Flipping the script in buildings and heating: from resource depletion into regenerative business models

When I arrived in Brussels for my first job in 2004, the circular economy was already on the agenda. Almost twenty years and three EU action plans later, it is still a topic that drives political attention. Yet, I have learned in my career that what matters in policy making is not so much new ideas but their crystallisation. When a number of factors simultaneously lead to a critical mass, society is ready to act. We saw it with the REACH regulation on chemicals, GDPR and recently the EU recovery plan (NextGenEU).

I believe that the time has come for an exponential transformation of the building and heating sector – flipping the script from resource depletion into regenerative, circular business models. And here is why.

Science has become mainstream: The impact of climate change is documented and visible, and so are biodiversity losses and resource depletion. The facts are stunning. The built environment accounts for 50% of all extracted material, 35% of the EU’s total waste generation and over 30% of GHG emissions.

The exposure of the EU economy is salient: The Covid pandemic and the war in Ukraine have exposed the vulnerabilities of the EU value-chains – including extreme volatility of material prices and the EU’s over dependance on strategic supplies. Nothing new in fact, but it is not possible to turn a blind eye to the problem anymore. When factories are closed for lack of supplies, when market shares are lost, when a recession looms because of inflation, the topic is propelled into the boards of all companies and heads of state. 

Consumer preferences are changing: 94% of Europeans think that protecting the environment is important and 68% believe that their own consumption habits adversely affect the environment (Eurobarometer, 2020). This is more than just a belief. We have seen in the aftermath of the war in Ukraine a significant shift in actual purchasing decisions, which have translated into significantly reduced gas boiler sales and a growth of renewable solutions. 

New technologies now enable a systemic transformation: The digitalisation mega trend, especially data mining and system thinking, allow us to reach new territories, manage complexity, understand interconnections and build a much deeper understanding of value chains. 

Yet, will the change be fast enough? As I write this article, humanity has already crossed six out of nine planetary boundaries (Figure 1). 

We have one decade to flip the script and take a giant LEAP towards a net-zero, resource efficient economy. The ultimate goal is to operate within the “doughnut”, an economic model designed by Kate Raworth¹. This means for companies and the building sector: operating in a safe and just living space in line with social foundations and the planetary boundaries. Today, the question of board members and sustainability leaders is not if and why anymore, but what and how.

How to flip the script in practice? Here are a few thoughts.

Start with people: In heating for example, the accelerated transition is driven by the 1.5 million installers who install and modernise heating systems across Europe every day. The European Heating Industry (ehi) estimates that 50% of the existing workforce needs upskilling, and 50% more must join to meet climate goals.² 90% of consumers follow the advice of installers entirely or partially (Centerdata, 2021). Skills will clearly be THE currency of this exponential decade. With that in mind, ehi and Viessmann have joined the EU Pact for skills. Culture will be another strong driver, especially extreme ownership, courage and stubborn optimism.

Face reality: Today, the number one priority remains CO₂ emissions. 90 to 99% of GHG emissions of heating appliances come from the use-phase³. These emissions will gradually move to zero along the decarbonisation of energy systems, making the embodied cradle-to-gate footprint more important.

In addition, the resources of the planet are limited, their prices are volatile and access is not guaranteed, especially for some critical materials. Clearly, our resilience and competitiveness depend on our ability to decouple growth from resource consumption.

Get the data: A first step to improve product design is to fill the data gap on the life cycle of products and services. This includes data on the flow of materials, components and electrons (i.e. the energy consumed in mining and extraction, refining and manufacturing, selling and servicing) and on the working and living conditions of stakeholders along the value chain. A priority is to mainstream life cycle assessments. It is identified as a critical enabler in the New European Bauhaus initiative and Horizon Europe. In short, know your electrons and molecules (Figure 3). 

Build partnerships and go circular: The total emissions of our suppliers are 40 times higher than our own (scope 1 and 2) emissions. This makes partnerships with suppliers a key change lever. Heating appliances consist mainly of metals and alloys such as steel, copper, brass, and aluminium that account for 90% of an average product’s weight. Close to 100% is recovered at the end of life and their average life duration is already quite long: 20 years on average with big discrepancies among Member States. The actual problem remains the optimisation of their energy performance in the use-phase and the replacement of old, obsolete systems. However, there is still room for improvement. By reusing, remanufacturing, repurposing some components or materials from legacy products we could tap into valuable secondary resources. This will take some time and experimentation, yet what matters is to start.

Enable consumers to make informed decisions: Consumers themselves can take an active role in the transition if they get reliable information on the environmental footprint of products.

Transparency, consumer protection and fair competition, guaranteed by market surveillance, will be key enablers for the market take-up of innovative solutions.

The ongoing revision of the directives on consumer rights and unfair commercial practices, combined with information requirements under the framework of the new ecodesign regulation for sustainable products, are necessary to improve the quality and reliability of green claims.

Lift barriers and scale: One substantial barrier is the transparency gap within companies themselves. I believe that the new Corporate Sustainability Reporting Directive, Taxonomy, and the upcoming Corporate Sustainability Due Diligence Directive will have a transformative effect on companies. Another barrier that remains to be lifted is the dual treatment between conventional sales models and heating as a service models (where products are not sold anymore, but their functionalities). In some Member States, VAT rebates for green products apply only to conventional purchasing transactions, but not to heating as a service providers, like Viessmann Wärme for instance. This dual treatment is anachronistic and harms the market take-up of such business models. The EU could clarify, in its upcoming guidance, that state aid rules do not prevent the application of reduced VAT to green business models.

It can be frightening to look at the transformation that lies ahead. We don’t know for sure all the answers, we are not yet sure how to reach our own targets and we welcome every partner to join forces and help. Yet, it is our responsibility to dare and imagine other business models and enabling policies.

Those who understand the shift, the early movers, will benefit the most. After all, climate solutions and circular business models are among the biggest business opportunities in our century, just waiting to be unlocked. It is estimated that the achievement of the SDGs by 2030 can generate $12 trillion and 380 million jobs globally (UNDP).

1 – https://www.kateraworth.com/doughnut/

2 – Heating systems installers, expanding and upskilling the workforce to deliver the energy transition, ehi, 2022

3 – Ecodesign preparatory study on space heaters, task 5 report, page 25, VHK, 2019