Low-income households need financial support to avoid fossil fuel lock-in – think tank

The new German government should push ahead with income-based financial support for key energy transition technologies to allow low- and medium-income households to transition away from fossil fuels, said think tank Zukunft Klimasozial in a report. Without this support, lower-income households run the risk of being locked into fossil fuels, the report found. High earners have already benefited from subsidies or tax reductions in the building sector and with environmental bonuses for the purchase of electric cars, it added.

A European Social Climate Fund is being set up in 2026 ahead of the introduction of the second emissions trading scheme (ETS2), starting in 2027 and focusing on emissions from transport and buildings. European guidelines for the use of funds gathered through the scheme focus on supporting vulnerable households, transport users, and micro-enterprises. Zukunft Klimasozial therefore called on the German government to quickly implement income-related subsidisation, and said it was possible to do this in the short term, adding that the system could be further developed over time.

Income-tiered funding has already been used in Germany, for example, to make buildings more energy efficient, where those with a taxable income of under 40,000 got a bonus for switching heating systems.

Capping energy prices in district heating could also help low-income households. An analysis by the Federation of German Consumer Organisations (vzbv) found that one out of every four district heating tariffs lie 20 cents per kilowatt hour (kWh) above than the average district heating price in an apartment block. One in ten users pay 25 cents more per kWh. Those charged the former pay an extra 290 euros per year, whereas those paying the latter pay almost an additional 770 euros. “A price cap is therefore needed to better protect consumers,” said Florian Munder, energy expert at vzbv.

A report commissioned by vzbv at the end of 2024 concluded that an independent body should set a price cap and monitor compliance. The federation has also suggested that price limits for district heating should be based on the cost of operating a heat pump.

Zukunft Klimasozial already called on the government in March to support low-income households. Analysis by the Kiel Institute for the World Economy (IfW) found that the country’s carbon pricing system is set to further entrench social inequalities unless the government acts. Many low-income households are already “heavily burdened” by rising energy costs.