New carbon price makes energy efficiency in the German building sector even more important

Out-Law Analysis | 19 Apr 2021 | 10:40 am | 1 min. read

Heating oil will soon become more expensive for consumers in Germany due to the new Fuel Emissions Trading Act. This is expected to increase demand for energy-efficient buildings.

By 2030, Germany wants to reduce greenhouse gas emissions by 55% compared to 1990. To comply with this climate target Germany has passed the Fuel Emissions Trading Act which requires companies that put heating oil, natural gas, petrol and diesel on the German market to participate in the national emissions trading system (nETS) from the beginning of 2021. It is expected that the costs incurred as a result will be passed on by the so-called distributors to their customers, and therefore to anyone who uses fossil fuels.

With this legislative change, Germany has created incentives for the population and businesses to reduce their fuel consumption: heating of living and working spaces will become more expensive and the demand for energy-efficient buildings will in all likelihood increase.

This puts additional pressure on the real estate market to achieve its climate targets. In order to make real estate both economically and ecologically attractive, a comprehensive renovation of older buildings will be necessary. In particular, the use of fuel for heating and cooling buildings as well as for heating water must be optimised and energy efficiency increased.

To avoid costs of retrofitting being passed on to tenants and leases becoming unaffordable for people with lower income, the German government is supporting energy-efficient building renovation measures with the new federal subsidy for efficient buildings (BEG) since 1 January 2021.

In addition, the government plans to promote energy-efficient property use through taxation benefits and to further modernise the already existing support measures in the area of energy optimisation, such as the replacement of oil-fired heating systems. For example, an "exchange premium" of up to 40 % is to be granted for the replacement of oil-fired heating systems. Moreover, a legal regulation is envisaged which from 2026 onwards would prohibit the installation of oil heating systems in buildings, if a more climate-friendly heat generation can be installed.

To ensure that these plans can be implemented , the German government intends to expand its public relations work to inform people about the added value of energy modernisation measures. In addition, federal buildings are also to be retrofitted in a climate-friendly manner to show that climate policy goals can be implemented in a cost efficiency and functional manner.

This article is part of a series on international emissions tradinginnovations to minimise greenhouse gas emissions, the newly introduced national emissions trading in Germany and greenhouse gas reductions in the transport sector.