Building Modernization Act

Compared with the previous legal framework, the GModG introduces the following major changes:

1. Abolition of the Previous 65% Requirement

The requirement previously contained in the Building Energy Act, under which new heating systems generally had to be operated using at least 65% renewable energy, has been abolished without replacement.
In the future, not only heat pumps, district heating connections, hybrid heating systems, and biomass heating systems may be installed, but also new gas and oil heating systems.

2. Introduction of the “Bio-Stepped Quota” (“Biotreppe”)

According to the statutory framework, biomethane, biogenic liquefied petroleum gas, bio-oil and, in the future, hydrogen are expected to play a key role in meeting these requirements. Newly installed gas and oil heating systems must use an increasing share of specified renewable fuels:

• from 2029: at least 10%
• from 2030: at least 15%
• from 2035: at least 30%
• from 2040: at least 60%

3. Long-Term Climate Neutrality of Fuels

Despite the broader range of heating system options, the legislator remains committed to the objective that fuels used for heating must become fully climate-neutral by 2045.

4. Green Gas and Green Heating Oil Quota

In addition to the Bio-Stepped Quota, a green gas and green heating oil quota is intended to support the market ramp-up of climate-neutral fuels from 2028 onward.

Pursuant to Section 42a GModG, the Federal Government is required to submit corresponding legislation by 1 December 2026. Under this future framework, suppliers placing gas, oil, and liquefied gas on the market are expected to be required to transition all fuels supplied for building heating purposes to climate-neutral fuels by 2045.

Further details of this legislative proposal are not yet available.

5. Review in 2030

The Building Modernization Act provides for a statutory review in 2030. The purpose of this review is to assess the contribution of the new regulations to achieving climate protection targets in the buildings sector.

For owners of residential and commercial properties, the Act provides greater flexibility in the choice of heating systems. The installation of new gas and oil heating systems generally remains permissible and therefore continues to represent a legally viable investment option.

However, investment decisions should not be based solely on the acquisition costs of a heating system. The legal requirements regarding the use of climate-neutral fuels will increase gradually from 2029 onward. Property owners and project developers must therefore already consider whether, and to what extent, the required fuels will be available in the future and how compliance can be demonstrated.

The new rules on cost allocation are also of particular practical significance. It is envisaged that risks associated with network charges, CO₂ pricing, and the use of biofuels will be shared between landlords and tenants. The purpose is to ensure that the economic consequences of choosing a particular heating system are not borne exclusively by tenants.

Landlords should therefore assess the potential impact of the new requirements on operating cost statements and the overall profitability of their heating investments.

In general, the regulatory focus is shifting away from the heating technology itself and toward the energy source used. For both new construction and modernization projects, it is therefore advisable to evaluate at an early stage which energy supply concepts will remain economically and technically viable under the gradually increasing blending quotas. 

The planned green gas and green heating oil quota is intended to promote the gradual expansion of climate-neutral fuels. As a result, biomethane, biogenic liquefied gases, bio-oil, and other alternative energy sources will become increasingly important both for procurement and for supply-chain planning.

At the same time, suppliers’ ability to provide customers with the fuels required to comply with the statutory quotas will become a greater focus. The gradually increasing requirements of the Bio-Stepped Quota are likely to be of considerable importance to gas and oil suppliers, as demand for climate-neutral fuel blends is expected to grow over the long term.

However, the legislative reform also raises a number of issues that, in most cases, will require more detailed legal analysis. For example, it will be necessary to examine whether existing price adjustment clauses remain adequate in light of the new legal framework and whether procurement risks relating to climate-neutral fuels are appropriately allocated.

In addition, consideration will need to be given to liability arrangements in cases where the prescribed quotas cannot be met. Gas and oil suppliers should therefore assess at an early stage how the future rules will affect procurement strategies, contractual arrangements, and compliance documentation processes.

The adoption of the Act does not bring the political debate on building heat supply to an end. The legislation itself contains further implementation mandates for the Federal Government, particularly in connection with the planned green gas and green heating oil quota. Moreover, a formal evaluation of the new regulations is already scheduled for 2030.

It therefore remains important to monitor the further development and specification of the legal requirements, as well as developments in the markets for climate-neutral fuels. Overall, an early analysis of existing and planned projects is recommended in order to properly account for the implications of the new legal framework.