[27.05.22] ENPOR Submits Policy Recommendation to the Draft Law on Sharing CO2 Costs Between Tenants and Landlords in Germany

by Florin Vondung (Wupperthal Institute) and Eva Suba (Climate Alliance)

Climate Alliance and Wupperthal Institute have co-written and submitted a position paper on the draft law on the re-allocation of CO2 costs, which was submitted to the German Cabinet on May 25, 2022. The draft proposes a graduated model on the basis of which CO2 costs are to be divided fairly between tenants and landlords in the future according to specific building emissions and is developed jointly by the Federal Ministry of Ministry for Economic Affairs and Climate Protection and the Federal Ministry for Housing, Urban Development and Building in Germany. In this recommendation paper, we welcome the introduction of CO2 pricing for heating appliances and other CO2-emitting energy sources, as well as the promotion of a socially just framework in the rental sector. Nevertheless, we recommend the German government to expand the law. In particular, implementation barriers and methods, as well as control mechanisms for calculating emissions, should be given greater consideration. The aspect of support in the event of conflicts between tenants and landlords must also be given sufficient consideration in the law.

In light of the current war and skyrocketing energy prices, Germany’s socio-ecological transformation requires a particularly sharp look at how policy can and should support the most vulnerable citizens. Consistent action is needed to combine a socially just building renovation strategy with energy efficiency measures and a transition to 100% renewable energy. Germany has a comparatively low home ownership rate of around 50,5%. Improving energy efficiency and housing quality in the private rental sector is not just a question of technical efficiency, but is linked to broader social, economic and political challenges. Evidence shows that renovation measures can lead to inequities for tenants. These cases point to a broader distributional conflict related to affordable housing and the (in)equitable distribution of the cost burden of the energy transition. Energy-poor households are particularly vulnerable to such cost-sharing burdens. However, the benefits of energy retrofits of private rental housing as well as switching to renewable energy supply and consumption thus improving energy efficiency remain the best response to the climate crisis. The introduction of CO2 pricing for heating appliances and CO2-emitting energy sources in the private rental sector is a right step that we welcome. The legislative proposal aimed at creating a socially just framework for the rental sector is the right direction considering both tenants and landlord’s perspectives. We found, however, that making the cost allocation based on real consumption (rather than calculated demand) creates a negative incentive for households to save energy, as they may have to pay a higher share of the CO2 costs. The law will not come into force until the beginning of 2023. This delay will put a heavier burden on tenants in addition to rising energy prices. Further examples of recommendations are listed below:

  • We propose to standardize the CO2 emission factors of local and district heating in order to avoid confusing and varying calculation practices, which could be an enormous financial burden to the state.
  • The concrete implementation of the law is unclear and will be regulated later. We therefore propose to consider implementation barriers and methods, control mechanisms for the correctness of calculations and mediation support in case of conflicts.
  • Combined with generous incentives for heating system replacement, landlords may be inclined to switch to a low-carbon alternative. However, in cases where the switch is from oil to gas heating, rental households may be at a disadvantage as they will have to bear a higher share of CO2 prices while not saving much on the cost of the energy source.
  • The current proposed legislation alone will not solve the current problems of (energy) poor households, thus it needs to be complemented by additional measures, such as the planned regular payment of a flat “climate money” paid per capita and financed from the revenues of CO2 pricing and Minimum Energy Performance Standards for existing rental buildings.
  • We recommend reconsidering the limited pay-as-you-go option for buildings that have already undergone extensive energy retrofits. Thus a disadvantage for building owners and landlords can be avoided when the current Law proposal is adopted for those who have already made considerable investments in energy modernization in recent years and currently still have to repay the corresponding loans.
  • Listed rental buildings: the current proposal here offers no fair CO2 price distribution, the percentage share is only reduced for landlords at 50%, not for tenants. Here, tenants are disadvantaged, because there is no incentive for landlords to convert the heating system, tenants even pay more of the CO2 levy than landlords. Thus it is recommended to propose solutions where listed buildings are rented to energy poor households.
  • We propose to re-evaluate the envisaged solution for tenants who have no contractual obligations towards landlords regarding an energy source contract, e.g. in case of gas floor heating systems. How exactly is it foreseen that landlords also pay a part of the CO2 price of gas floor heating systems, if there is no contractual relationship between landlords and tenants for energy supply here (and tenants buy directly from the energy supplier)? Here, there is a requirement in the draft law that households can claim this in writing within 6 months. However, it is questionable whether households can handle this requirement. Energy suppliers, for example, should be required to provide a standardized application form.
  • The time needed to prepare forseen written documentation is estimated at 10 minutes, which does not take into account the individual situation of vulnerable and energy-poor households. In addition, anchoring the postal route in a bureaucratic framework that excludes the possibility of processing data digitally creates further barriers for vulnerable and energy-poor households. It is therefore suggested that the implementation of the law be supported by information and advisory services as well as digital frameworks or integrated into existing support systems, e.g. in the municipalities.

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