Germany’s heating policy saga draws to a close as cabinet approves reform
The government cabinet greenlit the so-called Building Modernisation Act, commonly referred to as the “heating law”, which will now enter parliamentary deliberations. These could take several months, but as the coalition government of chancellor Friedrich Merz’s conservative CDU/CSU alliance and the Social Democrats (SPD) has a comfortable majority, the law is expected to pass.
Germany has struggled to reduce emissions in its buildings sector for years, and faces a costly EU carbon target miss for its lagging reductions. The reform will replace the existing mandatory share of renewable energy use for heating with an obligation to use a rising share of “green fuels” like biofuels or hydrogen. The current coalition also decided to scrap a 2045-ban on new fossil heating systems, even though the costs for heating with oil and gas are expected to increase substantially in the coming years due to carbon pricing and a dwindling number of gas network users, making running the network more expensive for remaining customers.
Economy minister Katherina Reiche, a member of chancellor Friedrich Merz’s conservative CDU, said the new law would make “climate protection more suitable for everyday use”, and would give consumers more freedom of choice as it didn’t prefer any particular technology. The law introduced by the previous government would have effectively mandated the installation of heat pumps in many instances.
With the adoption of the reform by cabinet, a drawn-out political saga is drawing to a close. The existing 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 meeting climate targets and pointed to the technology’s low long-term running costs, while critics argued that investment costs would overburden homeowners and tenants, while severely restricting their choices.
Freedom of choice, at a cost
The leading independent consumer protection organisation in Germany’s most populous state, North Rhine-Westphalia, (Verbraucherzentrale NRW) said the reform appeared – at first glance – to mean greater freedom for consumers. “The sticking point for new oil or gas heating systems, however, is that biofuels are expensive and other associated costs, such as grid charges and the price of CO2, are also likely to rise significantly,” the organisation said, adding the legislation left the question of what is to happen to fossil fuel heating systems after 2040 “completely open”. The draft law provides for a step-by-step increase in the share of green fuels, but only up to 60 percent by 2040.
Environmentalists renewed their criticism of the reform. “In the midst of a fossil fuel crisis, this law means the German government is prolonging our dependence on oil and gas for heating – which makes Germany less secure, harms the climate and traps many households in a cost spiral,” NGO Greenpeace said. Environmental Action Germany (DUH) said the law would reverse the phase-out of oil and gas heating systems, “even though this exposes private households to the risk of further rising costs associated with fossil fuels.”
An impetus for urgently needed renovations?
Germany’s most powerful industry lobby group, BDI, said the reform “is better than its reputation and an important step to finally get investments rolling again”.
“The law provides clarity where uncertainty and a wait-and-see attitude have previously prevailed – thereby providing the necessary impetus for renovation and investment in the construction sector,” the association said. The Federation of German Heating Industry (BDH) had also expressed hope that finalising the reform would bring much-needed “stability and predictability.”
The BDI cautioned that the government will have to be judged on whether the legislation succeeds in meeting emission reduction targets. “Given the building sector’s repeated failure to meet its targets and the approaching [2030] deadline, corrective action must be taken at an early stage if the legislation fails to achieve the desired effect,” the association said.
“The current geopolitical situation in particular – not least the escalation of the Iran conflict – demonstrates just how vulnerable Germany remains due to its high dependence on oil and gas,” the BDI said. It added that investments in efficient buildings to reduce energy consumption, strengthen resilience and protect households from rising costs in the long term were urgent.