ETS-2: How the new CO₂ pricing system is putting pressure on owners of unrenovated buildings

CO₂ costs could rise by more than 600 percent

In Germany, ETS-2 replaces the national emissions trading system , which was introduced for buildings in 2021. According to the German regulation, the CO₂ price this year will be €55 per tonne, and in 2026 it will be between €55 and €65 per tonne. Starting in 2027, supply and demand for emission allowances will determine the price. Based on expert estimates for ETS-2 CO₂ prices, we have created four scenarios for the calculation:

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• Scenario I (2025): 55 euros/ton CO₂
• Scenario II: 100 euros/ton CO₂ 
• Scenario III: 250 euros/ton CO₂ 
• Scenario IV: 400 euros/ton of CO₂ 

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A building's annual CO₂ emissions are calculated by multiplying the energy consumption per square meter (in kWh/m² a) by the specific emission factor of the energy source (in kg CO₂/kWh). Emission factors, such as 0.310 kg CO₂ per kWh for heating oil, are based on the standard methods of the Intergovernmental Panel on Climate Change (IPCC) for calculating greenhouse gas emissions and are enshrined in the Act on Energy Saving and the Use of Renewable Energies for Heating and Cooling in Buildings (Building Energy Act - GEG, Annex 9 (to Section 85, Paragraph 6), Conversion into Greenhouse Gas Emissions). In our four scenarios, CO₂ costs (annual carbon dioxide emissions / 1000 * carbon dioxide price of the year in which the fuel consumed was purchased) could increase by approximately 82 percent (Scenario II), approximately 355 percent (Scenario III) or approximately 627 percent (Scenario IV) compared to 2026 with the entry into force of ETS-2.

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Using the average living space, energy source, and energy consumption of the properties examined, we calculated the average CO₂ emissions in the 30 largest German cities:

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Example Hamburg: Additional costs of up to 2,704 euros per year on average are conceivable
In Hamburg, 650 properties for sale (single-family homes and condominiums) were examined, each with an average size of 165 square meters. Based on the different main energy sources, the average annual emissions amount to 7.84 tons of CO₂ per property. Under the current national emissions trading system, owners will face an average of €431 in CO₂ costs in 2026. If Scenario II were to occur, the costs would increase to €784. In the third scenario, the costs would exceed €1,960 per year, and in the fourth scenario, the annual CO₂ costs would already exceed €3,135. It should be noted that, according to the analyzed data pool, this cost increase refers to single-family homes or individual condominiums. For owners of multi-family homes or residential and commercial buildings, the costs would be multiplied many times over.

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The energetic condition determines the additional rental costs

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Landlords do not have to bear the _CO2 costs alone. A portion can be passed on to tenants, but only if the property has been energy-efficiently renovated or has correspondingly good energy efficiency values. The exact allocation of costs between tenants and landlords has been defined in the so-called 10-step model since January 1, 2023. If the energy efficiency value is very poor (CO₂ emissions over 52 kg/m²), landlords must bear 95 percent of the CO₂ costs alone. If a building is already energy-efficient and emissions are only up to 12 kg/m², the (low) costs remain entirely with the tenants. If CO₂ emissions are between 32 and 37 kg/m², tenants and landlords share the costs equally.

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For example, an apartment building with six apartments and a total area of 386 square meters is being offered in Augsburg. The building has an energy requirement of 1,306.2 kWh/(m²·a) and is heated with gas, which generates 121 tons of CO₂ per year. While the owner would incur approximately €6,655 in 2026, the second scenario would incur approximately €12,101, the third scenario approximately €30,252, and the fourth scenario almost €48,403 annually. Based on the building's energy balance, the landlord must bear 95 percent of the costs according to the current 10-stage model – i.e., between €6,322 and €45,983 per year, depending on the scenario.

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CO₂ costs can be reduced through energy-efficient refurbishments
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" The introduction of ETS-2 and the associated rising CO₂ costs make energy-efficient refurbishments unavoidable for landlords. There are numerous funding options available to support the implementation of climate-friendly heating systems and refurbishment measures. The EU Social Climate Fund as well as national funding programs such as the BEG funding and KfW grants offer financial assistance to facilitate the transition to more efficient heating technologies and the expansion of thermal insulation and photovoltaic systems.

The European Emissions Trading System (ETS-2) will significantly increase the operating costs of unrenovated buildings – and this will happen very soon. Landlords who fail to invest in energy-saving refurbishments in a timely manner run the risk of financial difficulties. Improved thermal insulation, switching to heat pumps, or the use of photovoltaics not only reduce CO₂ emissions and thus costs, but also increase the attractiveness and value of the property. Those who act now benefit twice – through long-term planning security and through a sustainable real estate strategy ," explains Daniel Schreiner, ESG expert at Purpose Green.

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