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CO2 Costs for Heating: Starting 1 January 2023, Landlords in Germany Required to Pay a Share

On 25 November 2022, the parliamentary chamber of the German federal states (Bundesrat) cleared the way for the Carbon Dioxide Cost Sharing Act (Kohlendioxidkostenaufteilungsgesetz, CO2KostAufG), which the federal parliament (Bundestag) passed on 10 November 2022. Starting 1 January 2023, landlords will have to bear parts of the costs for emissions certificates for heating fuels (so-called CO2 costs). Landlords will no longer be able to pass on CO2 costs to tenants in full or will be required to reimburse tenants for CO2 costs. The only exceptions are buildings that are particularly energy-efficient or where refurbishments to improve energy efficiency are legally precluded. However, all landlords will have to comply with new requirements for the billing of heating costs starting with the 2023 billing period.


Germany introduced a national emissions trading system for heating fuels on 1 January 2021. Since then, fuel suppliers have been required to purchase an emissions certificate for each tonne of CO2 equivalent that would be emitted if the supplied fuels were burned. The costs for the emissions certificates are generally passed down the supply chain.

Annually increasing fixed prices for emissions certificates have been stipulated for the years 2021 to 2025. The starting price in 2021 was EUR 25 per tonne. According to the current regulations, the price will almost double by 2025, reaching EUR 45 per tonne. From 2026 onwards, the emissions certificates are to be auctioned.

Until now, landlords were usually able to pass on their CO2 costs in full to tenants as part of the utility costs (Betriebskosten). As a result, CO2 costs have so far not had a financial impact on landlords. From 1 January 2023, CO2 costs will be divided between the tenant and the landlord, with the CO2KostAufG restricting the rights of landlords to pass on CO2 costs to tenants. The goal is to create an incentive for landlords to carry out energy-saving refurbishments, while incentivising tenants to reduce their heat consumption.

Distinction between Residential and Non-Residential Buildings

The new Act differentiates between residential and non-residential buildings when determining the share of CO2 costs to be borne by the landlord: 

For residential buildings, the landlord's share will be set between 0% and 95% of the total CO2 costs. The exact percentage depends on the carbon dioxide emissions of the respective building or flat. Landlords must determine the carbon dioxide emissions when preparing the annual utilities bill (Nebenkostenabrechnung) for their tenants. The basis for the landlord’s calculation must be disclosed to the tenants. Pursuant to the Act, fuel suppliers must include in their invoices the information required to make this determination.

For non-residential buildings, CO2 costs will initially be split equally between landlords and tenants. However, the introduction of a more refined model is planned for non-residential buildings in 2025.

If tenants arrange their own heat supply, they are entitled to claim a reimbursement of their CO2 costs from the landlord.

In cases where legal requirements – such as those arising from monument-protection law or in so-called milieu protection areas (Milieuschutzgebiete) – preclude or limit energy efficiency refurbishments of the building or the heat supply, the percentage share of the CO2 costs to be borne by the landlord may be reduced to zero. Landlords must provide to their tenants evidence of the circumstances entitling them to reduce their share of the CO2 costs.

Key Considerations for Landlords

Due to the new regulations, landlords face increasing costs starting in 2023. In addition, landlords will be required to comply with several new obligations. In particular, landlords should consider the following:

  • Landlords of residential buildings are required to determine carbon dioxide emissions as well as their share of the CO2 costs.
  • From the 2023 billing period, utility bills must be adjusted to comply with the requirements of the CO2KostAufG.
  • Landlords should check whether their building is exempt from CO2 cost sharing because the building is particularly energy efficient or because the carrying out of refurbishments to improve energy efficiency is precluded by law.
  • Landlords should examine whether energy-saving refurbishments (i.e., insulation of the building or decarbonisation of the heat supply) could be economically feasible for their properties, particularly given their future participation in paying CO2 costs.
  • When determining the above, the current and planned future requirements of the Building Energy Act (Gebäudeenergiegesetz, GEG), as well as potential funding opportunities, should be considered. In addition, existing permit requirements for carrying out energy-saving refurbishments and rent price restrictions on passing on refurbishment costs to tenants are likely to play a role in the decision-making process.