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Heating banWill there be millions of losers?

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Heating banWill there be millions of losers?

With the reform of the Building Energy Act passed at the beginning of September, the installation of pure oil and gas heating systems will be effectively banned in the coming years, both in new buildings and as a replacement for old heating systems: According to the law, every new heating system installed in the coming years should have at least 65 percent be operated with the help of renewable energies. In the future, this rules out the installation of heating systems that run exclusively on fossil fuels.

This means that millions of citizens could become losers from such a heating transition because they may have to make large investments in a heat pump due to a lack of alternatives: Heat pumps can easily be two to three times more expensive to purchase than conventional natural gas heating systems. Proponents claim that investing in heat pumps will prove to be more cost-effective in the long term than investing in gas heating because electricity prices supposedly rise less sharply than the prices for natural gas and oil – after all, oil and gas are likely to decrease as a result of the CO2 pricing of fossil fuels climate protection purposes will likely become more expensive.

Will heat pumps pay off?

But how much the prices for oil and gas will increase in the medium to long term is unclear – despite the European Commission having already decided to establish a further EU-wide emissions trading system by 2027, which will cover the transport and heating sectors with a uniform CO2 Price will prove. The forecast that the price of electricity will fall in the long term as a result of the expansion of renewables is also likely to take a long time to come to fruition, if at all. By then, a heat pump that has been newly installed today could have already reached the end of its service life.

In fact, based on previous experience with the expansion of renewables, we can expect a further significant increase in the price of electricity rather than a significant reduction, not least due to rising network fees as a result of the essential network expansion. Given the uncertainty about future price developments, it is understandable that households are reluctant to invest heavily in heat pumps.

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Municipal heat planning first!

Against this background, it is to be welcomed that the entry into force of the de facto ban on exclusively fossil-fuelled heating systems is to be linked to municipal heating planning. The municipal heating plans should first be available before the ban takes effect. This can prevent households from having to invest hastily in an expensive heat pump only to then find out that this large investment could have been avoided because their residential building could be connected to the district heating network according to the municipal heat planning.

The many losers of the “heating law”

But as useful as this regulation is, all those who have no opportunity to be connected to a heating network must feel like they are losing out on such a heating transition. In cities, these can be the households on streets where it is hardly possible to supply them with district heating due to topographical or geological difficulties. The provision that heat planning in large cities should be available from 2026, but for the remaining municipalities only from 2028, also has the potential to cause injustice due to the inconsistent deadline.

In any case, the link to heat planning further widens the gap between town and country: many rural villages have little prospect of ever being connected to a district heating network, so that their residents could feel disadvantaged compared to city residents. Conversely, many households whose fossil fuel heating broke beyond repair a few years ago and who therefore had to invest in a new, possibly conventional heating system are now likely to be happy about this actually unpleasant event – especially if they were responsible for the investment in a gas condensing boiler has received state financial support. It is not without a certain irony that gas heating systems were promoted by the state for years because they emit comparatively little carbon dioxide (CO2), and now a short time later they are practically banned. Only since 2022 has there been any funding for gas heating.

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The losers from the countryside

This prime example of the arbitrariness of state regulation is now surpassed by the 65 percent regulation underlying the de facto ban on fossil fuel heating, which to outsiders appears to be chosen arbitrarily. To this day, the population has not been explained why the share of renewable energy in heating systems should be at least 65 percent in the future. While it remains unclear to the general public how this threshold came about, it is on the other hand foreseeable that this regulation is likely to result in massive losses in the value of real estate, especially in rural areas. Investments in expensive heating technologies such as heat pumps and expensive energy-saving renovations, which in many cases are a prerequisite for installing a heat pump, can cause major financial problems. High investments are often not worthwhile in rural areas because they would be more expensive than the property itself. As a result, in many rural regions it could make more financial sense to leave a property empty instead of renovating it in a climate-neutral way.

Discontent is appeased with billions in funding

The government wants to nip possible resistance to the implementation of the “Heating Act” in the bud with a tool that is all too often chosen: with generous financial support! For 2024 alone, almost 20 billion euros are earmarked in the climate and transformation fund to support the heating transition – the largest item in this special fund, which will at least partially circumvent the debt brake. But the fact that the heating transition is accompanied by generous financial support only helps those affected to a limited extent: the prices for heating technology have risen by around a quarter in the last two years, not least because of the discussions about the ban on fossil fuel heating systems. It can be assumed that heating companies will continue to receive a good portion of the government funding for alternative heating systems in the form of even higher prices, as long as the range remains limited and is not massively expanded by competition from abroad. The heating companies are therefore likely to be one of the few winners of the heating ban.

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EU emissions trading instead of a heating ban

These are faced with millions of households who probably feel like they’ve just been lucky again and been spared, for example because they only recently invested in conventional heating, but many more millions of households who probably feel like losers, especially rural households. Politicians would therefore have been better off not enacting the de facto ban on fossil fuel heating and should have left the heat transition to the second EU emissions trading scheme starting in 2027 and to municipal heat planning.

Until then, instead of subsidizing the massive spread of heat pumps with high subsidies, it would have been far more cost-effective to buy certificates from other EU countries in order to compensate for the emissions reductions that were not achieved in sectors not involved in emissions trading, such as the building sector. In 2022, Germany acquired the emissions certificates from Hungary, the Czech Republic and Bulgaria necessary to compensate for the unauthorized additional emissions of almost 11.4 million tons of CO2 for the small sum of just around 13.5 million euros.

All in all, it is hardly understandable that the federal government wants to quickly catch up on the heating transition that has so far been missed. The political risk is not insignificant, because it could easily be that the traffic light government ends up joining the long list of losers in a heat transition that is being aimed at in a hurry.

RWI Essen and Ruhr University Bochum

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