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Carbon pricing: Assuming responsibility

The reconciliation of climate protection and economic concerns is what Peter Altmaier, Federal Minister for Economic Affairs and Energy, calls for in his opening speech at the 2020 Energy Transition Congress. His 20-point plan "Protecting the climate & strengthening the economy" lays the foundation for these concerns. The spotlight also falls on the real estate industry: how can the necessary efficiency potential in the building stock be realised through refurbishment concepts and digitalisation? For the economy, Altmaier notes, the biggest problem is uncertainty, which could lead to a failure to make the investment needed. His approach is to create a clear framework over the long term, extending across several electoral terms.

The 20-point plan

A cross-party "Charter for Climate Neutrality and Economic Power", which companies too can sign up to, sets out the goal of climate neutrality by 2050 at the latest. Given the long investment cycles which the sector typically faces, achieving the goal of climate-neutral building stock will require real estate companies to set the course today. For municipal buildings, however, the clock is ticking rather faster, as the Charter requires them to achieve the climate neutrality goal by 2035.

Carbon pricing: Dispute over allocation of costs

The levers will take the form of two market-based measures: European emissions trading and national carbon pricing. How to allocate the higher costs for heat and electricity is currently under discussion. The Federal Ministries for Finance, the Environment and Justice propose limiting to a maximum of 50 per cent the proportion of the costs incurred charged to tenants. Landlords would therefore meet half the additional costs.

The German Housing Industry Association (Gesamtverband der Deutschen Wohnungswirtschaft – GdW) argues that this is not the right approach as it would lead to delays in the necessary energy-oriented refurbishment investment. Instead, the GdW proposes treating the cost levy as dependent on the property's state of renovation, since residents’ consumption behaviour has a major influence on the building's actual energy consumption. That is, the lower the energy requirement, the more decisive individual usage in each individual apartment becomes, and the landlord has little influence over this. A fair solution would therefore be for users to meet the CO2 price in buildings which have undergone energy-oriented refurbishment and satisfy efficiency classes A+ to C.

Meanwhile, the Federal Director of the German Tenants' Association calls for "the 100% exclusion of tenants from carbon pricing. This is the only way to achieve the desired steering effect." The Tenants' Association argues that allocating the carbon pricing to the operating costs would be at the direct expense of tenants, without them being able to switch to climate-friendly heating systems or make investments in energy-efficient renovation work. If landlords had to pay 100% of the carbon pricing costs, this would increase their incentive to invest in climate-friendly heating systems and energy-oriented renovation work.

Dealing with causation-centred costs

When it comes to maximising CO2 savings by providing incentives, the GdW's approach is broader based: If the building's energy efficiency is taken into account when allocating the carbon costs, this not only provides incentives for renovation, it also incentivises economical consumption behaviour over the long term. If the building is in need of energy refurbishment, in accordance with the polluter pays principle the incentive to modernise is concentrated on the building owner.

Moreover, against this backdrop it is clear that energy-oriented refurbishment alone will not succeed in bringing about climate neutrality. Renovation costs can be permanently secured in everyday operation by combining them with radio-transmitting sensor systems and digital applications. This will ensure that the rebound effect is effectively counteracted. In old building stock this will allow the maximum energy savings relating to the building fabric and heating systems to be increased. This is the only way of safeguarding for both models the calculated energy efficiency during day-to-day operations, as well as protecting the residents who will after all have to meet the consumption costs. For example, a climate protection app will enable residents and real estate companies to check their energy consumption, giving them the opportunity to adjust their consumption behaviour in real time.

Policy framework for CO2 savings

Altmaier wants to provide further climate friendliness incentives in addition to carbon pricing: Companies wishing to do so can commit to a faster transformation process than required by the climate targets via the Carbon Contracts for Difference scheme. Many municipal housing associations, which have already adopted policies for greater energy efficiency, have a particular interest in setting even more ambitious future targets, given that they are subject to particularly vigilant public monitoring.

Andreas Kuhlmann, Chairman of the Management Board, German Energy Agency (dena): "The proposals put forward by Minister Altmaier (...) come at the right time. For example, setting an annual percentage of GDP for climate change investments is a good first step." He is convinced that "Germany has a strong economy and, in particular, a strong SME sector. In recent years many companies have developed smart ideas and climate-friendly solutions which have enabled them to succeed both domestically and on international markets. Especially where regulatory hurdles stand in their way, policy support is needed in the form of a reliable framework that provides clarity and predictability over a period of years."