Germany wants to phase out fossil fuel heating. What does the new law say?

The new German draft law to phase out fossil fuel heating has made international headlines lately and when I shared it on LinkedIn and Twitter it went viral. But what does the new law actually say? Let me explain.

More than 80% of heating in Germany is still met by burning fossil fuels. Natural gas dominates in the building heat sector with almost half of all households using it to keep warm. Heating is the biggest fossil gas end use sector: More than 40% of fossil gas consumed in Germany is for heating buildings.

At the same time Germany has ambitious climate targets: The greenhouse gas reduction target for the year 2030 is a reduction of 65% compared to 1990. By 2040, greenhouse gases must be reduced by 88% and greenhouse gas neutrality must be achieved by 2045. Because of the long lifetimes of heating systems, the logic of the new policy is that new fossil fuel heating systems cannot be installed after 01 January 2024. This will limit the need to replace existing and functioning heating systems closer to the target dates and allows for a gradual switch-over at the point at which heating systems reach the end of their technical lifetime.

What does the draft law say specifically?

Before I dive into the detail it is important to understand that right now this is a draft law which still has to be approved by the German Parliament and the Federal Council (consisting of representatives of the federated states). Aspects of the law may well change as a result.

The draft law foresees that from 01 January 2024 only heating systems that run on at least 65% renewable energy can be installed. It applies to all buildings unless exempted under specific conditions explained further below in this article.

In most new buildings heat pumps have already become the default heating technology although during the first half of 2022 in 16% of new buildings gas heating systems were still being installed. This will end from 01 January 2024 and the vast majority of new buildings will have heat pumps.

It is in existing buildings where the impact of the new law will be most visible. In 2022 about 2/3 of all heating systems sold in Germany were fossil fuel systems, mainly gas. The majority of new heating system installs takes place in existing buildings. From 01 January 2024 when an old heating system comes to the end of its technical life, breaks down and cannot be repaired, it will no longer be possible to replace it with another fossil fuel heating system unless very specific exemptions are being met (see below).

This does not mean that fossil fuel heating systems will be completely taken off the market, as hybrid systems are allowed under the draft law, as long as they comply with the 65% rule, and under certain conditions fossil fuel heating systems will still be allowed for a limited time period.

Which heating systems will qualify for the 65% rule?

• Heat pumps: A stand-alone heat pump system is fully eligible under the 65% rule. The draft law also gives the government powers to require that all heat pumps used in homes will need to use refrigerants with low global warming potential such as propane and CO2.
• Resistive heating: Resistive heating systems running on electricity can only be used if the building fabric exceeds legal requirements for efficiency by 45%.
• Solar thermal: It is possible to use solar thermal as long as it covers 100% of the heat demand of the building.
• Hybrid systems: Hybrid systems where a heat pump is combined with a fossil fuel system are allowed as long as the heat pump can cover at least 30% of peak heat demand and is the primary heating system.
• Biomass: The installation of heating systems running on biomass will only be possible in existing buildings and only in combination with heat storage, solar thermal or a heat pump, and a device to reduce particulate matter.
• Biomethane: Biomethane is only allowed to be used in existing buildings
• Hydrogen: Hydrogen-ready boilers are allowed but only under strict conditions. The gas network operator must provide plausible evidence in a hydrogen transformation plan and investment plan and have it reviewed and approved by the regulator. Furthermore, the gas network operator must guarantee the building owner that the hydrogen infrastructure will be put into operation within ten years, but no later than 1 January 2035. If this schedule is not met, the building owner must remove hydrogen-ready boilers again. The German gas distributors already said that they think this will be impossible to achieve.
• District heating: connections to district heating are allowed under the draft law. If the fuel mix of the district heating system is <65% the district heating network company needs to submit a transition plan by 31 December 2026 to demonstrate how it will achieve a share of >50% of renewable energy or unavoidable waste heat by 03 December 2029.

Are there exemptions?

There are a number of exemptions which I summarise here.

After an existing heating system breaks down and cannot be repaired it is possible to replace it with a fossil fuel heating system if within 3 years after breakdown the 65% rule is complied with, for example by adding a heat pump either as a stand-alone or hybrid system.

Where a connection to a district heating is expected to be possible in the future it is allowed to replace an existing fossil fuel heating system with another fossil fuel heating system if the building is connected to district heating within 10 years and by 31 January 2034 at the latest.

There are further exemptions for buildings inhabited by old people, individual heating systems in apartment blocks and significant hardship cases.

What does all of this mean?

?Whilst a complex piece of legislation with many specific exemptions for non-standard use cases the overall conclusion I draw is that this will cause a massive shift in the German heating market towards heat pumps.

The graph below was taken from underlying modelling for the German government and confirms this view. It shows that new heating systems installed will be mainly heat pumps and district heating connections with no role for hydrogen.

The government is currently working on a support package to enable households and businesses to comply with the new rules. The law has yet to pass through Parliament and the Federal Council. Given its high profile in the media - the heat law was covered extensively by the German media - and the opposition against it I would expect that further amendments are likely.

A lot more work is to be done and delivering this is not going to be easy. Doing this takes a lot of political courage. It is a huge transformation in a short period of time. But ultimately this is what climate targets require if we take them seriously.