"Steep Financial Hurdles Ahead": EU Emissions Trading System's Expansion to Pose Challenges for Renters and Homeowners from 2027
Anticipated Increase in EU Emissions Trading Costs for Renters and Property Owners starting from 2027
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Prepare for some major financial bumps if you're a tenant or a landlord heating your apartment or house with natural gas or oil, as per a study by Purpose Green. The company's report released on Wednesday highlights that the CO2 costs for average properties in Hamburg could spike from the current €431 to €784 per year, with extreme cases possibly reaching €3,135.
At present, the CO2 price in Germany is regulated nationally, with a tonne of emitted CO2 costing €55, set to climb to between €55 and €65 next year. However, starting from 2027, the new EU Emissions Trading System (ETS-2) will replace the existing one, with the price per tonne of CO2 determined by the market instead of being pre-set. If emissions increase overall, the price will surge. Purpose Green refers to several studies indicating costs ranging from €100 to €250 per tonne by 2030. If CO2 emissions remain unchecked, the price could even reach €400 by 2040. In this scenario, the CO2 costs for the 650 average-sized Hamburg properties with an annual emission of 7.84 tonnes of CO2 would soar to €1,960, and in the extreme example with a €400 price per tonne, this would amount to €3,135.
In rented properties, the energy efficiency of the apartments decides who covers the costs - landlords or tenants. If the energy balance is poor, landlords bear 95% of the CO2 costs, while fully renovated properties make tenants shoulder the costs.
For instance, a multi-family house in Augsburg with six apartments currently emits 121 tonnes of CO2, resulting in costs of €6,655 for the following year. If costs reach €100 per tonne, this would total €12,101, and at €250, it would be €30,252. In this case, the majority of these costs would fall on the owner due to the poor energy balance.
Purpose Green analyzed around 4,000 properties listed on the Immowelt portal in the 30 largest German cities for its study, factoring in living space, energy source, and energy demand.
More on ETS2
- Broadened Scope: ETS2 will extend coverage to emissions from road transport and buildings, including those from natural gas and oil used for heating. This means that fuel suppliers, which encompass those providing heating fuels, will need to purchase allowances for the carbon emissions they generate[2][3].
- Market-Driven Pricing: The system involves auctioning allowances without free allocation to minimize price volatility. This might lead to increased costs for fuel suppliers, which are likely to be passed on to consumers[3].
Implications for Tenants
- Upcoming Energy Bills: As fuel suppliers cover the cost of carbon emissions, tenants can expect higher energy bills due to the cost of purchasing allowances being passed on to them. This could affect low-income households disproportionately, exacerbating energy poverty[2].
- Social Climate Fund: To soften these impacts, the EU has established the Social Climate Fund. This fund is designed to assist vulnerable households and micro-enterprises impacted by rising energy costs[2].
Landlords' Predicament
- Potential for Increased Expenses: Landlords who cover heating costs for their tenants may see their expenses increase due to ETS2-induced higher energy prices. This could lead to either increased rents or financial struggles for landlords who cannot pass these costs on.
- Renovation and Energy Efficiency Encouragement: To cut long-term costs, there may be incentives for landlords to invest in energy-efficient renovations, potentially off-setting increased expenses from carbon pricing.
- The expansion of the EU Emissions Trading System (ETS-2) from 2027 will pose a challenge for both renters and homeowners, as it broadens the scope to include emissions from road transport and buildings, such as those from natural gas and oil used for heating.
- In the context of ETS-2, the price per tonne of CO2 will be determined by the market, and if emissions increase overall, the price will surge. One study by Purpose Green suggests that costs could reach up to €250 per tonne by 2030, which could significantly impact energy bills for tenants, particularly low-income households.
- To soften the impacts on vulnerable households and micro-enterprises, the EU has established the Social Climate Fund. This fund could provide assistance to households and businesses affected by rising energy costs, including those living in rental properties where the landlord covers heating costs.
