Embrace the Financial Challenges: EU Emissions Trading's Impact on Tenants and Landlords from 2027
Increased expenses for renters and property owners anticipated from 2027 due to elevated EU emissions trading fees
Prepare for some serious coin! The broadening of the EU Emissions Trading Scheme encompassing transport and dwellings, starting from 2027, is gearing up to bring substantial financial risks for tenants and property owners basking in the warmth of natural gas or oil, warns Purpose Green. In a jaw-dropping revelation on Wednesday, they predict that CO2 costs in average properties in Hamburg could skyrocket from the current 431 euros to a staggering 784 euros annually, with extreme cases reaching a whopping 3135 euros.
At the moment, the CO2 price in Germany is regulated nationally, and one tonne of emitted CO2 currently sets you back 55 euros, escalating to a temptingly affordable range of 55 to 65 euros next year. But from 2027, the new EU Emissions Trading System (ETS-2) takes charge, with the price per tonne determined by the ruthless market forces rather than being pre-set.
If emissions surge overall, the price will spiral. Purpose Green references current studies suggesting costs could range between 100 and 250 euros per tonne by 2030. And if CO2 emissions don't budge significantly, the price could soar to a jaw-dropping 400 euros by 2040. In Hamburg, that means the CO2 costs for 650 average-sized properties (165 square meters each, emitting 7.84 tonnes of CO2 per year) could escalate to a mind-boggling 1960 euros at 250 euros per tonne and an eye-watering 3135 euros at 400 euros per tonne.
In rented properties, the energy efficiency of the building determines who faces the financial heat. If the energy efficiency is lackluster, landlords must cough up 95% of the costs. A full renovation flips the bill to the tenants. In Purpose Green's example, a multi-family house in Augsburg with six apartments currently expels 121 tonnes of CO2, resulting in costs of 6655 euros next year. If the price rises to 100 euros per tonne, this swells to a staggering 12,101 euros, and a jaw-dropping 30,252 euros at 250 euros per tonne. In this scenario, the landlord bears the brunt of the costs due to the poor energy efficiency.
Purpose Green scrutinized a smidgeon under 4000 properties listed on the Immowelt portal in the big kahunas of Germany's 30 largest cities for their study, considering factors such as living space, energy source, and energy demand.
Insights from Enrichment Data
- Impact on Fuel Providers: Companies positioning fuels on the market (like gas suppliers) will be held accountable for the emissions. This might inflate fuel costs, potentially trickling down to consumers (including tenants and landlords) through inflated energy bills.
- Rent Hikes: Landlords may face higher operational costs due to fuel inflation and emission allowances. They might consider raising rent to counterbalance these additional expenses.
- Assistance for Vulnerable Populations: The EU has established the Social Climate Fund to cushion the blow of elevated energy costs on vulnerable households, providing financial relief to tenants unduly affected by the increased costs.
- Market Dynamics: The cap-and-trade system will spawn an emission allowances market, leading to fluctuating prices based on supply and demand. This volatility might affect the financial planning of both tenants and landlords.
Strategies that work:
- Energy Efficiency: Both tenants and landlords can reap benefits by investing in energy-saving technologies to minimize fuel consumption and decreased dependence on carbon-intensive fuels.
- Clean Energy Transition: Shifting to renewable energy sources can help evade exposure to volatile fossil fuel prices and mitigate the impact of emissions trading costs.
- Government Incentives: Leveraging government incentives for energy-efficient upgrades can aid in offsetting some of the financial burdens associated with the transformation.
Allons-y! While EU ETS 2 aims to slash emissions by punishing polluters, its enforcement could engender increased costs for tenants and landlords. Yet, with careful planning and adoption of energy-efficient technologies, these impacts can be tackled.
- The EU Emissions Trading Scheme's expansion, including transport and dwellings from 2027, may prompt a significant increase in financial risks for both tenants and property owners relying on natural gas or oil, as warned by Purpose Green.
- Science plays a crucial role in predicting the future costs of CO2 emissions, with studies suggesting that the price per tonne could range between 100 and 250 euros by 2030 and potentially surge to 400 euros by 2040.
- In the context of the EU Emissions Trading System (ETS-2), the market forces will decide the price per tonne of CO2, leading to possible fluctuation and volatility, impacting both the financial planning of tenants and landlords.
