Experts argue against ban on gas and oil heating systems and propose high carbon price as alternative

The traffic light parties have been arguing about the heat transition for months. They want to pass the heating law before the summer break. However, one open point of contention remains: Do only gas and oil heating systems have to be banned? Or is it enough to simply introduce a high carbon price? Neither, say two economists ntv.de.

While the government district is currently arguing about the amendment to the heating law, the rest of the country is receiving record-breaking orders for oil and gas heating systems from heating contractors. “We have a run on oil and gas heating systems,” said Jürgen Engelhardt, Managing Director of the Lower Saxony Association of Sanitary, Heating, Air Conditioning and Plumbing Technology recently. “Mr. Habeck achieved exactly the opposite of what he wanted.”

The stated goal of the Economics Minister is: From next year, consumers should no longer install heating systems that consume less than 65 percent renewable energy. In the long term, this should initiate the heat transition. This should enable a climate-neutral heat supply in every corner of the republic by 2045.

According to heating expert Engelhardt, Habeck does not seem to be making any real progress with regulatory law and a new edition of the Building Energy Act (GEG). The only question is how else he intends to achieve his goal. The coalition partner FDP proposes as an alternative to simply let the market-regulating emissions trading run from next year. This would put an upper limit on the emissions that can be emitted per year. Depending on whether much or little of this budget is left free, the carbon price would rise or fall.

Sharply rising prices

Gas and oil prices would rise so much that it would no longer be worth installing a fossil fuel boiler. Actually, the emissions trading system (ETS) at EU level is only planned for 2026. It is still unclear how much the price will rise – that depends on how high the emission quotas are set and whether a maximum price is introduced. However, the logic of the liberals is: the sooner prices rise, the faster consumers would switch to climate-neutral heating of their own accord. So the government would not have to enforce bans.

“In order for this to work, high prices would have to be introduced relatively quickly,” says economist Andreas Loechel, who holds the chair for environmental and resource economics and sustainability at the Ruhr University in Bochum, ntv.de. “This must not happen in the future.” This requires an open information policy. “People must be aware that the prices for fossil fuels will be very high in the future,” says Loeschel.

A study by the climate and economic research institute MCC Berlin shows how high prices could rise if emissions trading were regulated completely via the market. Without countermeasures, a ton of CO2 could cost between 200 and 300 euros by 2030 – the price in national emissions trading is currently 30 euros. A four-person household with gas heating would then face additional costs of between 15,300 and 16,200 euros per year over the next 20 years – with oil heating even 18,500 to 23,500 euros.

Such prices could definitely be an incentive to switch to low-fossil heating systems. This was also shown by the sharp rise in gas prices last summer. However, the gas price brake seems to have kept prices artificially low. For consumers, this is a signal that the state will step in if they can no longer afford the costs for their new gas heating system. “It’s likely to fail at the moment,” says Loechel. “Many consumers seem optimistic that gas prices will remain comparatively low in the future.”

Endure high prices

If the heat transition is to be regulated solely via the market, “politics must be able to sustain such high prices politically,” says Brigitte Knopf, Secretary General of the MCC, ntv.de. The climate scientist, who is also a member and deputy chairwoman of the expert council for climate issues appointed by the federal government, has doubts about that. If too many people still heat with fossil fuels, resistance to rising gas and oil prices will, logically, be massive. “The way we now have a campaign against the GEG, we would then experience one against the high price of CO2.”

In contrast to the GEG, however, the planned emissions trading is an EU regulation. The federal government could not simply suspend it on its own. “But Germany has a strong voice in Europe,” said Knopf. “I’m sure that in case of doubt, a majority in the EU could be formed against excessive price increases.” So anyone who is seriously demanding a sharp rise in CO2 prices must prevent new oil and gas heating systems from being installed now, explains Knopf: “Strong regulation such as the GEG is insurance against bad private investments by consumers.”

It doesn’t work without a CO2 price

But even a major intervention in all boiler rooms in this republic would not be enough without a rising CO2 price, explains Knopf. Loezel also agrees: “Without the market, the heat transition will not succeed.” A high CO2 price must take effect immediately, only then would consumers realize what to expect. They have been used to low gas prices for years and are not prepared for the fact that they have to rise in order to achieve the climate targets.

Without a CO2 price, gas prices are unlikely to rise in the future. With oversized LNG contracts from Canada and Qatar, the federal government has created a massive oversupply – even though demand should actually fall in the next few years. If there is also a low maximum price for emissions trading, gas prices should remain relatively low overall. “In this case, the GEG is an assurance that we will achieve the climate goals at all,” says Knopf.