The economist Sebastian Dullien has developed a concept with which the installation of a heat pump would not be more expensive than a new gas heating system – and the public budgets would not incur any costs either. In an interview with ntv.de, the economist explains his proposal.
ntv.de: This week the so-called heating law is to be passed in the Bundestag, as well as the accompanying funding separately. There were only details about this last week. Shouldn’t the funding framework have been clear from the start?
Sebastian Dullien: I would even say that with such a large project, the funding should have been defined and presented first, and then the regulations. The problem now is that people have been scared a lot and made very insecure. Had you gone the other way, I think you could have captured part of the debate.
Sebastian Dullien is Director of the Institute for Macroeconomics and Business Cycle Research (IMK) in Düsseldorf.
(Photo: imago images/Jürgen Heinrich)
You have a together with colleagues Model developed to ensure that private households do not have to pay more when switching to climate-friendly heating than with gas or oil heating. How does it look?
The idea is that households should not be worse off when purchasing a heat pump than if they had replaced a broken fossil fuel heating system with a new boiler – including the costs of any house renovation that may be required.
Who would pay the difference in costs between a new gas heating system and a heat pump?
In our model, this would be done by the state, although there would be no fiscal costs for public budgets. This distinguishes our concept from the current funding plans. The state would take out a loan through the state development bank KfW and pass the money on to households as loans. They could use it to finance the purchase of the heat pump and the renovation of the house – less the amount that gas heating would have cost. The loan would have to be paid off, but only in the amount of the difference between the current electricity costs for the heat pump and the costs that would be incurred if you continued to heat with gas or oil.
How is the loan repaid?
Heating with oil and gas is very likely to become very expensive from 2027 onwards. This means that the repayment rate will then also increase, because in our model the future rates are linked to how the prices for oil and gas develop. But as a household, you only ever pay as much as you would have to pay if you still had oil and gas heating.
The price of gas depends on the price of CO2, which will increase sharply until 2027.
Exactly. In 2027, a second European emissions trading system is to start, which will include the building sector. There are calculations by colleagues according to which the CO2 price can rise to 200 to 300 euros per ton by 2030 – it is currently 25 euros for a ton of CO2 in the building and transport sectors. By the end of the decade, a kilowatt hour of gas could cost around 16 cents. 16 cents would be 4 cents more than what the gas price brake specifies as the reference price. And according to the forecasts, the price of gas would continue to rise towards 2050.
What if it doesn’t happen?
Even then, our model would work. Then it would just take longer to pay off the loan because the installments would be lower.
Have you calculated when a heat pump would be paid off and under what conditions?
Including renovation, this would be the case after a little more than ten years if the CO2 price was very high. If the CO2 price is low, after 20 years.
In your study you write that most people probably underestimate the costs they will face in view of the rising gas prices. Are politicians perhaps also underestimating the debates that will arise when gas prices rise?
That’s my impression too. In my opinion, it is not only clear to people, but also to politicians, how expensive heating with fossil fuel heating systems will be according to the current legislation. And politicians have not yet developed an instrument to absorb this. The problem here is that depending on their circumstances, people can face massive costs. We may see heating costs triple by 2027/2028 compared to pre-pandemic and pre-Ukraine invasion times. Anyone who heats for 100 euros today may be able to cope with 300 euros in a few years, but if someone has an older, uninsulated house, then the heating costs may jump from 250 euros now to 750 euros. I’m not sure if all politicians are already aware of this problem.
If a sharp rise in gas prices were to be buffered by the state at the end of the decade, how would that affect your concept?
That depends on how the state would buffer. There are suggestions that climate money should be paid out to all households. That would not change anything about our concept. Households would then receive money, but the price of gas would continue to rise. Households could use part of the climate money to pay the installments; the rates would therefore not change. However, if the government intervened in some way in the price of CO2, with the result that the price of gas fell, then the rates would be lower and it would take longer to pay off the loan.
Could people also get such a loan who would not get a loan from a normal bank?
Lending would go beyond the banks’ usual risk assessment. That would also affect older people who may struggle to get regular credit. In case of doubt, the house would also be there as security. Above all, it would be about relieving people of the fear that they will have to leave their house during their lifetime. In my view, it would not be about protecting heirs.
Should everyone benefit from such a subsidy or only certain income groups?
In our view, every income group should receive support. One might ponder whether it makes sense to refurbish a 2000 square meter castle through such a program, because the costs may then be higher than the value of the building fabric. But we would not impose any income restrictions. The heating debate has shown that there are people in the middle class who own a property and for whom the renovation costs represent a massive financial burden, at least subjectively, but possibly also objectively. We want to take away that fear. And since there are no costs for the public purse, there is no reason, in my view, to limit such a program to certain income groups.
Not only the costs, but also bureaucratic hurdles could deter homeowners. How big would the effort be in this regard?
You would of course have to submit an application and get advice on where renovation would make the most sense. There are things that are very cheap and bring a lot, such as the renovation of the basement ceiling and the top ceiling of the building. It would make sense to seek advice. Otherwise, the bureaucracy could be kept relatively low.
You sent your concept to the coalition factions and the Chancellery last week. Have you received any feedback yet?
I’ve heard from various sources that people find the concept very interesting and want to take a closer look. It is of course unlikely that it will be considered in the Bundestag this week. But I am sure that the debate will not be over after the GEG has been passed, especially since many of the obligations to replace heating systems will only come into force in the next few years.
Hubertus Volmer spoke to Sebastian Dullien