EPC Mirage: Grid decarbonisation can overstate retrofit progress in carbon-weighted building energy ratings
This paper demonstrates that carbon-weighted building energy ratings can artificially inflate perceived retrofit progress by crediting grid decarbonization rather than physical building improvements, as evidenced by a UK policy change that triggered widespread rating upgrades without corresponding energy savings, prompting a call to separate carbon accounting from physical performance standards.
Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer
Imagine a world where the most important measure of a building's environmental impact is a simple letter grade, from A to G, much like the labels found on household appliances. These Energy Performance Certificates, or EPCs, have become the standard way governments and investors judge whether a building is efficient enough to be rented or sold. The logic is straightforward: if a building gets a better grade, it means the owners have invested in upgrades like better insulation or more efficient heating systems, thereby reducing the carbon footprint of the structure. As nations race to meet climate goals, these grades are used to set legal minimums and guide billions of pounds in investment. The assumption is that a rising grade reflects a physical improvement in the building itself.
However, a new study reveals a subtle but significant flaw in this system. The grades are not just a measure of the building's physical condition; they are also a calculation that depends heavily on the carbon intensity of the electricity grid. When the national power grid becomes cleaner—generating more energy from wind and solar and less from coal—the carbon score assigned to electricity drops. Because the grading formula uses this score, a building can suddenly receive a much higher letter grade simply because the electricity it uses is now cleaner, even if the building itself has changed nothing. It is as if a car suddenly became more fuel-efficient in a government report not because the engine was tuned, but because the fuel station changed the chemical composition of the gasoline. This phenomenon creates a "mirage" of progress, where statistics show buildings are getting greener, but the physical reality of the buildings has not improved at all.
Researchers at IESE Business School and Imperial College London investigated this issue by looking at a massive, real-world event: a major update to the calculation rules for non-domestic buildings in England and Wales in June 2022. This update changed how the carbon cost of electricity was calculated, reflecting the fact that the UK grid had become significantly cleaner. The researchers treated this rule change as a natural experiment. They examined over 106,000 buildings that had been assessed both before and after the new rules took effect. By comparing the "before" and "after" grades for the exact same buildings, they could see how much of the improvement was due to the building actually getting better and how much was simply due to the math changing.
The results were striking. Of the buildings assessed on both sides of the rule change, more than 80 percent received a better rating. The researchers found that this jump in grades was almost entirely driven by the change in the electricity calculation, not by physical renovations. For buildings that rely on electricity for heating, the improvement was particularly dramatic. The study calculated that if you were to look at these buildings as if the old, stricter rules were still in place, the vast majority of the apparent progress would vanish. In fact, the study estimates that nearly 95,000 buildings that currently appear to meet a key policy target (a grade of B or better) would actually fall below that target if the calculation were adjusted to remove the benefit of the cleaner grid.
This "phantom" improvement has a massive financial implication. The researchers translated the number of affected buildings into a notional cost. They calculated that the area of floor space involved—roughly 57.2 million square meters—would require an investment equivalent to £5.7 billion to actually achieve the physical upgrades needed to earn those grades under the old rules. In other words, the grid decarbonization has effectively "paid" for a retrofit that never happened, creating a statistical illusion of compliance. The study also looked at a similar upcoming change in France, where a revision to the primary energy coefficient for electricity is expected to move over 100,000 residential certificates out of the lowest energy efficiency categories. Just as in the UK, the vast majority of these moves are concentrated in electrically heated homes, confirming that the mechanism is a mathematical artifact of the rating system rather than a sign of physical renovation.
The core finding is that current rating systems are bundling two different things together: the performance of the building and the performance of the power grid. When the grid gets cleaner, the building gets credit for it, even though the building owner did nothing. This creates a dangerous measurement problem for policy. Governments and investors might believe they are seeing a wave of successful building retrofits, when in reality, the buildings are unchanged. The study argues that this confusion could lead to a false sense of security, where the urgent need for physical upgrades is masked by the success of the energy transition. The researchers suggest that policy should separate these two concepts. Carbon accounting should reflect the cleaner grid, but the standards for physical building performance should rely on stable indicators that do not shift when the electricity mix changes. This would ensure that when a building gets a better grade, it is because the building itself has truly improved, not just because the math has changed.
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