The new Building Modernisation Act (Gebäudemodernisierungsgesetz, “GModG”) was promulgated on 28 July 2026. It replaces the “Heating Act” (Heizungsgesetz) introduced by the former coalition government, abolishes the 65% quota for renewable energy in new heating systems, introduces a new “biofuels ladder” (Bio-Treppe) along with quotas for green gas and green heating oil, and implements the European Energy Performance of Buildings Directive through the introduction of the zero-emission building standard. This article outlines the key changes and discusses their practical implications.
Political background and objectives
The primary purpose of the Act is to fundamentally reform the existing Buildings Energy Act (Gebäudeenergiegesetz, “GEG”). Originally enacted in 2020, the GEG was largely shaped by the amendment adopted by the former coalition government on 8 September 2023 and promulgated on 16 October 2023 (commonly referred to as the “Heating Act”). That reform proved to be one of the most controversial legislative initiatives in recent years.
The amendment to the GEG adopted at the time was intended to make a significant contribution to achieving Germany’s climate targets. Critics argued, however, that the legislation was overly complex and impractical, placed too much emphasis on specific technologies such as heat pumps, and imposed excessive costs on homeowners required to replace their heating systems. As a result, the 2025 coalition agreement between the CDU/CSU and the SPD provided for a reform of the GEG. The aim was to make the legislation more technology-neutral, flexible and user-friendly, while restoring homeowners’ freedom to choose the heating technology that best suits their needs. The reform is also intended to increase planning certainty, reliability and public confidence, and to make climate protection more practical in everyday life.
The federal government estimates that the reform will also deliver significant cost savings, amounting to approximately EUR 5.1 billion per year for citizens and EUR 2.3 billion for businesses.
Legislative process
- On 5 May 2026, the Federal Ministry for Economic Affairs and Energy and the Federal Ministry for Housing, Urban Development and Building jointly published a ministerial draft of the proposed reform. The government’s draft bill was subsequently introduced into the Bundestag on 8 June 2026. The Bundestag adopted the legislation in amended form on 10 July 2026, and on the same day the Bundesrat allowed the bill to pass without referring it to the Mediation Committee. The Act was promulgated on 28 July 2026 (Federal Law Gazette 2026 I No. 226).
- The reform sparked debate regarding the constitutionality of the amendment. For example, a legal opinion prepared by the Bundestag’s Research Services criticised the proposed relaxation of climate protection requirements as being incompatible with the constitutional obligation to protect the climate under Article 20a Basic Law (Grundgesetz). In response, the final legislation was amended to include a green gas and green heating oil quota in section 42a GModG, which had not been envisaged in the original government draft. The provision also expressly reiterates that Germany remains committed to achieving climate neutrality by 2045.
- In addition, during the ongoing legislative process Germany’s Left Party initiated Organstreit proceedings – i.e. proceedings relating to disputes between constitutional organs – arguing that parliamentary participation rights under Article 38(1), sentence 2 Basic Law had been infringed; however, these were dismissed by the Federal Constitutional Court as inadmissible (BVerfG, decision of 9 July 2026 – 2 BvE 3/26). The Court did not address any of the substantive constitutional issues raised by the legislative amendment.
- Environmental Action Germany (Deutsche Umwelthilfe) has announced its intention to file a constitutional complaint, arguing that the legislation is incompatible with Germany’s climate protection obligations under Article 20a Basic Law. It also maintains that the Act is formally unconstitutional because it should have been adopted as legislation requiring Bundesrat consent (Zustimmungsgesetz), rather than as an objection bill (Einspruchsgesetz).
Key changes
The reform primarily focuses on four pieces of legislation: the former Buildings Energy Act (Gebäudeenergiegesetz, “GEG”) – now renamed the Building Modernisation Act (Gebäudemodernisierungsgesetz, “GModG”) – the Carbon Dioxide Cost Allocation Act (Kohlendioxidkostenaufteilungsgesetz, “CO2KostAufG”), the Civil Code (Bürgerliches Gesetzbuch, “BGB”) and the Building Electromobility Infrastructure Act (Gebäude-Elektromobilitätsinfrastruktur-Gesetz, “GEIG”). It also introduces a range of consequential amendments to other provisions.
