At the end of April, the German Constitutional Court delivered a historic ruling, strengthening the principles of intergenerational justice and responsibility toward future generations in a constitutional context, particularly as they relate to the fight against climate change. As a result, legislators now have until the end of 2022 to specify in greater detail how they will adjust the reduction targets for greenhouse gas emissions for periods after 2030. In response to the ruling, Chancellor Angela Merkel and Environment Minister Svenja Schulze have already a new roadmap to achieve the target of climate neutrality by 2045. The plan includes a number of previously agreed measures, such as the obligation that landlords should shoulder at least half of the additional heating costs resulting from the carbon price that came into in force across Germany on January 1, 2021.

New (and tighter) regulations are likely to create a substantial additional cost burden: carbon emissions are already taxed at EUR 25.00 per ton. Over the next few years, the price will rise in defined increments, reaching EUR 55.00 in 2025 and determined entirely by the market from 2026 onward.

The new law is also having an impact on tenants’ wallets: For a 70-sqm apartment in an unrenovated apartment building with oil heating, tenants face extra annual costs of about EUR 125.00. For tenants in an apartment of the same size in a modern, refurbished building with district heating, the costs will only increase by around EUR 25.00.

At present, there is still little clarity on the proportion of additional costs landlords and property owners will have to bear. Models are being discussed in which landlords of poorly renovated buildings will have to assume a higher proportion of the costs than is the case with better renovated properties. However, experts have already criticized proposals that would see owners and investors paying more when individual tenants consume more electricity and heating. Tenants, in turn, have little influence over whether their apartments are well-renovated or heated with oil or gas. In response to such issues, a number of associations have already said they are planning to lodge constitutional complaints.

One thing that will not change is that revenues from the CO2 tax will be used to lower the renewables surcharge for power consumers (EEG surcharge) and to expand the provision of renewable sources of energy. The EEG surcharge was reduced from 6.76 to 6.40 cents/kWh in January, providing some small relief for consumers. Without further reductions, however, this is nowhere near enough to compensate for the additional costs of the new carbon tax. And even though the German government increased housing benefits by EUR 15.00 per month at the turn of the year, this will not help most households. After all, only 1.3% of German households actually receive housing benefits.

These examples show that a lot of work is still needed to straighten out all the issues associated with the new tax. It’s by no means as straightforward as simply raising the carbon price and passing on the extra costs to landlords. In order to be consumer-friendly and, above all, align with Germany’s climate targets, it is important to get the details right. Here, policymakers have to find effective solutions that not only work, but are also acceptable to both tenants and landlords, without unilaterally imposing unmanageable burdens on landlords.

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