German fossil fuel boiler phase-out law reform pending, uncertainty weighs on market

Germany's coalition government continues to wrangle over the fate of a law detailing future rules for replacing oil and gas boilers, having announced in December they would present a new framework at the end of January, while heating system sales fall to their lowest level in 15 years.

The conservative Christian Democrats (CDU) and Christian Social Union (CSU), and their centre-left coalition partner, the Social Democrats (SPD), agreed in their coalition deal to abolish the so-called "heating law", which stipulates the gradual phase out of fossil fuel boilers. However, the promised changes have yet to materialise, business daily Handelsblatt reported.   

At the heart of the dispute is a requirement that new heating systems run on at least 65 percent renewable energy, which essentially boils down to heat pumps as the key technology, according to the business daily. The requirement initially applies only to new buildings in areas of new residential developments, and is gradually extended to large cities by mid-2026 and smaller towns by mid-2028. Representatives from the SPD have previously said they want to retain the target, while CDU members have pushed for a law that leaves more room for other heating technologies.

Sales of heating systems in Germany fell 12 percent last year after an already weak 2024, according to the German Heating Industry Association (BDH). Although sales of heat pumps grew 55 percent, the increase failed to offset what the BDH described as a "collapse of the overall market". It blamed "government-induced uncertainties." 

The so-called heating law marked a major dispute within the former coalition government of then-chancellor Olaf Scholz, and promises to reform the legislation have kept homeowners from deciding on new heating systems. BDH called for "a reliable, needs-based and investment-friendly regulatory framework to be adopted "as quickly as possible". 

Greenpeace warned that rolling back the heating law would not be "compatible with the constitution," citing a legal opinion it commissioned. Weakening the 65 percent requirement would prolong reliance on gas imports and increase financial burdens through rising CO2 prices and gas network charges, the organisation said. Heat pumps and renewable heating technologies are cheaper in the long term, reports have found.  

The heating law aimed to phase out fossil fuels in heating to help bring down emissions in the buildings sector, which have so far missed reduction targets. While climate-friendly heating technologies are now most common in new buildings, the country's existing buildings continue to rely heavily on fossil fuels. Germany’s federal administrative court only last week ruled that the government must present additional measures to comply with the country’s emissions reduction target for 2030.