Q&A: How the Merz government aims to resolve Germany’s heating energy row

The previous Building Energy Act (GEG) designed to chart a path towards climate-neutral heating was passed in 2023 amid massive controversies that were described as “one of the greatest political dramas in recent German history.” Advocates of a rapid transition towards clean technologies such as heat pumps argued the law was key to reach climate targets and pointed to their low long-term running costs, while critics argued that investment costs would overburden homeowners and tenants.

A key provision of the GEG, which was overseen by former Green Party economy minister Robert Habeck, was that new heating systems - starting with new buildings in new developments - needed to run on at least 65 percent renewable energy, resulting in a de facto gradual ban of oil and gas boilers, with some exceptions.

Even though the government at the time under SPD chancellor Olaf Scholz softened the most controversial requirements in reaction to opposition and media attacks, the “heating law” remained a key point of contention in the 2025 election, with the conservative CDU/CSU alliance of newly elected chancellor Friedrich Merz promising to “abolish” the contentious part of the GEG, a pledge that was adopted in the coalition treaty with junior partner SPD. 

In late 2025, Merz’s coalition relabelled the GEG into the Building Modernisation Act (GMG) and said it would deliver its highly anticipated reform proposal by February.

The parliamentary group leaders of Merz’s conservative alliance and the SPD presented the proposed law reform on 24 February. In their 5-page draft on key points of the Building Modernisation Act, the parties agreed to: 

• Eliminate the mandatory quota of 65 percent renewable energy sources in newly installed heating systems
• Allow the continued installation of new gas and oil heating systems
• Oblige suppliers to gradually increase the share of “green gas” or “green oil” in their networks to bring down fossil fuel use, starting with 10 percent in 2029 (and three further steps until 2040 that are yet to be decided)
• Continue to support purchases of new climate-friendly heating systems such as heat pumps until at least 2029
• Protect tenants from “excessive running costs through the installation of uneconomical heating systems,” without providing further details what this could look like in practice
• Review emissions reduction progress in the buildings sector and “correct the course” where necessary by 2030

The point at which the previous GEG’s quota of 65 percent renewable energy applied differed depending on location. New housing estates needed to comply with it from 2024, but existing buildings had no restrictions until their local government presented their mandatory plans to decarbonise heating in their jurisdictions. These so-called municipal heating plans say where district heating would be available and when, thus informing households about which options will be available in the future. With the 65-percent requirement gone, homeowners no longer have to expect that their local municipal heating plan could directly impact the technology they are currently using.  

The parties said homeowners would be allowed to decide for themselves what kind of heating system they want to invest in, adding that most would already opt for heat pumps or district heating when changing their systems. “We strengthen their freedom of choice and individual responsibility, since homeowners know best what kind of heating systems works best in their home.” 

The parties said the new law would erase “bureaucratic and granular” regulation, ease rules for new as well as existing heating systems, and end a ban on certain technologies. “The new law will not contain any rules that make the de-installation or change of existing and functioning heating systems mandatory.” 

Instead, the parties said they would present a “technology-open catalogue” of admissible heating system options that includes heat pumps, district heating, hybrid systems, bioenergy heating as well as fossil-powered boilers under the condition that they start using a gradually increasing share of greenhouse gas-neutral fuels. Admissible additives would include hydrogen produced with renewable energy sources, fossil power plants equipped with carbon capture and storage (CCS), or the energy from waste incineration.  

Homeowners 

The government parties said the reform would restore freedom of choice to homeowners, who themselves can decide what the best investment is in their individual case. However, many of the factors determining a heating system's future costs are still unknown, with many indicators clearly pointing at much higher prices for fossil-based solutions. 

These include a significant increase in gas grid fees, as the spread of heat pumps and other technologies reduces the number of users, raising running costs for remaining users. The government is currently legislating a path for utilities to be able to shut down gas networks where they see no future for them. This would enable them to deny connection requests and disconnect users from the grid without their consent, following long notification periods.

A further uncertainty is the future level of carbon pricing, which will be expanded to the heating sector under the updated European emissions trading system ETS2. Additionally, it remains unclear how much the required green additives will cost which are meant to be gradually added to fossil heating gas, nor where the required quantities should come from. According to price comparison website Verivox, gas supply contracts that already use the 10-percent share envisaged for 2029 are on average 25 percent more expensive than fossil gas contracts. 

If gas-fired heating systems continue to run, this could become costly, especially for tenants, as they have no influence on the technology used but would have to shoulder continuously increasing costs. NGO Environmental Action Germany (DUH) said the agreement would risk tying tenants to an “expensive and disappearing gas infrastructure” without having any say. 

