit Rate (% stock/year)	<1%	1-2%	2-3%	>3%
Heat Pump COP	<2.5	2.5-3.5	3.5-4.5	>4.5
Airtightness (ACH@50Pa)	>10	5-10	1-5	<1
Performance Gap (actual vs. design)	>50%	25-50%	10-25%	<10%
Carbon Payback (years)	>15	10-15	5-10	<5
Simple Payback (years)	>20	12-20	7-12	<7

What's Working

EU Renovation Wave

The European Commission's Renovation Wave strategy, launched in 2020 and reinforced through subsequent legislation, has catalyzed significant policy innovation. Member states are now required to establish long-term renovation strategies with binding milestones, and the EPBD recast introduces minimum energy performance standards that will force upgrades to the worst-performing buildings by 2030-2033. Early evidence from countries like the Netherlands and France suggests that mandatory disclosure and performance standards drive retrofit activity more effectively than voluntary incentive programs alone.

Energiesprong and Industrialized Retrofit

The Dutch Energiesprong model demonstrates that industrial-scale deep retrofits can achieve cost reductions of 30-50% through standardization, prefabrication, and volume aggregation. By guaranteeing net-zero energy performance with 30-year financing terms, the model has completed over 6,000 housing units in the Netherlands and is expanding to France, the UK, Germany, and North America. Skeptics acknowledge that while replication has been slower than hoped, the model proves that cost reduction is achievable through supply chain development.

PACE Financing

Property Assessed Clean Energy (PACE) financing addresses the split-incentive problem by attaching retrofit obligations to the property rather than the owner. This mechanism has financed over $15 billion in building upgrades in the United States since 2008, primarily in commercial buildings. While residential PACE faced regulatory setbacks due to consumer protection concerns, commercial PACE continues to grow and demonstrates that innovative financing structures can unlock investment.

Building Performance Standards

Cities including New York, Washington D.C., Boston, and Denver have enacted building performance standards requiring large buildings to meet increasingly stringent energy or emissions targets. New York's Local Law 97, covering buildings over 25,000 square feet, will begin imposing fines in 2024 for non-compliance. Early evidence suggests building owners are taking compliance seriously, with significant investments in efficiency upgrades and electrification underway.

What's Not Working

Split Incentives

The landlord-tenant split incentive remains the single largest barrier to residential retrofit. Building owners bear upgrade costs while tenants reap energy savings through lower bills, creating a structural disincentive for investment. Despite various policy attempts—green leases, on-bill financing, mandatory efficiency disclosures—no market has fully solved this problem at scale. Skeptics argue that without regulatory mandates, split incentives will continue to suppress retrofit rates indefinitely.

High Upfront Costs

Even with available financing, upfront costs remain prohibitive for many building owners. Deep retrofit costs of €30,000-80,000 per dwelling exceed the financial capacity of typical homeowners, particularly elderly residents on fixed incomes who disproportionately occupy energy-inefficient housing. Grant programs rarely cover more than 30-50% of costs, and loan products often carry interest rates that make retrofits economically unattractive compared to continuing fossil fuel use.

Skilled Labor Shortage

The building retrofit sector faces severe workforce constraints. The European Construction Industry Federation estimates that an additional 2 million skilled workers will be needed to achieve EU renovation targets—representing a 50% increase over current workforce levels. Heat pump installations alone require specialized training that current vocational systems are not delivering at sufficient scale. Without massive investment in training programs, labor constraints will cap retrofit rates regardless of financing availability.

Fragmented Supply Chains

Unlike new construction, where developers can exercise significant purchasing power, retrofits involve fragmented decision-making across millions of individual building owners. This fragmentation prevents supply chain optimization, limits bulk purchasing advantages, and makes quality control difficult. The Energiesprong model addresses this through aggregation, but replicating this approach across diverse building typologies and ownership structures remains challenging.

Key Players

Established Leaders

Passive House Institute (Germany): Developer of the Passivhaus standard, providing rigorous certification for ultra-low energy buildings and retrofits. Their EnerPHit standard specifically addresses retrofit challenges.

UK Green Building Council (UKGBC): Leading advocacy organization driving policy development and industry coordination on building decarbonization in the United Kingdom.

Rockwool International: Major insulation manufacturer investing heavily in retrofit-specific products and installation training programs across European and North American markets.

Kingspan Group: Global building envelope specialist providing integrated insulation and air-tightness solutions for retrofit applications.

BlocPower: US-based company using technology-enabled approaches to finance and install building electrification systems, primarily serving low-income and environmental justice communities.

Emerging Innovators

Effy (France): Digital platform streamlining residential retrofit delivery by connecting homeowners with vetted contractors and simplifying subsidy applications.

Thermondo (Germany): Integrated heat pump installation company combining digital customer acquisition with in-house installation teams to reduce costs and improve quality.

Hometree (UK): Subscription-based home energy service provider bundling heat pump installation with ongoing maintenance and performance guarantees.

Key Investors and Funders

European Investment Bank: Largest multilateral funder of building efficiency, deploying over €10 billion annually through various programs.

Breakthrough Energy Ventures: Climate-focused VC fund backing innovative retrofit technologies and business models.

