Decarbonisation Heating and Cooling, a Climate Imperative

The EU has met its target to reduce greenhouse gas emissions by 20% by 2020, compared with 1990 levels. However, meeting targets for 2030 and beyond requires a doubling of the annual reduction in greenhouse gas emissions achieved between 2005 and 2020. Heating and cooling account for half of the final EU energy use. With energy used for heating being significant, decarbonising heating is therefore critical. Solutions to save energy and introduce efficient, renewable heating and cooling systems exist and must be rolled out faster. This briefing looks at heating and cooling trends across the EU. It highlights the twin benefits — for climate mitigation and security of supply — of combining energy efficiency and conservation measures with rapidly switching to renewable and waste energy use in heating and cooling.

To meet the EU’s climate change mitigation targets for 2030 and the longer term, national decarbonisation strategies for heating and cooling must include significant energy conservation measures and phase out fossil fuels as soon as possible.

Historical efforts to substitute fossil fuels with renewable energy sources for heating and cooling have been too slow and focused on the use of biomass. However, since 2005, other renewable energy sources for heating and cooling, such as heat pumps, have developed faster. This indicates that we now have more options for decarbonising heating and cooling in buildings and industry than before.

Modern district heating and cooling systems can integrate other emission-neutral energy sources, especially in urban settings where neighbourhood solutions can work well. The advantages and disadvantages of investing in such systems need to be carefully assessed in each case and in relation with other, potentially more cost-effective and sustainable local solutions.

With appliances and systems for heating and cooling lasting considerably longer than a decade, converting gas, coal and oil boilers to systems that burn biomass could drive a fuel lock-in for many years. Possible implications, such as for feedstocks, land carbon sinks and health, need to be further assessed.

The EU’s heating and cooling needs in 2020 accounted for half of its total gross final energy consumption. This significant share has persisted for over a decade, despite many EU and national efforts to lower heating and cooling needs to meet the EU’s headline 20% energy-saving target by 2020.

Heating buildings accounts for the largest share of energy used for heating and cooling in the EU, with space and water heating accounting for about 60%, while industrial heat demand accounts for about a third of heating and cooling needs. The remaining energy used for heating and cooling is consumed in agriculture and for cooling.

In 2020, residential and industrial heating and cooling demand was only 10% below the average annual level seen from 2005 to 2009, despite the COVID-19 pandemic having suppressed industrial activity and an exceptionally mild winter having lowered the heating needs in most of Europe’s buildings. This indicates sluggish progress in achieving a permanent reduction in heating and cooling needs.

Heat is a valuable form of energy that supports meaningful end uses, such as the heating of residential and commercial buildings and for industrial processes. Across the EU, most energy is used to heat buildings and for industrial activities. Heat can also be used to generate electricity for various end uses, including heating. As heat is not a physical substance, it cannot easily be distinguished by origin, composition or intended use.

With many EU countries having large stocks of old and energy-inefficient buildings, high-temperature heating systems are used to compensate for significant heat losses. Buildings consumed more than two fifths of all final energy used by all sectors in 2020, making them a main source of greenhouse gas emissions. Households consumed two thirds of this energy. Historically, efficiency improvements have often coincided with higher levels of heat and electricity use in buildings, due to the increasing sizes and lower occupancy rates of dwellings, reduced energy prices, growing demand for cooling and prolonged use of more electrical equipment. In some cases, this increased use has outweighed the benefits of increased energy efficiency. Across the EU, however, the average energy consumption per household has slightly decreased since the peak of 2010, implying that energy efficiency efforts are starting to pay off.

While residential cooling needs currently account for less than 1% of the total EU energy used for heating and cooling in buildings, as average temperatures continue to rise across the EU, demand for cooling is likely to increase and that of winter-related heating to decrease. Between 2012 and 2021, the mean European land temperature was already almost 2°C warmer than the pre-industrial level. Final energy uses across EU households, with space and water heating disaggregated by fuel type, 2020

Heat is typically obtained by oxidising the chemical energy in fuels, converting the energy in solar radiation, extracting ambient energy from the surroundings (air, water, soil and geothermal sources) or converting electricity in heaters. It can be produced centrally, in specialised energy plants and in other enterprises from where it is piped to consumers, or heat production can be decentralised, such as when citizens, businesses and the public sector use energy to heat buildings, to produce hot water and for cooking.