Change in name to “Building Modernisation Act”
The Buildings Energy Act (“GEG”) was renamed the “Building Modernisation Act” with effect from 29 July 2026. Its full title is now the “Act on Energy Conservation and the Modernisation of Heat Supply in Buildings (Building Modernisation Act)”. The change in name is intended to signal a clear break with the previous coalition government’s controversial reform. It also allows the government to demonstrate that it has delivered on its 2025 coalition agreement promise to abolish the “Heating Act”, despite the fact that the reform only formally amends the existing legislation.
65% renewable energy requirement for new heating systems abolished
With effect from 29 July 2026, the most politically contentious elements of the previous GEG – sections 71, 71b to 71p and 72 in their former version – were repealed entirely. The previous GEG generally required at least 65% of the heat supplied by newly installed heating systems in existing buildings to come from renewable energy sources or unavoidable waste heat (section 71(1), sentence 1, GEG). This requirement proved highly controversial because it effectively precluded the installation of new gas and oil heating systems. The GModG replaced that approach entirely with new rules that took effect on 29 July 2026.
Property owners replacing a heating system in an existing building can now choose from a technology-neutral range of options set out in section 42(2) GModG, including gas, oil and LPG heating systems, electric heat pumps, solar thermal installations, biomass and hybrid heating systems, direct electric heating, district heating, highly efficient CHP installations and other innovative technologies. As a result, the installation of gas and oil heating systems is generally permissible again when replacing existing heating systems.
The repeal of section 72 GEG removes both the operating ban for boilers more than 30 years old under section 72(1) and (2) GEG and the mandatory phase-out of fossil-fuel boilers from 2045 under section 72(4) GEG. The 2045 climate neutrality target set out in the Federal Climate Change Act (Bundes-Klimaschutzgesetz) nevertheless remains unchanged and is now reflected in the introduction of a green gas and green heating oil quota in section 42a GModG.
The mandatory consultation requirement for the installation of fossil-fuel heating systems (section 71(11) GEG) was also abolished with effect from 29 July 2026.
“Biofuels ladder” – phased introduction of climate-neutral fuels
The biofuels ladder serves as a replacement for the abolished 65% renewable energy requirement, and will be phased in according to a predefined schedule. Although the immediate obligation to install heating systems using a specified share of renewable energy has been removed, fossil-fuel heating systems will remain permissible only if additional requirements are met. Owners who install a new gas, oil or LPG heating system in an existing building after the new rules enter into force will be required to operate that system with a gradually increasing share of climate-neutral fuels. The requirement does not apply to the modernisation of other types of heating systems. Buildings heated entirely with renewable energy are not subject to the biofuels ladder.
Under the phased schedule set out in section 43(1) GModG, the minimum share of climate-neutral fuels must increase to
- 10% from 1 January 2029
- 15% from 1 January 2030
- 30% from 1 January 2035
- 60% from 1 January 2040.
Section 43 GModG recognises a range of fuels for this purpose, including biomethane, bio-oil, biopropane and green, blue, orange and turquoise hydrogen, as well as derivatives produced from these fuels. Alternatively, and subject to certain conditions, the requirement may also be met through the operation of hybrid heating systems built around solar thermal energy, heat pumps or biomass. Ventilation and air-conditioning systems with heat recovery may also be taken into account.
The biofuels ladder is intended to facilitate a gradual transition to climate-neutral heating without mandating a particular technology. Instead of focusing on the type of heating system installed, the new regime places greater emphasis on the long-term fuel pathway.
However, there are concerns as to whether sufficient quantities of climate-neutral fuels such as biomethane, bio-oil or hydrogen will be available at economically viable prices. The explanatory memorandum to the draft Act itself acknowledges that the indirect effects of the regime cannot currently be quantified and that significant uncertainty surrounds the future availability and development of biogenic fuels.
Green gas and green heating oil quota – supply-side decarbonisation
In addition to the biofuels ladder, the GModG provides for a green gas and green heating oil quota. Section 42a GModG requires the federal government to submit corresponding legislation by 1 December 2026.
Unlike the biofuels ladder, the quota will apply not to building owners but to suppliers of gas, heating oil and LPG, who will be required to gradually increase the share of climate-neutral fuels – with a full transition required by 2045. Unlike the biofuels ladder, which applies only to newly installed heating systems, the quota would also affect existing systems and therefore the building stock as a whole.
Key details, including quota levels, covered fuels and verification requirements, remain to be defined in future legislation. According to the explanatory memorandum to the original government draft of 8 June 2026, which did not yet include section 42a GModG, the green gas and green heating oil quota was intended to start at up to 1% in 2028 and count towards compliance with the biofuels ladder requirements.
