State support for energy efficiency in buildings – A view from Germany

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One of the most influential European practice schemes to support energy efficiency investments in the building sector with public funds, was developed jointly by the German government with the KfW bank in 2006. The German State, which owns the promotional bank KfW, has a mission to deploy financial support programs on behalf of the Federal Government. As a consequence, KfW does not maintain its own branch network nor does it take individual customer credit risks in relation to the lending business.

The program for the building sector, which is linked to the building energy law (GEG) and its building standards of Efficiency House 55 and Efficiency House 40, is by far the largest scheme targeting energy efficiency in Germany. Since the program’s establishment in 2006, 6 million housing units benefitted from the promotional support of the program. Funds deployed by KfW since then reached nearly €180 billion (loans and grants), and triggered investments of over €500 billion, leading to a cumulative reduction of around 12 million tons of CO2 eq. each year, securing hundreds of thousands of jobs each year, primarily with Small and Medium Enterprises (SMEs).

As of July 2021, the program was renamed “Federal Promotional Support for Energy Efficiency in buildings”(BEG) and investment grants are now managed by the Federal Office for Economic Affairs and Export Control (Bafa). BEG introduced a number of structural and organizational changes compared to the original KfW programs. The BEG brings together the most important German support programs for the building sector under one roof.

The so-called Efficiency House approach, introduced in 2009, has become a market standard for building energy performance. It reduces the complex legal requirements of the building code to two main components: primary energy demand (PED) and transmission heat loss. An Efficiency House 55 (EH 55) for instance, means that the primary energy demand of the building seeking promotional funds is only at 55% of the level set in the Buildings Energy Act for a reference building, resulting in a 45% PED savings. In October 2021, it was announced that funding for the EH 55 in new buildings will be discontinued as of February 2022. Furthermore, it is mandatory to involve an energy advisor, to assess the quality and level of energy efficiency improvements.

Although Germany has already invested millions into this funding program, the annual renovation rate is still only around 1%, while around 3% is needed for a decarbonization of the building stock by 2045: this is because a majority of the funding currently goes to new buildings. This circumstance should improve somewhat when funding for EH55 will be discontinued in 2022.

Overall, the funding needs to be restructured, with additional funding earmarked for existing buildings, tied to  building renovation roadmaps and promoting deep renovations, which implement a number of renovation measures and reach a higher efficiency standard. The more transparent and simple the structure of the overall scheme is, the easier it is to understand for all parties involved, as well as sharing the program with others. The mandatory involvement of an energy expert from the beginning of the application process until the completion of the construction or refurbishment project is very important. Building owners must have full knowledge of their options and that the quality and success of the renovation project is ensured. Energy advisors can therefore help save money and increase customer satisfaction with this scheme.

The German government needs to assess all of the various funding streams and properly monitor the implications and effects for energy efficiency and its decarbonization goals. Incentives for building owners need to be created – especially for larger companies who rent out apartments as well as housing associations with diverse ownerships. These are two groups that cover a large amount of residential buildings, which are not energy efficient and difficult to reach with the current funding schemes.

In addition, it is imperative that KfW funding considers not only the usage phase of a building, but also a building’s entire lifespan. As energy efficiency increases, so does the importance of energy and its carbon footprint for the production, construction, disposal (“embodied carbon”) of buildings and the building products used. This accounts for around 8 percent of greenhouse gas emissions in Germany. In order to establish a broader view of the environmental impact of buildings, the “embodied carbon” of building products should be taken into account in the framework of KfW funding schemes, e.g., in the form of a repayment subsidy. Looking at the entire carbon footprint of the building is important for reaching a net-zero decarbonization of the building stock by 2045 without stranded assets and lock in effects.


This Commentary is published in the framework of the European-Israeli Forum for Environment and Sustainability, a collaboration between the Israel Public Policy Institute (IPPI) and the Heinrich Böll Stiftung Tel Aviv.

The opinions expressed in this text are solely that of the author/s and do not necessarily reflect the views of the Israel Public Policy Institute (IPPI) and/or the Heinrich Böll Stiftung Tel Aviv.

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