Combined heat and power plants are typical examples of specialised energy industries that produce heat centrally and distribute it via pipes to end users. Other industries can also produce heat, including as a by-product, such as when heat released by exothermic chemical processes is recovered and sold to consumers.

What are renewable heat sources?

Solar thermal, geothermal and biomass fuels produced and used in a sustainable way (including biogas injected into the grid and renewable municipal waste) are renewable heat sources. Ambient heat extracted from the environment by heat pumps is also a renewable heat source.

Fossil fuels also play a role upstream, when derived heat (typically hot water) and electricity are produced industrially in larger systems and supplied via grids for domestic heating. In district heating, which supplies about 10% of the EU’s heat and is more common in northern, central and eastern Europe, fossil fuels contributed more than two thirds (69%) of all fuels burned in combined heat and power plants and heat-only plants in 2020. 

Gross EU heat production by fuel in combined heat and power and district heating plants, 2020

Industrial sectors can also be important heat users. Industry currently accounts for a quarter of final energy use, chiefly supplied by fossil fuels. Industrial heat demand accounts for about one third of all EU heating needs.

Even though official energy statistics do not capture comprehensively and consistently the final consumption of energy for heating and cooling per end-use sector and energy source, energy for both heating and cooling is consumed across industrial sectors, from the need for high-temperature heat in the metallurgical and ceramic industries, to the use of lower temperature steam and cooling agents in the food and textile industries.

In 2020, renewable energy sources accounted for only 23% of final energy used for heating and cooling from all sources in the EU. Despite this relatively small share, in absolute terms, most renewable energy used across the EU was consumed for heating and cooling due to the large demand for heating and cooling.

In the past 5 years, the share of renewable energy used for heating and cooling grew at a slower rate than it did from 2005 to 2015. Despite this slower pace, at the EU level, the share by 2020 was still slightly higher than that expected for 2020 (22.4%) based on commitments made by Member States in 2010 in their national renewable energy action plans.

Historical use of renewable sources for heating and cooling in the EU, 2005-2020, and 2020 NREAP levels

Trends in the use of renewable energy sources for heating and cooling across end-use sectors provide two key insights. Firstly, the use of solid biomass has prevailed as main heating fuel. Solid biomass use for heating increased by over a third since 2005, accounting for 80% of all renewable energy used for heating and cooling in 2020 at the EU level. A large proportion of this biomass was used by individual households in domestic heat stoves, with important possible ramifications extending to human exposure to air pollutants and impacts on land carbon sequestration and biodiversity. Secondly, since 2005, the use of other renewable options for heating and cooling, such as heat pumps and solar thermal collectors, grew at a much faster rate than the use of solid biomass. This indicates there is potential to deploy these technologies faster this decade.

Through their ability to extract useful renewable energy from a variety of sources, including from city subways, wastewater treatment plants, data centres and geothermal sources, modern reversable heat pumps using refrigerants with low or very low global warming potential are emerging as a flexible approach to decarbonising heating and cooling in buildings without directly producing greenhouse gas and air pollutant emissions during use. Heat pumps can also run with variable generation sources, such as rooftop solar photovoltaic modules, to help store excess renewable electricity as heat for later use or to help modern district heating and cooling networks to become more efficient by integrating other renewable and waste energy sources for heating and cooling. The EU aims to double the rate of uptake of individual heat pumps, to reach 10 million units over the next 5 years.

Improving energy efficiency can provide multiple benefits to society. If policymakers duly implement the ‘energy efficiency first’ principle and direct efforts to better insulating buildings, overall heating and cooling needs will fall. This, in turn, will reduce the need for investment in heating and cooling. Improving the efficiency of building envelopes can also reduce social inequalities and help alleviate energy poverty. Boosting the energy performance of the building stock through higher annual renovation rates, coupled with more ambitious standards for the energy performance of buildings, as envisaged by the recent recast proposal of the Energy Performance of Buildings Directive, will play a significant role in decarbonising the heating and cooling of buildings by 2030. But energy efficiency measures alone will be insufficient to decarbonise heating and cooling while fossil fuels are still being used as the main energy source.