Implementation of the EU Buildings Directive: zero-emission buildings and renovation requirements
In addition to reforming the existing GEG, the GModG also implements the recast European Energy Performance of Buildings Directive (Directive (EU) 2024/1275, EPBD). The Directive sets binding requirements for reducing energy consumption and greenhouse gas emissions in the real estate sector, with the aim of achieving a climate-neutral building stock by 2050. Member States were required to transpose the Directive into national law by 29 May 2026. Key elements include the introduction of the zero-emission building standard for new buildings and minimum energy performance requirements for existing non-residential buildings.
For new buildings, the GModG introduces the zero-emission building standard. Zero-emission buildings must be highly energy-efficient and produce no on-site carbon emissions from fossil fuels. The requirement to construct new buildings to this standard will be phased in as follows:
- from 1 January 2028, for new non-residential buildings owned by public bodies (section 10a GModG); and
- from 1 January 2030, for all new buildings (section 10 GModG).
For existing non-residential buildings, the Act adopts a “worst-first” approach. Energy performance thresholds must be set to ensure that:
- by 2030, the worst-performing 16% of non-residential buildings are renovated; and
- by 2033, the worst-performing 26% of non-residential buildings are renovated (section 40 GModG).
The Act does not prescribe specific renovation measures, leaving owners free to choose how to meet the applicable requirements. Exemptions apply in particular where renovation is technically impossible or economically unreasonable (section 40(1), sentence 2, GModG).
Restrictions on direct electric heating remain
While hybrid heating systems receive preferential treatment because they can count towards compliance with the biofuels ladder, the requirements for direct electric heating systems generally remain strict. In new buildings, such systems may still be installed only if the building outperforms the applicable thermal insulation requirements by at least 45% (section 10(4) GModG). The rules for existing residential buildings have been relaxed slightly. The stricter 45% threshold for existing buildings with a hydronic heating system has been removed, and a uniform 30% threshold now applies regardless of whether such a system is installed (section 46 GModG). In each case, buildings with no more than two residential units are exempt where one of those units is occupied by the owner.
Expansion of building automation requirements
The requirement to install building automation and control systems was extended with effect from 29 July 2026. Under section 56 GModG, non-residential buildings with an effective rated output of more than 70 kW, down from the previous threshold of 290 kW, must install such a system by 31 December 2029. This significantly extends the scope of former section 71a GEG to smaller buildings. An exemption is available where installation is either technically impossible or economically unreasonable.
The system must be capable of
- continuously monitoring and recording all energy consumption;
- making data accessible through open interfaces;
- detecting efficiency losses and informing the operator of potential improvements; and
- monitoring indoor environmental quality.
Calculation whole-life-cycle greenhouse gas emissions & modernisation of the energy performance certificate
As part of the implementation of the EPBD, the GModG introduces the requirement to calculate the whole-life-cycle greenhouse gas emissions of new buildings and to document them in a report (section 88b GModG). These are the aggregate greenhouse gas emissions generated throughout a building’s entire life cycle, beginning with the manufacture of construction materials and ending with their final disposal. The report in question will form an integral part of the energy performance certificate.
The GModG also comprehensively overhauls the energy performance certificate. The minimum information requirements have been expanded to include primary energy, final energy, useful energy, operational greenhouse gas emissions and whole-life-cycle greenhouse gas emissions (section 85 GModG). While owners of residential buildings can still choose between an energy performance certificate based on consumption and an energy performance certificate based on energy needs, owners of non-residential buildings must obtain an energy performance certificate based on energy needs. Energy performance certificates will be required to be issued in digital and machine-readable form.
For the first time, non-residential buildings will be assigned their own energy performance classes from A to G (Annex 10a GModG), while residential buildings will continue to be rated under the familiar A+ to H scale.
The technical basis for calculating the energy performance of buildings has been fundamentally updated. The previous reference building concept has been replaced by a more practicable, technologically neutral model. The primary energy factors have been consolidated in a new Annex 4 to the GModG, with the underlying methodology having been changed. Going forward, the total primary energy will be calculated including the contribution from renewable energy sources. Furthermore, the entire energy performance calculation system has been converted to comply with DIN/TS 18599:2025-10.
These provisions will take effect on 1 January 2027, while the substantive obligations to calculate whole-life-cycle greenhouse gas emissions will only apply from 1 January 2028.
