What Does It Take to Make the Heat Transition Work?

The heat transition is a challenge – but also an opportunity. In an interview with MVV's customer magazine, ZEW President Achim Wambach explains how private households, businesses, and policymakers can help shape the transition in an effective and equitable way.

Professor Wambach, in your mind, what is a successful heat transition and where do we currently stand in Germany?

The transition in the heating sector means the electrification of energy usage and the transition to renewables, similarly to the electricity or transport sectors. It is a huge task and we are still in the early stages. Of course, progress has already been made, especially regarding research. But the raw conversion figures show: There is still much to be done.

Where is climate policy heading in view of developments in the USA, Europe and Germany?

At the moment, the signs are not necessarily in favour of climate action. The USA has withdrawn from the Paris Agreement, although individual US states are still pursuing ambitious climate targets. Perhaps this is an opportunity to reach an international climate agreement that includes China. Because every vacuum that is created internationally will be filled again. Europe should seize this opportunity. The “clean industrial deal”, which combines climate action with economic growth, is now being discussed in Europe. In my opinion, this makes sense and does not imply a rejection of climate action. Responses to climate change are no longer just about attaining climate targets – they are also about finding the most efficient solutions possible.

What instruments do you propose for an effective climate policy?

Economists have long been calling for market mechanisms to make climate-damaging emissions more expensive. In Europe, a key instrument for this purpose is emissions trading. By comparison, the subsidy policy pursued in the USA is three times as expensive. The scheme designed in Europe is more efficient: It takes effect exactly where emissions are generated. This really is an achievement.

What is the cost of doing nothing? 

Today, we are no longer discussing whether climate action is necessary but how it can be organised efficiently. There are studies that show that the 1.5C or 2C target may be optimal from an economic point of view. The idea behind this is that it is worth investing sufficient funds today to prevent future damage – provided that climate protection measures are implemented cost-effectively. Then climate action will be affordable and compatible with economic growth.

Which technologies do you think are particularly promising for driving forward the heat transition? 

Heat pumps and district heating are key technologies. There are hardly any alternatives for private households, as green hydrogen is still too expensive. Hydrogen is likely to become a more interesting option for the industry. Households considering the investment in a new heating system should check whether district heating is available or whether a heat pump would make sense.

What are your thoughts on the future of fossil natural gas? 

Natural gas has no future. Globally, the transformation of the energy sector is still in its early phase, but in the long run, fossil gas will disappear. It is important that we pursue a common climate policy worldwide. And even though we have faced a setback, my expectation is that in around five years' time more and more countries will engage in climate policy. Even large emitters like China suffer from the effects of climate change, and as soon as the impacts become more severe, there is an incentive for them to actively participate in coordinated climate policies.

How do you assess potential alternatives, for example green hydrogen, from an economic perspective?

Green hydrogen will play a role, especially in industrial manufacturing and power generation. However, it is likely that 70 per cent of it will need to be imported in future, even if it were to become cheaper as a result of technological progress. For all other applications, for example in households, it is too expensive and inefficient because a lot of energy is lost during conversion.

Mannheim has taken on a pioneering role in the heat transition. What is your opinion on this?

Model projects are significant if they serve as a source of inspiration for others to follow. Mannheim needs to find economically viable solutions and clarify social issues. For instance, the expansion of district heating, upgrading the electricity grid and the coordination between households and the city are key challenges.

What do you think of MVV's announcement to withdraw from the gas grid? 

MVV has provided important information – and this must be put on the table so that decisions can be made. According to current planning, only a few households will still be using gas in the mid-2030s and the same will be true for industrial users. Then it will no longer be worth maintaining an expensive network. This is important information which cities should not hold back because it would not be well received. Early communication helps to avoid making the wrong decisions when investing in a heating system.

But what does this mean for households that have just installed a new gas heating system?

I think it is very unfortunate that gas heating systems are still being installed. In some cases, this may make sense as a transitional solution. But it should always be fully communicated that gas will become significantly more expensive and is not a sustainable heating solution. This is why sharing the information in a timely manner is so essential – I hope other local authorities will follow suit – so that this does not happen more often. Regarding new buildings, heat pumps are now used in more than 75 per cent of installations. Anyone planning a new heating system should look into alternatives such as heat pumps or district heating. 

Gas is becoming increasingly expensive because of the rising CO₂ price. Are consumers prepared for this development?

Awareness is growing, but there is still a lot of catching up to do in political communication. The EU’s second emissions trading scheme will come into force in 2027, which will cause heating and petrol costs to rise. Studies estimate an increase in heating costs of around 1000 euros per year for a four-person household. Consumers should be informed and supported in good time. 

How should the heat transition be designed to be socially just? 

I consider this to be the most important task. The issue has now reached the political agenda. For example, subsidies help to facilitate the shift. There is also the option of distributing the revenue from CO₂ trading to households as “climate money”. But it is not so easy to set up a fair mechanism. More studies are needed.

Why is it worthwhile for individuals to become part of the heat transition? 

Fossil fuels are becoming more expensive, renewable energies cheaper. The shift is financially worthwhile in the long term, not least because new technologies such as heat pumps are subsidised and become more efficient and cost-effective over time.

What economic incentives are necessary? 

On a medium-term horizon we will need subsidies. Information is also decisive – it is an economic incentive as well, because knowledge is key to making the right decision. Providing this information is a task for the local authorities, it is not the responsibility of companies alone.

How important is the involvement of citizens?

Very important, because the conversion of the heating system is a collaborative process. There is no script for such a transformation. And as it affects us all, everyone should be involved in the planning and coordination. 

What measure would most effectively drive the heat transition forward?

The involvement of installers, chimney sweeps and energy consultants. They play a key role in the decision to install a new heating system and should be provided with specific information and training. 

What opportunities does the heat transition offer?

In the long term, energy will become cheaper if fossil fuels disappear. New markets and jobs are also being created, for example in heat pump production and installation. And the transition is beneficial for the climate, of course.

This interview was first published in the customer magazine of MVV Energie AG.