Who pays for carbon? Germany’s answer to the landlord–tenant dilemma
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Germany has introduced a novel approach that directly addresses this challenge: the Carbon Dioxide Cost Sharing Act (CO₂KostAufG), in force since January 2023, which mandates that landlords share CO₂ costs with tenants.
Addressing the Landlord–Tenant Dilemma
When a CO₂ price increases the cost of heating, tenants typically face higher energy bills – yet they have little influence over the building’s energy efficiency. Landlords, on the other hand, decide whether to invest in insulation, new windows, or low-carbon heating systems, but they don’t directly benefit from reduced energy costs. The German CO₂ cost-sharing helps to overcome this by linking financial responsibility for carbon costs to the energy performance of the building.
Under the national carbon pricing scheme for fuels (the Fuel Emissions Trading Act or BEHG), suppliers of heating oil, gas and other fossil fuels must buy emission allowances. These costs are passed on through fuel prices to end users. Prior to 2023, landlords could simply transfer these costs to tenants through the heating bill, meaning that tenants paid for emissions that they could not control.
The CO2 Cost-Sharing Act changes this by sharing costs between landlords and tenants, thereby improving fairness and incentivising landlords to modernise inefficient buildings.
How the law works: cost sharing depends on building efficiency
The law establishes a ten-level model for residential buildings, based on their specific CO₂ emissions in kilograms of CO₂ per square metre per year (see Figure).
- In highly efficient buildings, tenants pay 100 % of the CO₂ costs.
- In moderately efficient buildings, the costs are shared roughly 50:50.
- In very inefficient buildings, landlords bear up to 95 % of the costs.
This graduated approach ties financial responsibility directly to building performance: the higher the emissions, the higher the landlord’s share. The aim is to create a tangible incentive for renovation and decarbonisation.
For non-residential buildings, such as offices or commercial premises, a temporary 50:50 split applies until more detailed benchmarks are available.
Ten-level model for residential buildings, based on their specific CO₂ emissions in kilograms of CO₂ per square metre per year
Implementation in practice: building on submetering and billing systems
CO₂ cost allocation is directly linked to the existing submetering and consumption-based billing — which has long been standard in Germany and is aligned with the EU’s Energy Efficiency Directive (EED).
In practice, it works in four simple steps:
- Fuel suppliers indicate the CO₂ emissions per unit of energy on their invoices.
- Billing service providers or landlords merge this CO₂ information with the building’s consumption data.
- The building’s emission intensity then determines which cost-sharing category applies.
- The landlord and tenant shares are shown transparently on the annual heating bill and are directly integrated into standard billing procedures.
By embedding CO₂ cost allocation into the existing submetering and billing infrastructure, the system can be implemented with only limited additional effort in day-to-day operations.
From paper to practice – is it working?
Oeko-Institut is providing expert support to the German government in the first evaluation of the CO₂ cost-sharing system, with results expected in December 2025. We’ll report back here once the findings are published—stay tuned for a follow-up post.
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.
