It is less than a month until the introduction of CO2 pricing in the German building sector – are property owners and tenants prepared?

On January 1, 2021, the CO2 price will be introduced in the German heating market. It will start at EUR 25/t and then rise in a predictable manner to EUR 65 by 2026, before the price is freely determined via emissions trading from 2027.  Most estimates predict that they will then quickly reach triple digits.

In 2019, when the then German ‘Klimakabinett’ made its decisions it was still seen as one of the key drivers for achieving Germany’s CO2 reduction targets. Today, there is little sign of that. The price is considered too low to have a strong steering effect. The governing coalition is also divided on the question of who should carry the costs: is it the tenants, the landlords, or both? If no cap is introduced, and it does not look like it will, landlords will initially be allowed to pass on the full CO2 price to tenants as part of their normal heating costs. In this scenario the energy supplier would simply add the CO2 price to the energy bill and currently doesn’t even have to declare it separately.

Have you already talked to your key tenants about what the CO2 price will cost them in the next few years and how these added costs can be reduced? Have you analysed the impact that this levy could have on the value development of your assets?

Let’s talk about it. For 10 years, EVORA has been successfully helping clients with understanding climate policy risks and opportunities and with positioning themselves strategically, making their funds or individual assets productive, profitable, and resilient to change. Now also in Germany.