Q&A – Germany debates phaseout of fossil fuel heating systems

Why does Germany require a new “building energy law”?

Reducing emissions in the building sector has remained a blind spot in Germany’s energy transition. Heating systems powered by gas or oil are still the norm in the country’s homes - over 80 percent of Germany’s heating demand is met with fossil fuels. Energy-efficient renovation rates also remain far too low, putting the sector off target in the country’s drive to becoming climate neutral by 2045. The target implies that the vast majority of Germany’s 40 million homes must switch to climate friendly heating within 20 years. Many boilers are in operation for 20 years or more, meaning new systems installed today should be ready for a climate-neutral future. But last year, two thirds of all new heating systems sold in the country still ran on gas or oil.

Germany’s government composed of Social Democrats (SPD), Green Party, and pro-business Free Democrats (FDP) reached an agreement on how to manage this transition in April. However a draft law tabled by Green economy and climate minister Robert Habeck, which stipulated the switch from gas and oil boilers to climate-friendly alternatives such as heat pumps, has met fierce resistance from opposition parties, the right-wing media, and from within the increasingly estranged government coalition. Many people are up in arms over the plans because they believe it will translate to high investment costs for many homeowners. On the other hand, proponents say the draft law provides ample subsidies for the switch, which they say must start immediately given the longevity of heating systems.

What’s in the draft law?

According to the current proposal, only heating systems that run on at least 65 percent renewable energy can be newly installed from the start of 2024. This requirement was already included in the governments’ coalition treaty with a 2025 target year, which was pulled forward because of the war in Ukraine. It is a de-facto ban on the installation of new conventional gas and oil systems in the vast majority of buildings. It applies to both entirely new and existing homes that need to replace their boiler systems if they can be no longer be repaired. The draft contains exemptions for situations where this is not possible; for example, people older than 80 and other hardship cases. A scrapping scheme for old boilers is also to be introduced. Existing heaters can continue to be operated, broken heaters can be replaced and, when repairing is no longer possible, transitional periods will apply. The use of fossil fuel-run heating systems will be banned completely from 2045, the year in which Germany aims to have made its economy entirely climate neutral, according to the draft law.

What does the law mean in practice for various heating technologies?

In theory, a whole range of heating systems qualify for the 65 percent renewable energy rule, for example heat pumps, solar thermal, and hybrid systems which combine a fossil fuel system with a heat pump. Biomass and biomethane systems can also be used, but only in existing buildings. So-called “hydrogen-ready” gas boilers are also allowed, but only if the local grid operator has an approved plan to switch to hydrogen and guarantees a supply within ten years. However, energy industry association BDEW has called the requirements for hydrogen heating “far from reality.”

Connections to district heating are also permitted if the operator has a plan to transition to renewable energies. Despite this range of technological options and numerous exemptions, the law is set to initiate a rapid shift towards heat pumps in practice. Modelling by thinktanks for the government show that more than 80 percent of new installations will be heat pumps by 2030, with district heating covering most of the rest.

Why have the plans caused such a storm?

The controversy is mainly surrounding the higher cost of climate-friendly boilers. Installing heat pumps is usually at least twice as expensive as conventional heating systems, often costing more than 20,000 euros. However, proponents argue that heat pumps’ operating costs are much lower than conventional systems’ because of higher efficiency and Germany’s rising CO2 price for heating. According to a poll conducted by the right wing tabloid Bild —which has led the campaign against the government plans — 61 percent of Germans are worried about costs. At the height of the controversy, the responsible state secretary Patrick Graichen (who was dubbed “Mr Heat Pump”) was accused of breaching the economics and climate ministry’s compliance rules, resulting in his departure.

There are not only concerns about high costs for homeowners, but also for tenants – Germany has one of Europe’s highest share of renters. The Social Democrats (SPD) have warned that landlords must not simply pass on the costs via the rent payments. The transition to climate-friendly heating must not result in people being "evicted from their homes," party head Saskia Esken said.

To avoid social hardships, the government envisages subsidies worth billions to cushion the switch to climate-neutral heating, but the details still need to be worked out. Homeowners older than 80 years old or those on social benefits will be completely exempt from the obligation to replace broken heating systems with hybrid or renewable ones. Energy and climate minister Habeck stressed that no one should be overburdened when replacing their heating system. His party was first pushing for subsidies that cover 25 to 40 percent of the costs, depending on income, but the party’s parliamentary group later proposed to cover up to 80 percent.

Another point of controversy is the inclusion of “hydrogen-ready” heating systems, which was added by pro-business FDP in the name of “technology freedom” — reminiscent of the party’s controversial insistence on allowing the use of synthetic fuels in combustion engines for decarbonising transport. Most experts say “hydrogen-ready” boilers don’t make sense, given they are highly inefficient when compared to heat pumps, and therefore could result in higher costs for those who install them. Dozens of independent studies have concluded that hydrogen will not play a significant role in heating, given that it will require five to six times more renewable energy than heat pumps – and that the scarce fuel is going to be needed in other sectors such as industry. This is why a broad alliance of environmentalists, trade unions, consumer groups and professional associations have called them a “sham” solution that delays effective climate action.

Will the proposed bill be changed?

So far, only the government cabinet has agreed on the draft law, which still needs to pass through Germany’s parliament. The FDP finance minister Christian Lindner had agreed in the cabinet, noting his concerns, and his party now calls for a major overhaul. There has also been criticism from within the SPD, while the opposition Christian Democrats (CDU) party are dead set against the plans. Therefore, amendments during the parliamentary process are highly likely.

However, chancellor Olaf Scholz, a Social Democrat, said he does not expect any fundamental changes to the plans. He said the parliament would check whether the draft law can be made more precise in some sections. "However, I assume that its basic structure will not be changed."

Germany’s upper house of parliament representing its 16 states, the Bundesrat, also has a say in the plans and has already tabled various demands for amendments, for example making subsidies more dependent on income.

When will the law be passed?

The SPD and Greens want to adopt the legislation before the parliament’s summer recess in July and August. But the FDP has called for a “more realistic” timetable, suggesting they want to delay an agreement until autumn. Scholz said the coalition still had the ambition to discuss the heating plans in parliament before summer. All those involved have “promised to discuss the open questions with each other very quickly,” he said. Economy and climate minister Robert Habeck (Greens) said an adoption of the law before the summer recess in July and August, previously agreed by the coalition, “will no longer be possible" after the FDP insisted on delaying a parliamentary discussion.