Germany Approves Heating Law Reform Easing Renewable Energy Requirements

Germany’s parliament approved an overhaul of the country’s heating regulations on 10 July 2026, significantly changing one of the most contested elements of its building decarbonization policy.

The Bundestag passed the legislation by 323 votes to 271. The Bundesrat, which represents Germany’s federal states, also approved the measure, allowing its main provisions to enter into force following formal publication.

The legislation, known as the Building Modernization Act, replaces central provisions of the Building Energy Act introduced by the previous government. That earlier framework required many newly installed heating systems to obtain at least 65% of their energy from renewable sources.

The 65% requirement will now be removed for both new and existing buildings. Owners will be able to select from heat pumps, district heating connections, hybrid systems, biomass installations and conventional gas or oil boilers.

The reform represents a shift from technology-specific requirements towards a system based on fuel standards, carbon pricing and consumer choice.

Oil and Gas Boilers Remain Permitted

Under the revised rules, new oil and gas heating systems can continue to be installed over the longer term. However, the fuels used by these systems will gradually have to contain larger proportions of climate-friendly alternatives.

From January 2029, heating fuels must contain at least 10% lower-carbon or climate-neutral content. This share is scheduled to rise to 15% in 2030, 30% in 2035 and 60% in 2040. Eligible fuels may include biomethane, bio-oil and biogenic liquefied petroleum gas.

All fuels used for heating must be climate neutral by 2045, in line with Germany’s national net-zero target.

The government also plans to introduce quotas requiring suppliers of natural gas and heating oil to place increasing amounts of lower-carbon fuels on the market. A separate law setting out the details of the green gas and green heating oil quotas is expected by 1 December 2026. The initial quota is intended to begin at a relatively low level in 2028 before increasing over time.

These measures are intended to reduce emissions from both new and existing heating systems, rather than relying exclusively on the replacement of fossil-fuel boilers with electric heat pumps or district heating.

Government Emphasises Flexibility and Affordability

The coalition government argues that the previous heating law created uncertainty among homeowners and imposed overly prescriptive requirements on households, businesses and public authorities.

Under the new approach, owners will have greater discretion to select heating technologies based on building characteristics, local energy infrastructure and financial circumstances.

The reform also retains federal support for building renovation and low-carbon heating technologies. Revised funding conditions will apply from 21 July 2026.

Households with annual incomes below €30,000 will be eligible for an income-related bonus of up to 40%. The bonus will remain at 30% for households earning up to €40,000, while households with incomes of up to €50,000 may receive a 10% bonus. A new allowance for families will reduce the income used in the eligibility calculation by €10,000.

The maximum eligible investment cost will fall from €30,000 to €28,000 and will subsequently decline by €750 every six months. Incentives for replacing older heating systems early will continue but will be reduced gradually.

These changes seek to target financial support more closely at lower-income households while controlling the cost of the subsidy programme.

New Protections for Tenants

The legislation includes provisions intended to prevent tenants from bearing high costs when landlords choose to install fossil-fuel heating systems.

From 2028, tenants in affected buildings will generally pay only half of the relevant network charges and carbon-price costs. From 2029, landlords will also be responsible for part of the additional cost associated with mandatory biofuel blending, subject to statutory limits.

The Bundestag added a hardship provision relating to the allocation of carbon costs between tenants and landlords.

These protections could become increasingly important as Germany’s national carbon price rises and the cost of biomethane, bio-oil and other alternative fuels affects household heating bills.

Implications for Germany’s Building Transition

Buildings remain one of the most difficult sectors of the German economy to decarbonize. Millions of homes continue to rely on natural gas or heating oil, while the deployment of heat pumps, renewable district heating and deep energy renovation has faced financial, technical and administrative obstacles.

The reform may reduce immediate compliance pressure on homeowners and provide additional options for buildings that are difficult to electrify. It could also support continued demand for gas and oil boilers, potentially slowing the transition towards heat pumps and renewable heating networks.

The long-term climate impact will depend heavily on whether sufficient volumes of biomethane, renewable liquid fuels and low-carbon hydrogen become available at affordable prices. Competition for these fuels from industry, aviation, shipping and electricity generation may constrain supply.

Property owners installing a new fossil-fuel system will therefore need to consider not only the initial purchase price but also future carbon costs, fuel-blending requirements and the availability of compliant fuels.

Heat pumps and district heating may still offer lower exposure to fuel-price and regulatory risks, particularly in well-insulated buildings and areas with access to increasingly renewable electricity or decarbonized heat networks.

Climate Performance to be Reviewed in 2030

The German government has committed to evaluating the legislation in 2030 to determine whether it is delivering sufficient emissions reductions in the building sector.

The law will also support Germany’s implementation of the revised EU Energy Performance of Buildings Directive, although the Bundestag has called on the government to seek substantial simplification of the European rules.

The 2030 review will be an important test of whether a more flexible, fuel-based approach can remain compatible with Germany’s climate targets. If building emissions do not decline quickly enough, additional standards, carbon-price measures or financial incentives may be required.

Source: Reuters