The European Climate Neutrality Observatory (ECNO) warns that building emissions remain a key roadblock towards net-zero targets.

Between 2018 and 2023, annual CO₂ cuts from the sector were about 16.5 million tonnes. The study says this has to double by 2030.

The report points to stalled renovations as the main cause. Only 1% of buildings are upgraded each year, while deep retrofits reach just 0.2 to 0.3% of the existing stock. At the same time, embodied emissions are rising, with cement and brick demand increasing 18% over five years.

Energy experts from Exergio, a company that develops AI-based products for energy efficiency in commercial properties, say this reflects a blind spot in EU policy.

“Deep renovations cover less than 1% of the building stock each year, which I hardly can call progress,” said Donatas Karčiauskas, CEO of Exergio. “Even light measures like replacing windows or swapping boilers have slowed. Despite that, Europe still overlooks digital retrofits. With AI optimisation, buildings could already cut emissions by up to 30% without waiting for construction work.”

The report also points to electrification, another cornerstone of climate neutrality, where progress has flatlined. The EU target is to lift electrification from 21.3% in 2022 to 32% by 2030, yet demand for the necessary equipment is moving in the wrong direction.

Heat pump sales, which are central to replacing fossil fuel heating with electricity, fell in 2023-24. Annual investments in them are about €19bn against the €55bn required to reach 30 million units by 2030. ECNO adds that enabling infrastructure, such as smart meters and optimisation tools, has been far too slow or not tracked at all.

Karčiauskas argues that Europe is missing the bigger picture.

“Smart meters and optimisation tools are the backbone that makes electrification work,” he said. “They track electricity and heat use in short intervals, often every 15 minutes, and show how demand changes across floors or tenants. Occupancy sensors add another layer by showing when rooms are actually used. With those data, AI can, for example, warm offices before staff arrive in the morning, cool meeting rooms before they fill up in the afternoon, or shift energy use to cheaper night-time tariffs. Without this system, installing more heat pumps will not deliver the expected results.”

Weakness in infrastructure is mirrored by a funding gap. ECNO (climateobservatory.eu) estimates that the climate investment lacked €344bn in 2023. As previously shown, it is reflected in stalled renovations, falling heat pump sales, weaker EV demand and a slowdown in wind power projects.

This shortage of capital drags on Europe’s ability to produce the technologies it needs, from heat pumps and batteries to wind turbines and building controls, and doesn’t allow manufacturing to expand, Karčiauskas claimed.

At the same time, fossil fuel subsidies are climbing. Europe spent €400bn on imported oil and gas in 2024, or around 2% of GDP. Here, households are paying the price: 11% of EU families cannot afford adequate heating, cooling or electricity, found the study (climateobservatory.eu/sites/default/files/2025-09/Flagship-Report-2025_online.pdf).

“The report leaves little doubt: without tackling buildings, the EU cannot deliver climate neutrality,” said Karčiauskas. “Digital retrofits should be treated as part of the transition toolkit, cutting emissions immediately, enabling electrification and providing the performance data policymakers still lack.”

Lithuania-based Exergio (exergio.com) has ongoing projects in Poland, UK, Ireland, Czech Republic, Hungary, Oman, Sweden and Lithuania and is planning to expand into Germany and France.