In 2003 the European Commission introduced the Energy Performance of Buildings Directive (EPBD) in recognition of the importance of energy savings in the urban housing stock. One of the key elements described in the Directive is the introduction of energy certificates in a property transaction. This article discusses the anticipated efficiency and effectiveness of the application of the energy certificate on the existing building stock in the UK. The thesis for discussion is that although energy certificates as a communication instrument for household appliances have appeared to be relatively successful, the different nature of the building sector can mean their effectiveness here will be rather limited. Incentives need to be introduced to support taking up the improvements recommended by the energy certificate. Effective results can probably be expected from introducing regulations combined with energy certificate standards, but it requires a rather drastic approach and needs time to receive sufficient commitment.

In 2003 the European Commission introduced the EC Directive on the energy performance of buildings in recognition of the importance of energy savings in the urban housing stock. The Directive gives the member states freedom to design the different elements in practice. The energy certificate for existing buildings demanded by the EC Directive can be used as a communicative instrument, or combined with economic or regulatory principles. The authors discuss the anticipated efficiency and effectiveness of different policy approaches in the application of the EC energy certificate for the urban housing stock. They argue that, although energy certificates as a communication instrument for household appliances have appeared to be relatively successful, the different nature of the building sector may mean that their effectiveness here will be rather limited. The combination of energy certificates with tax schemes seems promising, but will have to be coupled with general income taxes or in housing-related taxes in order to prevent regressive social effects. Combination of the energy certificate with subsidies should be limited, because of the `free-rider effect¿, and subsidies should only cover innovative products at the beginning of their `learning curve¿. Effective results can probably be expected from the introduction of regulations combined with energy-certificate standards, but this requires a rather drastic approach and needs time to receive sufficient commitment, as has been the case for new buildings where there has been a gradual development of energy regulations over the last thirty years. However, an introduction of energy standards for the existing urban housing stock through the EC energy certificate offers great potential in the realisation of CO2 reductions. The introduction of an energy standard, by means of the energy certificate in combination with progressive taxes or other economic measures to reward better and punish worse energy-performance levels, seems an interesting approach that needs further research.

In the Kyoto Protocol, governments of the industrialised countries agreed to reduce the total 1990 level of CO2 emissions by 5.2% between 2008 and 2012 thus increasing pressure on governments to establish CO2-reducing strategies. New housing production in the EU is 1.9 million units per year, or approximately 1% of the building stock. Dwellings yet to be built will constitute 15% of the total housing stock in 2020 and 5-10% of the total housing stock in the Kyoto period 2008-2012 [1]. Consequently, the existing housing stock is an important sector in reducing green house gas emissions according to the Kyoto agreements. In the Netherlands, a 3.6 Mton CO2 reduction could be achieved from existing housing if an average investment of ¿ 2,300 per dwelling was made and the energy tax was increased 2.5 times to shorten the pay-back time [2]. The environment, however, continues to play a small part in renewal projects [3].

Although progressive government guidelines and knowledge about sustainable building exist, sustainability measures are not adopted in large scale. Several barriers have been identified, especially the perceived costs of implementing environmental management and the lack of market demand. The choice of fiscal instruments is an important issue in sustainable building policies. This paper presents an analysis of economic measures that are currently used to support sustainable building in the European Union and accession countries, indicating the areas where policy instruments are either focussed or lacking. The research is based on the national progress reports of the 3rd European Ministers conference on sustainable housing in 2002. The results indicate that environmental taxes and subsidies are used in the EU and the accession countries, but that they have had a low impact on the building sector. An examination of the developments since 1996 shows that apart from energy initiatives resulting from the Kyoto Protocol, the lack of a strong driving force has kept progress slow. Conclusions are based on the analysis findings ¿ the low impact of taxation on building and the narrow focus of subsidies. Finally, possibilities to benefit European experiences in the Australian context are discussed.