Banks need to change how they lend money to customers seeking to renovate homes so climate change targets can be met, according to EU officials.
Under new proposals, the European Commission will fund collateral for banks to lend money for 'greener homes' innovations. Officials believe this will be more cost effective than issuing grants.
The Commission's director general for climate action, Mauro Petriccione, believes economies will have to make drastic changes if energy targets are going to be met.
He said home renovations were key to protecting the environment but many of the positive changes were out of reach for most families.
The Government is preparing to launch its Plan to Tackle Climate Disruption in the coming weeks. The plan is set to feature a low-cost loan scheme to retrofit homes.
Mr Petriccione said the private sector should also play a role in making homes more energy efficient, saying financial institutions must make loans available to fund "greener homes" renovations.
"There are huge energy inefficiencies and a lot of disadvantages in housing across the board," he told the Sunday Independent.
"Most houses are owned by people who cannot access the necessary funding to carry out renovations that would make their homes more energy efficient, because these are expensive. It can be hard to access the finances through the banks to make changes to a home and make it more efficient.
"We need to teach commercial banks how to deal with small-term loans for customers, and how their policies play a role [in green energy].
"This is cheaper than giving out grants because the money from the banks used as collateral would be circular. Once it is paid off the money is there for other renovations."
Taoiseach Leo Varadkar has estimated it will cost €50bn to retrofit and insulate homes in line with energy-efficiency standards.
Among ideas being considered is a "pay and save model", where low-cost loans would be paid back through energy bills over 10 to 20 years.
Mr Petriccione, who met politicians in Dublin last month to discuss EU targets for a climate-neutral Europe by 2050, said economies must change in order to address climate change.
He highlighted greenhouse gas emissions dropping by 22pc between 1990 and 2017, with GDP increasing by 58pc. However, he said this rate of improvement was not enough to meet future energy targets.
"We need new plans, new infrastructures," he said. "We are not going to implement new legislation left, right and centre. The focus will be on green investment. What can we do as an authority to help with the risks? There are risks there for regional institutions, for legislators, for innovation and regulation and for financial institutions. The problem is not just local, it is widespread and there is a need to share the associated risks.
"We need to change how the economy works in depth, we need new plans, new infrastructures. The current rate of economic change is not enough to get to where we want to be by 2050."
The introduction of a carbon tax was not enough to address the issue. "It is one instrument among others - it doesn't always work," he said.
"There is no Europe-wide support for a Europe-wide carbon tax. There are several examples of member states with a carbon tax at different levels with different effects. Some have worked, some have not but they can be effective.
"Carbon pricing is effective because they make the alternatives to carbon more attractive."