Carbon cost splitting in practice – how much do landlords and tenants pay?
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Germany’s answer to the landlord–tenant dilemma in carbon pricing
One of the long-standing challenges in climate policy for buildings is the split incentive between landlords and tenants. While tenants typically pay heating bills, landlords decide on investments in energy efficiency.
Germany tackles this problem with the CO₂ Cost Allocation Law (CO₂-Kostenaufteilungsgesetz), which entered into force in 2023. The law links the allocation of CO₂ costs from fossil heating fuels between landlords and tenants to the energy performance of the building. The worse the building’s emissions intensity, the higher the share of CO₂ costs borne by the landlord; in highly efficient buildings, tenants pay most or all of the CO₂ costs.
The idea is simple but powerful: it creates a financial incentive for landlords to invest in energy efficiency, while maintaining fairness for tenants.
Good news: the system works for most households
The first evaluation brings encouraging news. In most rental buildings, the carbon cost split works smoothly in practice.
One key reason is that the system builds on existing heating cost billing procedures, which are already widely used in Europe under the Energy Efficiency Directive. This means that in many apartment buildings, specialised billing companies already measure fuel use and allocate costs between dwellings.
As a result, carbon costs can often be split automatically. In many cases, neither landlords nor tenants need to actively do anything. This low administrative burden is a major strength.
The catch: it doesn’t work in all housing segments
That said, the system does not work equally well everywhere.
Problems mainly arise in flats with individual dwelling heating systems and in rented single-family homes. In these cases, standardised billing structures are not in place, making it difficult to split carbon costs between landlords and tenants. Tenants in these cases can claim part of the carbon costs back from their landlord, but in practice this rarely happens: most tenants are unaware of their rights, the calculation is complex, and even when done correctly it creates significant administrative effort for landlords.
Importantly, these building types account for only a minority of rented homes (see figure). While the issues are real and should be addressed, they do not undermine the overall functioning of the system across the rental market.
Carbon cost splitting works smoothly in most rented homes, as the majority are in multi-family buildings. Each dot represents 1 Mio dwellings.
Fine-tuning needed: why tenants pay too much
The most important finding of the evaluation concerns who actually pays.
The original political goal was an approximately even split of total carbon costs between landlords and tenants across the rental sector. In reality, the evaluation finds that tenants currently pay around 70 percent of total carbon costs.
This gap has two main causes. First, many households reduced heating demand in response to high energy prices, which shifted more buildings into lower-emission categories in which tenants bear a higher share of the carbon costs. Second, technical issues with weather correction in German energy performance certificates distort how buildings are classified.
The result is clear: the approach is right, but the balance is off. Adjusting the allocation scale would be necessary to bring outcomes back in line with the original intention of an even split.
Key lessons
Despite these challenges, Germany’s carbon cost split is a remarkably innovative way of addressing split incentives in rented housing.
The first evaluation shows that:
- the core idea works,
- integration in existing billing procedures is essential,
- and small design details can have large distributional effects.
For other countries looking to decarbonise buildings while protecting tenants, Germany’s experience offers a valuable lesson: carbon cost splitting can work effectively in rental homes — if aligned with existing billing systems.
Dr Sibylle Braungardt is Head of Heating & Efficiency subdivision and Senior Researcher at Oeko-Institut. Her research focuses on the green transition of the heating sector.
Further information
Blog “Who pays for carbon? Germany’s answer to the landlord–tenant dilemma”
