EU Horizon 2020

APPROPRIATE PRUDENTIAL FRAMEWORK FOR ENERGY EFFICIENT MORTGAGES

The Energy Efficient Mortgages Initiative (EEMI) aims at incentivising building owners to invest in energy efficiency of their property to reduce energy consumption and emissions. A central aspect of the initiative is that investments in energy efficiency entail risk mitigating factors that should be included in the prudential framework.

In this report we analyse identified risk mitigating factors of EEMs and estimate how they would impact capital requirements from a risk perspective. We then benchmark the results from this exercise with the current treatment of EEM in the EU in order to identify shortcomings in the regulatory capital framework.

For an appropriate regulatory treatment of energy efficient mortgages (EEM), so-called risk mitigating factors should be accounted for. This is possible without a complete overhaul of the regulatory framework and hinges on the availability of technical solutions to provide the necessary data. Furthermore, transition risks, on average, seem manageable, but are very country- and portfolio-specific. Transition scenario analysis is therefore an important extension to the current framework.

This paper is part of the Energy efficient Mortgage Market Implementation Plan (EeMMIP)

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