CO2 Emissions Trading in Buildings and the Landlord-Tenant Dilemma: How to solve it

A proposal to adjust the EU Energy Efficiency Directive

  • Impulse
A proposal to adjust the EU Energy Efficiency Directive

As part of the Fit-for-55-package, EU policymakers are discussing the option to introduce an EU-wide emissions trading also in the building sector. There is a vivid debate on this concept, one problem being that under current EU regulations any CO2 pricing mechanism on heating fuels will only exacerbate the landlord-tenant dilemma. This is because, with few exceptions, heating costs are fully paid by the tenants, so rising CO2 prices just increase their bills while giving little  incentives for landlords to invest in energy efficiency measures.

The example of Sweden shows a way out of the dilemma. All-inclusive and temperature-based rents would ensure that landlords benefit from energy savings and emissions reductions.

However, Sweden is profiting from an exception clause in the Energy Efficiency Directive (EED). Similar systems in other Member States would currently not be allowed. We thus propose changes to the EED so that carbon pricing affects those best positioned to respond to price signals: the landlords.

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Core results

  1. 1

    Including the buildings sector into any kind of CO2 pricing scheme without addressing the landlord-tenant dilemma could heavily burden tenants and fail to incentivize climate action in buildings.

    In nearly all EU Member States additional costs for carbon emissions would only increase tenants’ bills without encouraging landlords to refurbish their buildings.

  2. 2

    Sweden shows the way out: Here, most rental contracts are all-inclusive rents. Coupled with a CO2 tax of 114 EUR/t, Sweden has effectively reduced household CO2 emissions by 95% since 2000.

    Since landlords pay heating bills, they have a clear incentive to reduce energy consumption and avoid carbon taxes by renovating their houses and switching to clean heating systems.

  3. 3

    Temperature-based rents can provide targeted incentives for both landlords and tenants.

    When heating bills are based on a guaranteed temperature, landlords have the incentive to renovate their buildings, while tenants who keep their apartments cooler (verified by temperature monitoring) pay less.

  4. 4

    The EED should be revised to allow for all-inclusive and temperature-based rents.

    This would provide all Member States (not only Sweden, currently profiting from an exception clause) with an easy-to-implement policy instrument that protects tenants from high carbon prices and provides targeted incentives for landlords.

Bibliographical Data

  • Authors

    Georg Thomaßen (Agora Energiewende), Leo Reutter (Universität Kassel), Alexandra Langenheld (Agora Energiewende), Matthias Deutsch (Agora Energiewende)

  • Publication number

    207/04-I-2021/EN

  • Version number

    1.0

  • Release date

    03/2021

  • Number of pages

    14

  • Citation

    Agora Energiewende and Universität Kassel (2021): CO2 Emissions Trading in Buildings and the Landlord-Tenant Dilemma: How to solve it. A proposal to adjust the EU Energy Efficiency Directive

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