Property owner lobby group Haus & Grund and fossil fuel industry association En2X had called for adopting the quota to allow homeowners to continue operating oil and gas boilers, and to postpone investments in climate neutral technologies. 

Industry

While the agreement continues to support the purchase of clean technologies such as heat pumps, it gives fossil boilers a new chance to remain in the market, which creates new insecurities over which technologies will be used where and for how long. 

Allowing the installation of fossil boilers would make the expansion and acceptance of alternative solutions more difficult to achieve, said energy industry group BDEW. Lock-in effects could “cement the use of gas and oil heating systems” also in cases in which heat pumps or district heating should be used, said BDEW head Kerstin Andreae. 

Sustainable industry group BNW said the 65-percent rule had already become a linchpin for industrial value chains and remained a prerequisite for meeting climate neutrality targets in the buildings sector. It said that easing emissions requirements would not be in line with general climate policy unless there are “convincing scientific or legal reasons” for doing so, which would not be the case for the proposed reform steps. 

Heat pump manufacturer association BWP welcomed that support for installing the systems is secured until at least 2029, even though the legal uncertainties in the heating sector continued to weigh on the industry’s planning security. While demand for fossil heating systems is declining, the transition towards climate-friendly systems required continued support, the group argued. “It’s necessary to quickly ensure that the support design and level stay in place.” 

The German Gas and Hydrogen Industry association said the new rules would give people “freedom of choice instead of prescriptions.” The lobby group argued that half of households use gas for heating, which would now become gradually cleaner. 

Environmental organisation Greenpeace said the proposed reform amounted to “a big present for the oil and gas industry” and would “bury climate action in the buildings sector.” Since the green additives that are supposed to be mixed into fossil fuels are scarce and expensive, a rise in gas grid fees is to be expected, the NGO said.

Municipalities and cities

Utility association VKU warned that the green gas quota might turn out to be a sham, lulling consumers into a false sense of security and then costing them dearly. “We do not currently see how the ramp-up of green gases, and biomethane in particular, for blending into the gas grid can be massively increased without causing further cost increases for owners and tenants.” 

The government coalition also said it wants to make municipal heating planning easier for small municipalities with fewer than 15,000 residents, as these often lack the staff and resources to comply with the standards applied to larger cities. The aim was to cut the bureaucratic effort by up to 80 percent compared to regular municipal heating planning, especially regarding public participation and information schemes, to allow the finalisation of heating plans “within just a few months.” 

Due to the much lower demand than for heating, municipal cooling plans should be limited to cities with more than 45,000 residents and become mandatory only five years after heating plans have been adopted, the parties said. 

District heating providers will become obliged to create so-called price transparency platforms that allow customers to see how prices are formed, while mechanisms for price supervision and arbitration should be strengthened. 

“The climate targets remain in place,” the parties said in the reform’s outline. Cutting greenhouse gas emissions from heating is one of the biggest hurdles on Germany’s path to climate neutrality, with the buildings sector continuously failing to meet emission reduction targets. 

While heat pumps and district heating are prevalent in new buildings, the vast majority of existing buildings still rely on fossil fuels for heating (56% of households had a gas boiler, 17% used heating oil in 2025). Without the 65 percent target, achieving national and EU targets for climate protection, renewable energies and energy efficiency, with the aim of a zero-emission building stock by 2050, would become “seriously jeopardised,” said Stefan Thomas from environmental think tank Wuppertal Institute.

According to a projections report by environmental think tank Öko-Institut, the 65 percent requirement would have resulted in around 30 million tonnes of CO2 saved between 2024 and 2030, with 10 million tonnes saved in 2030 alone. “In contrast, the key points only mention a saving of around two million tonnes in 2030, which is a fraction of this reduction effect,” said the institute's Sibylle Braungardt.

Germany is increasingly at risk of failing EU-mandated climate targets under the Effort Sharing Regulation for the transport and building sectors, which could result in the need to buy emission allocations from other member states that have overachieved their targets at a high cost. 

“Germany cannot afford to fail to make progress in climate protection in the building sector,” said Thomas Drinkuth, head of the Transparent Building Envelope Association, which represents construction industries. “Those who continue to heat with gas or oil should therefore limit their consumption as much as possible,” he added, arguing that energy efficiency renovations gained in importance as a result of the agreement.

The government parties said the new regulation would abide by the EU’s building energy performance directive (EPBD), but added that Germany would push for postponing existing implementation deadlines and relaxing rules. The EPBD says that all new buildings must be built with a “zero emissions” standard from 2030. 

The cabinet intends to present a legislative proposal by Easter to pass the bill on to parliament in April. The government aims to bring the reform into force before 1 July 2026. A review is planned for 2030.

Large municipalities will have to present municipal heating plans by 30 June, while smaller towns have an additional two years.