Green Climate Fund: Major source of concessional finance for building efficiency in developing countries.

Examples

1. The Netherlands Social Housing Retrofit Program

Dutch housing associations have retrofitted over 100,000 social housing units since 2015 using the Energiesprong approach. Standardized prefabricated facade and roof panels, manufactured offsite, are installed in as little as 10 days per dwelling. The program demonstrates that industrial-scale retrofit is achievable with committed social landlords, supportive policy, and patient capital. Average energy reductions exceed 70%, and tenant satisfaction scores remain high despite temporary construction disruption.

2. New York City's Building Emissions Law (Local Law 97)

Covering approximately 50,000 buildings representing 60% of citywide building emissions, Local Law 97 requires progressive emissions reductions beginning in 2024. Building owners face escalating fines of $268 per metric ton of CO2 equivalent over the limit. Early implementation has driven significant investment in efficiency upgrades and electrification feasibility studies, with compliance pathways now available through on-site improvements, renewable energy certificates, and emissions trading. The law demonstrates that regulatory mandates can shift owner behavior when financial penalties are sufficiently severe.

3. Germany's Federal Building Efficiency Programs (BEG)

Germany's restructured building efficiency subsidies, combining grants and low-interest loans through KfW bank, disbursed over €15 billion in 2023 alone. The program offers tiered incentives based on achieved efficiency levels, with bonuses for deep retrofits reaching Efficiency House 40 standards. Despite criticism of administrative complexity and periodic funding suspensions, the program has driven significant increases in heat pump installations and comprehensive building envelope upgrades. The experience illustrates both the power and limitations of subsidy-based approaches.

Action Checklist

• Conduct building energy audits using standardized protocols (ISO 50002 or equivalent) to identify cost-effective intervention sequences
• Assess heat pump feasibility considering building fabric condition, electrical capacity, and peak heating loads
• Engage qualified retrofit coordinators to develop integrated renovation roadmaps addressing fabric, systems, and controls holistically
• Explore available financing mechanisms including grants, PACE, on-bill financing, and ESCO arrangements
• Establish measurement and verification protocols to document actual performance and address the performance gap
• Prioritize workforce development partnerships with vocational training institutions to address skilled labor constraints
• Advocate for policy frameworks including building performance standards and mandatory disclosure requirements

FAQ

Q: What energy reduction can realistically be achieved through building retrofit? A: Deep retrofits targeting the building envelope, heating systems, and controls can achieve 60-80% energy reduction in most building types. However, shallow measures such as isolated window replacement or basic insulation may deliver only 15-30% savings. The key is comprehensive, fabric-first approaches that address thermal bridging, airtightness, and ventilation simultaneously with heating system upgrades.

Q: How long do building retrofits typically take to pay back? A: Simple payback periods range widely from 5-25+ years depending on intervention scope, local energy prices, and available subsidies. Deep retrofits in high-energy-cost regions with strong subsidy support can achieve 7-12 year paybacks, while shallow measures in low-cost energy markets may never achieve positive returns without carbon pricing. Lifecycle cost analysis typically favors deep retrofit over repeated shallow interventions.

Q: Are heat pumps viable in cold climates without extensive building insulation? A: Modern cold-climate heat pumps maintain efficiency down to -25°C, but performance degrades significantly in poorly insulated buildings where heat demand overwhelms the system's capacity. Best practice calls for a "fabric-first" approach—improving insulation and airtightness before or alongside heat pump installation. Hybrid systems combining heat pumps with backup heating can bridge the gap during extreme cold periods.

Q: What evidence would convince skeptics that current retrofit approaches are working? A: Skeptics seek demonstrated retrofit rates exceeding 2% annually, consistent performance gap closure below 20%, and evidence that cost curves are declining through industrialization. Additionally, workforce development metrics showing training program graduates entering the industry at scale would address labor constraint concerns. Transparent data on actual versus predicted energy performance across large retrofit portfolios would build investor confidence.

Q: How can split incentives between landlords and tenants be overcome? A: Proven solutions include green lease clauses sharing savings between parties, on-bill financing where repayment attaches to the utility account rather than the tenant, and regulatory mandates requiring minimum efficiency standards regardless of ownership structure. The EU's EPBD recast introducing minimum performance standards for rental properties represents a significant step toward regulatory solutions.

Sources

• International Energy Agency. "Global Status Report for Buildings and Construction 2024." IEA, Paris, 2024.
• European Commission. "A Renovation Wave for Europe: Greening our buildings, creating jobs, improving lives." COM(2020) 662 final, October 2020.
• Passive House Institute. "EnerPHit: Certification Criteria for Energy Retrofits with Passive House Components." PHI, Darmstadt, 2023.
• Energiesprong. "Market Development Report 2024: Scaling Net Zero Retrofit Across Europe." Energiesprong Foundation, 2024.
• Urban Green Council. "Getting to Net Zero: The NYC Carbon Challenge for Buildings." Urban Green Council, New York, 2023.
• UK Green Building Council. "Retrofit Playbook: Practical guidance for retrofit of traditional buildings." UKGBC, London, 2024.
• Buildings Performance Institute Europe. "Building Renovation: A kick-start for the EU economy." BPIE, Brussels, 2024.