Cities and companies ask: “Change the accounting rules and let us invest to deliver EU climate and energy targets”
Frankfurt/Brussels, 24 November 2016. On 24 November, an important exchange of views facilitated by Climate Alliance took place with representatives of the National Bank of Belgium in order to discuss the accounting treatment of energy efficiency investments. As was shown by a wide variety of stakeholders present, ranging from local and regional authorities to companies and a Belgian bank, there is currently a restricting contradiction between the investment needs in the public building stock and the interpretation of energy performance contracting on the balance sheet of local authorities. Current rules represent a severe barrier to financing energy retrofitting of public buildings, since the entire investment needs to be attributed as government expenditure, increasing their debt level. This makes these investments impossible to implement for many local authorities. However, Energy Performance Contracting (EPC) projects guarantee energy and monetary savings, which is not reflected in the accounting rules.
Climate Alliance president Tine Heyse, Deputy Mayor for Energy and Climate of Ghent, and other members, such as Deputy Mayor Joost Venken (City of Hasselt) and Renowatt Director Erika Honnay (GRE Liège) provided evidence from the ground to their national representatives.
Climate Alliance has repeatedly stressed this issue in to the EU institutions, in order to convince European policy-makers that a change of rules is needed. In addition, Member States need to highlight this as well in order for Eurostat to investigate potential solutions. This EU body has a key role in interpreting and defining accounting rules in the European Union.
The aim of this meeting was to inform the Belgian representatives to Eurostat about the national Bank on the problem the current rules represent for Belgian local authorities.
“We want to start acting in our own building stock to reach the 40% CO2 reduction target we committed to when signing the Covenant of Mayors for Climate and Energy. Energy performance contracting is a crucial key to unlock the necessary capital and knowledge via collaborating with Energy Service Companies (ESCOs) who guarantee the energy savings,” said Tine Heyse.
Erika Honnay complemented: “The EU defined the objective to lower 80% of the emissions deriving from buildings by 2050, but we don’t get close to that goal if we cannot invest properly in our building envelopes and have to stick to the quick fixes”. In other words, without changing the budgetary rules for these investments, local authorities will not be able to deliver on the European Climate and Energy targets.
Barbara de Keizel (Province of Vlaams Brabant) also demonstrated that “the value of our buildings is decreasing very quickly, so if we don’t invest properly in them the costs will only rise- bringing us further away from the objective to lower the public debt level”.
Also Deputy Mayor of Hasselt, Joost Venken, witnessed: “with the current fierce competition between all investments from the different sectors in our city, we are not realising the energetic renovations of our patrimony of 75 buildings. This is why the financial return of these energy saving projects in buildings that will still be used for decades should be included in our accounts. That is the most cost-effective way to lower our energy dependence and debt level at the same time”.
Testimonies also came from companies (EPC facilitators like Energinvest and Factor4), the Belgian association of ESCOs (BELESCO) and the Belfius bank. Sharing the same view and understanding, they showcased that the EPC market cannot thrive as long as the accounting treatment is not recognising the productivity of these investments, since:
- Savings on the energy bill pay back the investment, while lowering profoundly the operational costs of the public authority -thus halting unnecessary spending- as the EU Stability Pact aims for.
- EPCs allow for a guaranteed level of savings, securing a stable cash flow
- The risk is taken by the private entity (the Energy Service Company)
What are the steps forward? In the short term Climate Alliance advocates for an earmarked deficit spending for investments which result in secured cost savings, namely via Energy Performance Contracting. The participants of the meeting also encouraged the Belgian national bank to have a constructive debate with representatives from the other European countries and Eurostat in upcoming meetings.
For a long-term term solution to be found, Climate Alliance suggest that a mandate should be given to Eurostat to investigate and develop a set of recommendations. Climate Alliance will continue working with its partners at national levels and in the European institutions to work towards a sustainable solution.
Climate Alliance background paper "Accounting rules creating barriers for mobilising energy efficiency investments"
Euractiv article by members of the Climate Alliance executive board: "Cities want to deliver on energy efficiency, but fear obstacles"
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