Obligation to install solar energy systems
The GModG introduces a nationwide obligation to install solar energy systems (section 106 GModG). Starting on 1 January 2027, the obligation will first cover all new public non-residential buildings as well as any other new non-residential buildings with more than 250 square metres of usable floor space, and will subsequently be expanded to larger existing buildings. From 2030, new residential buildings will generally have to be fitted with photovoltaic or solar thermal systems, except where installation is technically impossible, functionally impracticable or economically unfeasible.
EV charging infrastructure
The GEIG has been amended to the effect that EV charging points must in future be installed when constructing or carrying out major renovations on residential buildings with more than three parking spaces. For non-residential buildings, at least one charging point will have to be installed for every five parking spaces. These changes will enter into force on 1 January 2027.
Protection of tenants through cost-sharing
The GModG has also introduced key changes to tenancy law with effect from 29 July 2026, amending the CO2KostAufG as well as the residential tenancy provisions of the Civil Code (Bürgerliches Gesetzbuch, “BGB”), especially sections 555b, 559e and 559f BGB. Where a residential tenancy agreement is in force and a new heating system is installed pursuant to section 43(1) GModG, natural gas grid charges and CO2 costs will, from 2028 onwards, be split 50:50 between landlords and tenants – irrespective of the building’s energy efficiency status (section 5a(3) CO2KostAufG). The cost of the biofuels ladder will also be shared equally from 2029 onwards, but only up to a maximum of 30% of the total fuel consumption.
The new cost-allocation rules apply to both existing and new buildings (sections 5a and 5b CO2KostAufG), although new buildings must be completed and used for the first time by 31 December 2029 to be covered. The new provisions on grid charges and the biofuels ladder do not apply to commercial leases, although the general allocation of CO2 costs for non-residential buildings under section 8 CO2KostAufG still needs to be taken into account.
Amendment of related legislation
The GModG is not the final word on heating-sector reform, serving instead as the cornerstone of a wider package that will be supplemented by additional measures and future regulations.
- The Green Gas and Green Heating Oil Quotas Act (Grüngas-/Grünheizölquoten-Gesetz)announced in section 42a GModG has yet to be enacted, for example, although the federal government must present a draft by 1 December 2026.
- The key provisions of the GModG must be extensively evaluated in 2030 (section 9a GModG). The competent federal ministries will review how effectively the GModG contributes to achieving Germany’s climate protection goals and climate neutrality by 2045 and must submit recommendations for further legislative action within six months of completing their evaluation.
- Section 9 GModG allows individual federal states to retain more far-reaching requirements comparable to those under the former GEG. This could result in regional differences and make consistent application of the law across Germany more difficult.
- The federal government has also maintained and revised the Federal Funding for Efficient Buildings (Bundesförderung für effiziente Gebäude) scheme, with the aim of further promoting climate protection.
- The GModG will also be supplemented by announced amendments to the Heat Planning Act (Wärmeplanungsgesetz), for which a draft bill is already under parliamentary consideration. Proposed reforms of the Ordinance on General Conditions for the Supply of District Heating (Verordnung über Allgemeine Bedingungen für die Versorgung mit Fernwärme) and the Heat Supply Ordinance (Wärmelieferverordnung) are still pending.
Conclusion
The GModG marks a fundamental policy shift in German building energy law. Instead of mandating particular heating technologies, the legislation focuses on the type of fuel consumed. While property owners will have broader discretion in choosing heating solutions, they will need to gradually switch to climate-neutral fuels under the biofuels ladder mechanism and, in due course, the green gas and green heating oil quota. The overarching requirement to reach climate neutrality by 2045 continues to apply.
Key aspects remain unclear, however. It is currently difficult to predict whether the future supply and pricing of biomethane, bio-oil and hydrogen will make compliance with the biofuels ladder requirements economically and practically viable. The federal government has expressly acknowledged these uncertainties in the explanatory notes to the legislation.
Moreover, the regulatory landscape remains in flux as the Green Gas and Green Heating Oil Quotas Act is still to be enacted, a wide-ranging review is scheduled for 2030, and amendments to related legislation have not yet been implemented. Constitutional challenges are also to be expected, including the constitutional complaint announced by Environmental Action Germany (Deutsche Umwelthilfe).
It is therefore crucial for businesses to stay abreast of the rapidly changing legal environment, evaluate ongoing changes at European level and keep a close eye on future market developments. Gleiss Lutz is monitoring the situation and can advise clients on the practical implications of the GModG.
Forward
