Interview with Ivan Jankovic, Team Lead at BPIE

Among the many updates in the 2024 revision of the EU’s Energy Performance of Buildings Directive (EPBD), one of the least discussed—but arguably most consequential—is the revision of the cost-optimality framework. This will be done through a Delegated Act that the European Commission needs to put forward by the end of June 2025. To inform this, a public consultation is now open until May 7th.

At BPIE, we have long argued that cost-optimality is more than just a technical exercise—it plays a critical role in shaping the impact of building renovations across Europe. In November 2024, we published a short paper highlighting how the EU methodology could better account for the wider economic and social benefits of energy efficient buildings, from energy security to productivity and social well-being. Now, as the Commission actively gathers feedback on its draft updated methodology, stakeholders have a unique opportunity to influence the outcome of the Delegated Act—and we strongly urge them to take part in the consultation before May 7th.

Despite its significance, cost-optimality is often misunderstood—even by seasoned buildings policy experts. It’s seen as technical, nerdy, abstract – even boring! But in reality, it underpins major political decisions, defining what counts as a ‘good’ renovation and shaping the trajectory of Europe’s building stock.

As Head of Communications at BPIE, a big part of my job is about translating complex concepts into clear content that can be digested easily by a non-expert. I have a pretty simple approach to doing this – I ask my colleagues a lot of questions!

In a recent, completely unplanned coffee chat with my colleague Ivan Jankovic—BPIE’s lead expert on cost-optimality—something finally clicked for me. I don’t normally turn my internal conversations into published pieces, but this one was different. Ivan’s way of explaining cost-optimality made it feel practical, relevant, and politically significant in a way I hadn’t heard from anyone before. Since it helped me see the bigger picture, I thought it might help others too— so here it is, captured as closely as possible to how it unfolded.
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Cost-optimality seems like a particularly niche element of the EPBD, and my own impression, based on quite a few conversations and events over time, is that even among many buildings policy experts in our Brussels bubble – not everyone understands it. So let’s start with the basics –  what is cost-optimality?

Cost-optimality is the process of finding the most cost-effective way to achieve a specific goal. It’s a core principle in decision-making in all circumstances – from the societal level to business, government or individuals.

So how does cost-optimality apply to buildings policy?

In the EU’s cost-optimal methodology for energy efficiency in buildings, it compares the upfront costs of energy-saving measures (like insulation or heating systems) against long-term benefits such as energy savings and reduced emissions.

Cost-optimality can be applied at different levels – individual building vs national building stock. But the goal remains the same:  achieving the best value for money over time by balancing what is financially feasible with the goal of reaching high energy performance. It’s about how to deliver the best possible energy performance for a given investment. From a broader perspective, beyond the individual building level, cost-optimality can help designing national building renovation programs with the highest positive impact on social welfare.

Why is the EU’s cost-optimality framework for buildings important? What’s at stake with the Commission Delegated Act?

The cost-optimality framework holds significant political weight, even if it tends to fly under the radar as just a ‘technical annex’. It sets the baseline requirements for how building renovations should be done across the EU, directly influencing the quality and depth of these renovations. The Commission Delegated Act will set the methodology at EU level, which Member States will then use to determine cost-optimal levels at national levels. Those will in turn be used as benchmarks for setting standards, such as the Zero Emission Building standard (the updated standard for new construction), or Minimum Energy Performance Requirements (MEPR) which apply in case of major renovations of existing buildings.

Despite its importance, cost-optimality is often overshadowed by more prominent policies, such as Minimum Energy Performance Standards (MEPS). During the recent EPBD negotiations, MEPS attracted significant political attention, while the equally important cost-optimality framework flew under the radar.

I have sensed confusion among buildings stakeholders – and I mean real policy experts – between MEPS and cost-optimality. Can you help explain once and for all- what’s the difference between MEPS and cost-optimality?

MEPS, in the way they are worded in the EPBD for non-residential buildings, set objectives for how much of the building stock needs to improve by certain dates, focusing on worst-performing buildings and influencing the renovation rate. From the EPBD, Member States are required to ensure that 26% of the lowest-performing non-residential buildings will be improved by 2033.

On the other hand, cost-optimality defines the minimum energy performance levels that major renovations must achieve, thereby influencing the renovation depth. A major renovation is defined as a renovation where either the total cost of the renovation relating to the building envelope or the technical building systems is higher than 25% of the value of the building excluding the value of land upon which the building is situated, or when more than 25% of the surface of the building envelope undergoes renovation. So, the link between MEPS and cost optimality is that if a building is renovated due to a MEPS policy, and if the renovation is deemed ‘major’, then the building must comply with MEPR (set in accordance with cost-optimality).

Can cost-optimality drive deeper decarbonisation?

Absolutely. Cost-optimality is a critical, though often underestimated factor in driving decarbonisation. By influencing how  renovation standards are set, it has the potential to significantly influence emissions reductions. In the simplest terms, it defines what’s ‘good’, what we should consider as a ‘good’ and acceptable renovation, a ‘good’ energy performance. When we understand it as ‘defining what’s good’ – rather than a technical methodology – we can understand the immense power it has on influencing ambition levels of renovation. In fact, cost-optimality is the basis to everything we set out to do in the EPBD.

