From Inefficient to Efficient Renewable Heating A Critical Assessment of the EU Renewable Energy Directive

Abstract

The accounting methodology for renewable energy in the European Union’s (EU) renewable heating and cooling targets is often treated as a mere technical detail, yet it has profound implications for the effectiveness of climate policies. This paper highlights a critical misalignment within the Renewable Energy Directive (RED), which inadvertently disincentivises the deployment of more efficient heating technologies. By accounting for the energy harnessed to produce the useful heat, rather than the useful heat itself, the current metrics disproportionately credit the least efficient heating systems with generating the most renewable heat. An electric heat pump with a seasonal performance factor of 3 producing 100 units of renewable heat gets credited with 100 units of heat, despite using only 33 units of input energy, whereas a wood fireplace with an efficiency of 50% gets credited with 200 units of heat. The less efficient the device, the more renewable credits it receives for producing the same amount of useful heat. This misalignment undermines decarbonisation efforts by over-crediting inefficient technologies while failing to fully recognise high-efficiency solutions like heat pumps. This paper proposes revising the RED to account for useful energy output, ensuring a more accurate reflection of technology contributions. We also propose increasing the binding heating and cooling targets of 0.8 pp/year and 1.1 pp/year so that they reflect the needed contribution of the heating and cooling sector to reach the binding headline target of 42.5% by 2030. This shift would incentivise efficiency, better align with EU climate goals, and support the transition to a low-carbon heating and cooling sector in line with the 2030 emissions reduction target.