“The heat transition is essential for Germany to achieve its climate goals. In view of the war in Ukraine and related sanctions, the heat transition has now become an even more urgent matter than before,” explains Professor Kathrine von Graevenitz, deputy head of ZEW’s “Environmental and Climate Economics” Research Department and co-author of the study. “Heating the high existing building stock in Germany with renewable energies is a Herculean task. Unfortunately, this has gone unnoticed for too long.” Heating systems based on renewable energies are often more expensive for consumers than fossil-based systems. For example, gas boilers still accounted for around 70 per cent of the 900,000 newly installed heating systems in 2021. Heat pumps utilizing environmental heat accounted for only 17 per cent. On average, heating in the EU is responsible for one third of energy consumption and 40 per cent of CO2 emissions.
With its energy price relief package, the German government coalition also wants to drive forward the heating transition. For example, every newly installed heating system is to be powered by 65 per cent renewable energies from 2024. “The federal government’s goal is ambitious. However, the question is whether such minimum targets will have a successful impact on the market. That’s what we wanted to verify with our study,” explains environmental economist von Graevenitz.
Baden-Württemberg’s special regulatory path
For the analyses, the researchers take a closer look at the special regulation that Baden-Württemberg opted for at the end of the 2000s. At that time, the nationwide focus of energy policy was on new buildings. For example, the federal government has required the use of renewable heating technologies in new buildings since 2009.
However, the EWärmeG law introduced in Baden-Württemberg also obliged owners of existing buildings to cover at least ten per cent of their heating demand with renewable energies when replacing the heating system from 2010 onwards. In addition to the use of renewable energies, homeowners could also resort to a number of alternative options to meet this obligation. These included, for example, choosing a biogas tariff or purchasing bio-fuels.
Using data on applications for state subsidies for renewable heating systems, the team of researchers analysed how often these were approved in Baden-Württemberg before and after the legal obligation came into force, compared to neighbouring federal states that have not passed a comparable regulation. For the period from 2007 to 2014, the researchers find a positive and statistically significant effect of an average of two additional approved applications per 1,000 eligible buildings. Assuming a retrofitting rate of one per cent per year, this would correspond to an increase in the adoption of renewable heating technologies of about 20 per cent after the introduction of the EWärmeG.
“The EWärmeG in Baden-Württemberg aims to encourage homeowners to invest in renewable heating systems in existing buildings who would not otherwise have considered such an investment despite the availability of state subsidies. The combination of mandatory and subsidised renewable heating thus leads to an increase in the use of renewable heating technologies in existing residential buildings,” von Graevenitz explains the results.
Alternative options and higher replacement costs can run counter to the positive effect of the subsidy
The scheme is particularly effective in municipalities where renewable heat supply was particularly scarce. There, the obligation led to an above-average number of investments in heat pumps and other renewable heating systems, with six approved applications per 1,000 eligible buildings.
“According to the results, the carrot-and-stick policy works seems to have a complementary effect,” summarises Dr. Robert Germeshausen, a researcher in ZEW’s “Environmental and Climate Economics” Department and co-author of the study. “However, we also observe that the positive effects of the regulation could be mitigated by alternative compliance options, such as choosing a biogas tariff, or even partially counteracted by delaying the replacement of heating systems. This underlines the importance of taking a close look at the details when designing such regulations.”