Cost-optimality defines what’s ‘good’, what we should consider as a ‘good’ and acceptable renovation a ‘good’ energy performance… [it has] immense power it has on influencing ambition levels of renovation.

What’s new in the EPBD’s revised cost-optimality framework?

The 2024 EPBD recast updated the cost-optimality framework to consider broader benefits like health and environmental externalities. By reflecting societal benefits such as improved health and well-being, the cost-optimal calculations will provide a more accurate reflection of the social value that renovations bring.

What other benefits, besides energy and emission savings, should be quantified,  monetised and incorporated into the cost-optimality calculation?

There are many measurable societal benefits. For example, improving indoor air quality and thermal comfort can boost productivity—studies show that reducing overheating in schools by just 1°C can increase student performance by 2.3%. In offices, worker productivity can increase by 3.6%, potentially translating to €51.5 billion annual turnover across the EU.

Building renovations also enhance energy security by reducing the need for energy imports. This benefit can be tracked and monetised by calculating reduced fossil fuel imports against energy prices. Renovations also improve the quality of energy supply by lowering grid losses during peak demand, which account for up to 11% of energy loss, and up to 20% in marginal losses. Additionally, better-insulated buildings help reduce the need for costly grid capacity upgrades, particularly as sectors like heating electrify.

Why are we still focusing on ‘costs’? Shouldn’t we also mention the cost of inaction?

It’s true that with the urgent need to decarbonise, focusing solely on ‘costs’ may seem counterproductive. However, the energy transition still has to be cost-effective for both governments, representing society, and individuals. Smart investments always consider cost, and this applies to both public and private sectors.

The key here is shifting our perspective from the traditionally narrow understanding of the ‘payback’ of energy performance improvements. Currently, we focus too much on short-term energy savings and reduced bills when we should be considering the full range of societal and long-term benefits.

Currently, we focus too much on short-term energy savings and reduced bills when we should be considering the full range of societal and long-term benefits.

These broader advantages, like improved health, energy security, and energy poverty alleviation, have long been seen and presented in speeches as externalities, nice-to-have’s, but they were not included in our calculations, while they are central to the true value of building renovations. It is time to move from only talking about the multiple benefits of building renovation to incorporating them into the key methodology used in the sector.

If the EU’s cost-optimal framework doesn’t explicitly account for these wider benefits, they’ll continue to be sidelined in decarbonisation efforts and renovation investment decisions. This isn’t just about decarbonisation—it’s about real, tangible impacts for citizens and businesses. Without embedding the broader benefits of renovation into the framework we use to define and plan them, we will never fully tap into their potential to drive strategic EU objectives—such as achieving our energy independence. Given the current context, energy independence is not just important, it’s urgent.

So what would you say to a colleague who says this Delegated Act is technical, boring, not political relevant?

I’d kindly say they’re wrong and they’re missing a big opportunity. Understanding the intricacies of cost-optimality is complex, but it’s not boring. And it’s critical for the Commission to get (through  the Delegated Act) the EU cost-optimality methodology right, including a wider set of socio-economic indicators, and for Member States to take it up quickly, so we stop valuing ‘performance’ through a simplistic, short-term cost/payback frame. From a technical perspective, a broader, more modern methodology will drive better decisions and investments that resonate with what Europeans care about. From a political perspective, it’s a powerful tool for driving renovation forward—it can shift perceptions and drive action towards major goals, like energy independence and more affordable energy, which is key  in the current context.

From a technical perspective, a broader, more modern cost-optimality methodology will drive better decisions and investments that resonate with what Europeans care about. From a political perspective, it’s a powerful tool for driving renovation forward—it can shift perceptions and drive action towards major goals, like energy independence and more affordable energy, which is key in the current context.

So, final words – what can stakeholders do? I’m talking about policy experts from both the private sector but also Member States. How can we change the EU’s cost-optimality framework for the better?

Stakeholders can act now. The Commission has opened a  4-week consultation on the draft Delegated Act which describes the new EU cost-optimality methodology, and stakeholders can send their feedback until 7^th May on this website. BPIE will provide a feedback too, and anyone interested will be free to use it as inspiration for their own feedback to the Commission.

Member States, on their side, should take up the new EU methodology as soon as possible after it is being published, probably this summer. They should integrate as much as possible the new elements, such as environmental and health externalities, in their national calculations, and determine their updated cost-optimal levels as soon as possible. This will be key in setting modern and forward-looking standards for both construction, with the Zero Emission Building standard, and for renovation of existing buildings through the Minimum Energy Performance Requirements (MEPR).

In our recent BPIE study, we demonstrated how a wider set of key indicators can be included in the revised methodology: energy security, productivity, energy poverty reduction, and grid benefits. Including these indicators in the EU methodology and in national calculations could be a game changer for the renovation wave. So I can only stress that stakeholders must make this a priority to undertake this survey – and I strongly encourage them to use our study as a key resource!

For more information, consult this webinar on where BPIE presented and replied to an extensive cost-optimality Q&A! For inspiration for your responses for the public consultation, see BPIE’s answers here.