Germany’s Stop To Energy Renovations Causes Trouble, But It May Be A Good Step
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- Germany’s Economics and Climate Protection department brought the bonus program for energy renovations and efficient new buildings to a sudden end.
- While housebuilders are upset, the recent flood of applications made this step necessary.
- The current program’s criteria for the bonus were outdated. The program will now receive an update to promote energy efficiency in the building sector properly.
- Despite the initially disruptive effects, the building sector may benefit from this move in the long run if the follow-up program is a part of a comprehensive, long-term strategy to decarbonize the sector.
Political mishaps, sudden decisions, and the resulting disruption
Last week, Germany’s Minister of Economics and Climate Protection, Robert Habeck, brought the bonus program for energy renovations and efficient new buildings to a sudden end.
At first glance, the decision to terminate the bonus may irritate: Just months ago, the Federation of German Industries (BDI) named predictability a crucial factor in Germany’s federal climate actions. Short-sighted zig-zag decisions would stress the market and risk wasting public and private finances. Accordingly, the decision faces hefty criticism.
However, Habeck’s department did not have much choice. Before leaving office, the previous coalition of Christian Democrats (CDU/CSU) and Social Democrats (SPD) had already announced that the bonus program would come to a planned finish in January 2022. Unsurprisingly, construction stakeholders made a run for it, hoping to score the bonus before its termination.
In an ideal world, the late coalition would’ve established a follow-up program to take over the funding of energy-efficient construction under updated criteria, which may have prevented this surge of applications. But there was no replacement bonus ahead, and thus the run for the current bonus followed investors’ rationale.
Consequently, in early January 2022, the flood of applications overwhelmed the fund’s capacity. Shortly after assuming office, Habeck’s department decided to full-stop the program, to the dismay of those who still expected the financial support.
Habeck is now under time pressure to provide the sector’s investors with a predictable, long-term strategy.
Who’s hit hardest?
The majority of applications came from businesses. Even without the bonus, we may expect most to continue their ongoing projects one way or another. Some may accept the smaller profit margins to finish their buildings regardless. Others, for whom the lack of financial support would lead to unacceptable expenses, may have to redesign their projects according to the upcoming higher standards of a revised bonus program currently in the works.
Of the 24.000 open applications, 4000 came from private homebuilders. Just as businesses, they await a new program to save their budgets. While the program’s termination indeed implies major annoyances for some, the overall building sector may benefit from a revised bonus program despite the troubles for ongoing constructions.
Arising opportunities
Habeck’s department found that the market standards had long caught up with the energy standards set by the now terminated bonus. Therefore, the bonus no longer encouraged innovation in energy efficiency but supported the status quo. Because a revised program can raise the bar and thus foster further emission reduction in the building sector, stopping the program is valid both from an economic and ecological perspective in the long run.
Thus, if Habeck’s department delivers a comprehensive update despite the time pressure, the chances are good that the immediate disruptions pay off, leading to more plannability and further emission reductions. Moreover, the revised program may adapt insights from the mishaps of other EU members’ eco-bonuses and aim to avoid their mistakes.
A chance to learn from Italy’s super-bonus
To satisfy the EU’s climate goals, energy renovation rates must triple. Thus, Italy employed a comprehensive 110% eco-bonus program for energy renovations. Italy’s homeowners and businesses picked up the lead, and renovation demand surged. Consequently, Italy’s ambitious super-bonus led to a massive price increase in the renovation market because the country’s building sector could not keep up with the sudden demand surge.
Read more: How (not) to Boost Solar Power: The Awesome and the Irritating Effects of Italy’s Eco-Bonus Program.
Ideally, Habeck’s department would consider such unwanted side effects when developing the new program. Long-term outlooks may motivate the building sector to increase its capacity to meet a gradually increasing demand, thereby avoiding price hikes.
We will examine the revised program as soon as it is being published. Subscribe to stay tuned!
What’s next?
Next week, we’ll look at a prime European example of a systematic deep renovation program. What drives its success, and what can we learn from it? Subscribe not to miss the latest QLab insights!
Finn Faust, Webdesign & Research at QLab Think Tank GmbH