Under the post-2020 legal framework, the national climate and energy plans and investment programmes of the Member States must demonstrate that they prioritise the ‘energy efficiency first’ principle to accelerate the rate and extent of building insulation works (EC, 2021c). For energy supply, several EU measures and proposals aim to increase the use of renewable sources for heating and cooling across all Member States by 2030. These measures aim to overcome market fragmentation, harmonise national heating and cooling decarbonisation efforts, and rapidly reduce gas use. One such measure is an indicative requirement for Member States to increase their national shares of renewable energy sources used for heating and cooling by 1.1 percentage points per year, on average. More recent proposals relate to mainstreaming renewable energy deployment in buildings to reach an indicative 49% renewable energy share in final energy use in buildings across the EU. If adopted, these proposals would increase the share of renewable sources in district heating and cooling by 2.1 percentage points per year, on average, until 2030. They would also require improvements in the efficiency of co-generation systems, doubling the deployment rate of heat pumps to reach 10 million units by 2027, and accelerating the implementation of geothermal and solar thermal heating to significantly cut demand for gas in heating and cooling. Successful decarbonisation strategies for buildings for this decade require thus a combination of more ambitious energy renovation measures and a faster switch to efficient, renewable and waste sources for heating and cooling. Such measures could also help to alleviate gas price volatility and reduce air pollutant emissions.

In industry, mature approaches, such as direct electrothermal heating, heat pumps or biogas, could already be used to replace gas in the short term for medium- and low-temperature industrial heating and cooling. However, replacing fossil fuels in high-temperature processes may require renewable hydrogen supply, which currently is still a scarce resource. Since 2021, medium- and long-term climate mitigation efforts have been compounded by an increased sense of awareness of high gas prices and supply volatility that could affect industrial competitiveness. At the gas prices that prevailed across the EU in 2021 and 2022, the attractiveness of industrial gas substitutes, including renewable hydrogen supply, has improved considerably, strengthening the economic case of the EU moving away from fossil fuels.

For the EU and its Member States, decarbonising heating and cooling represents a major challenge on the way to meeting climate targets for 2030 and 2050 and ensuring that fundamental energy needs, such as for residential heating, can be met more securely than they are today. However, national policymakers face very different challenges and opportunities in decarbonising heating and cooling, because the availability of sustainable energy resources and the demand for heating and cooling from buildings and industry vary significantly at the country and regional levels.  

To rise to the challenge, Member States will have to assess the sustainable market potentials for national, regional and local renewable energy use and waste heat and cold recovery and  devise replacement schemes for fossil-fuel heating systems  to increase the deployment of renewable and waste sources for heating and cooling across all sectors. For that, Member States will need to set clear end-dates for fossil fuel subsidies across all energy markets and especially in heating. 

In general, adhering to the ‘energy efficiency first’ principle can reduce buildings’ heating and cooling needs significantly. Prioritising energy efficiency measures would also help the sector to meet the EU Renovation Wave target — to reduce buildings’ energy use by at least 60% by 2030. But success depends on the ability of competent authorities to drive high insulation rates, deep-energy retrofits and circular renovation actions across all buildings, and to construct zero-emission buildings

At the same time, without an urgent move away from heating systems that use fossil fuels, it is unlikely that the EU’s climate mitigation targets for 2030 will be met. On the supply side, as illustrated in  the use of renewable energy sources must increase at a much faster rate, to meet 40% or more of the EU’s heating and cooling demand by 2030 and a minimum of 45% across all market sectors.

Successful responses to the specific strengths and weaknesses of national and regional decarbonisation pathways will also require policymakers to set strategic research agendas and foster innovation and learning from each other. Most importantly, to implement low-emission heat and cold supply systems cost-effectively, measures will have to target faster building renovation rates, to create nearly zero- and zero-emission buildings, and to substitute fossil fuels with renewable and waste heat and cold energy sources across all sectors