Gas heating could nearly double household bills by 2040, IW study warns
A new Institute of the German Economy (IW) study warns that gas heating installation may lead to sharply higher household costs, with annual bills for new gas systems potentially nearly doubling by 2040. The report, seen by the Rheinische Post, finds that choosing a heat pump instead could keep household heating costs far more stable over the coming decades.
IW study projects steep rise in gas heating costs by 2040
The unpublished analysis by the Institut der Deutschen Wirtschaft models fuel and carbon-price trajectories and estimates that households installing new gas boilers today face significantly higher running costs over time. According to the study, annual heating expenses for a newly installed gas heating system could increase by almost 100 percent by 2040 under the scenarios examined.
The IW researchers caution that these projections reflect a combination of higher fuel prices, potential carbon levies and market volatility that together raise the long-term cost of fossil-fuel heating. The institute’s modelling is intended to highlight future operating-cost risk rather than to prescribe a single policy.
Heat pumps offer long-term cost stability in the IW analysis
The study finds that households switching to electric heat pumps would likely see much more stable heating expenditures over the same period. In partially renovated older apartments, the report calculates that a heat pump could save occupants about €1,000 or more per year compared with a gas boiler, once running costs and expected price trends are taken into account.
IW analysts say the primary driver of those savings is the insulation of households from fossil-fuel price swings and carbon-related policy costs, combined with improving pump efficiency and declining electricity emissions intensity. The institute emphasizes that upfront installation choices strongly influence lifetime costs and household exposure to future price shocks.
Federal reform reopens market to gas and oil boilers
The debate over technology choice comes as the German government has amended the national heating law to again permit the installation of gas and oil boilers in certain circumstances. The revised legislation, which has passed the Bundestag, relaxes prior restrictions and restores the option for households to install new fossil-fuel heating systems.
At the same time, the reform foresees a gradual reduction in state subsidies for heat pump installations through 2030, with the support levels declining by several thousand euros in stages. The government has defended the changes as a necessary response to fiscal pressures and broader affordability concerns.
IW warns the law may create costly investment traps for households
IW researchers express concern that the legal change could lead homeowners to choose short-term, lower-investment paths that prove uneconomical over time. The institute cautions that households may be “tempted into investments that appear permissible in the near term but turn out to be financially or regulatorily unsustainable” over their lifetimes.
The critique focuses on the interaction between subsidy reductions, lingering price uncertainty for fossil fuels, and the long service life of residential heating systems. The IW notes that policy clarity and stable incentives are critical to prevent lock-in of high-cost technologies for decades.
Market momentum for heat pumps despite policy shifts
Independent market monitoring cited by the IW shows that heat pumps became the most commonly installed heating technology in Germany last year, marking a significant shift away from traditional boilers. The institute’s earlier analyses projected that this trend would continue into 2026, driven by a combination of rising boiler operating costs, technology improvements, and initial subsidy programs.
Manufacturers and installers report growing demand in both new-build and retrofit markets, though uptake varies regionally and depends on building typology and renovation depth. The IW underscores that continued market growth for heat pumps will depend on predictable policy signals and sufficient support for building modifications that make electric heating practical.
Practical considerations for homeowners and policymakers
For homeowners weighing a heating replacement, the IW study suggests prioritizing a lifecycle-cost assessment that accounts for running costs, future carbon-policy scenarios and expected subsidy trajectories through 2030. Households should also consider building fabric improvements and sizing choices that maximize the efficiency of heat pump systems.
Policymakers face a trade-off between short-term affordability and long-term cost minimization for households and the climate. The institute’s findings imply that reducing support for heat pumps while reallowing fossil installations may lower initial spending but increase long-term financial exposure for many households.
A careful, evidence-based approach that aligns incentives with technology lifetimes could reduce the risk of costly lock-in and better protect consumers from future price volatility.
