Warm rent makes CO2 price on oil and gas tenant-friendly

According to the study, switching the German rental market from cold to warm rents could promote the climate-friendly conversion of apartment buildings and at the same time protect tenants from expensive, inefficient modernization. The model is Sweden, where a combination of rising CO₂ prices and the simultaneous introduction of the warm rent principle has been in place since 2000. Emissions from households there have since fallen by 95 percent. Agora Energiewende - which describes itself as an independent think tank and policy laboratory - has now joined forces with the University of Kassel to present a proposal for making climate protection attractive in German apartment buildings, too, with the help of the warm rent principle. A legal report also shows how it can be implemented in German law.

"The CO2 price on natural gas and heating oil, which will apply from January 2021, must be supplemented by a warm rent concept. This is the only way we can give landlords the incentive to undertake energy-efficient renovation measures," says Dr. Patrick Graichen, director of Agora Energiewende. "The current system, which passes on heating costs to tenants while allowing across-the-board rent increases after renovations, is outdated and should be abolished."

Two-way incentives to save energy through warm rents with temperature feedback

In the warm rent model, landlords benefit when heating costs fall thanks to good insulation or new windows. In order to be able to introduce it in a legally secure manner and at the same time encourage tenants to save heating, Agora Energiewende proposes a variant with a so-called temperature feedback: In this case, landlord and tenant agree on a room temperature that the landlord guarantees during the winter months. A calibrated measurement of the room temperature during normal heating behavior is then used to determine a reference consumption. If the tenant exceeds this consumption in a heating period, he pays extra. If he saves on heating, he receives a refund. If the apartment is now renovated for energy efficiency, the reference consumption is reduced because less energy is needed to achieve the same temperature. The price for the agreed room temperature, however, remains the same. Thus, the landlord benefits from the saved heating costs. However, due to the reference consumption with back and supplementary payments, energy saving is also in the interest of the tenants. Landlords are therefore protected from wasteful heating behavior with open windows.

"On the one hand, tenants cannot decide whether their house is insulated or heated with climate-friendly heating. On the other hand, they bear the costs if heating with oil or gas becomes more expensive in the future. For landlords, on the other hand, a climate-friendly conversion often simply doesn't pay off. The warm rent model with temperature feedback solves this dilemma," says Graichen.

Four prerequisites for a successful heat turnaround in the German rental market

Warm rents and steadily rising CO2 prices on fuels are two of four successful prerequisites for a successful heat turnaround, according to the study. In addition, Agora Energiewende lists two further prerequisites in the proposal for improving the CO₂ balance of German rental buildings: government subsidies and mandatory renovation roadmaps.

The background to this is that on October 8, 2020, the Bundestag decided to introduce CO₂ prices on heating oil and natural gas from next year. They will start at 25 euros per ton of CO2 and are to rise annually. Climate-friendly technologies will thus become increasingly economical. Combined with warm rents, higher oil and gas prices motivate landlords to invest in climate-friendly building technology, such as insulation and heat pumps.

For investments that do not pay off today, Agora Energiewende also proposes targeted subsidies. This will provide homeowners with support for switching to climate-friendly technologies. "Anyone who installs a new heating system or insulates the facade today determines how climate-friendly a building will be in the coming decades. That's why we have to keep the goal of climate neutrality in 2050 in mind now when making such investments," Graichen says.

A fourth element in the proposal is mandatory retrofit roadmaps for all buildings. This means that refurbishment measures for buildings are planned over several years, and the refurbishment costs are thus spread over a longer period. At the same time, the roadmap ensures that a building's CO₂ emissions fall to zero on a piecemeal basis. This means that the entire building stock in Germany can become climate-neutral by 2050.

The analysis "How do tenant protection and climate protection fit under one hat?" was prepared by Agora Energiewende together with the University of Kassel. It has 19 pages and is available for free download at www.agora-energiewende.de. A legal opinion by the law firm Becker Büttner Held complements the analysis and evaluates the legal implementation of the warm rent concept in the German rental market.

This text is based on a press release by Agora Energiewende.

The underlying policy paper can be found here: https://static.agora-energiewende.de/fileadmin2/Projekte/2020/2020_07_Warmmieten/A-EW_190_Mieterschutz_Klimaschutz_WEB.pdf