The ideology met the invoice. It bounced.
The boiler ban is dead. Friedrich Merz just killed it. On February 24, the German government announced the formal abolition of the controversial ban on new gas and oil heating systems. This move represents a total capitulation to economic reality. It marks the end of the aggressive decarbonization timeline set by the previous coalition. Merz’s conservatives are not just tweaking policy. They are dismantling the core of the German energy transition. The market is reacting with cold, hard calculation.
The death of the Gebäudeenergiegesetz
The original law was a political suicide note. It mandated that almost all new heating systems run on 65 percent renewable energy. In practice, this meant heat pumps. The cost to the average homeowner was astronomical. Resentment fueled a populist surge that reshaped the German political landscape in late 2025. Merz understood the math. He saw the polling. Now, he is delivering on the electoral promise that secured his chancellorship. The new policy prioritizes technological neutrality over state-mandated electrification.
The fiscal implications are massive. The previous government had earmarked billions in subsidies to cushion the blow of the heat pump transition. Those funds are now being redirected. Per recent reports from Reuters, the German budget is being rewired to support industrial competitiveness rather than residential retrofitting. This is a pivot from climate idealism to industrial survival. The German industrial machine is gasping for lower energy costs. Merz is handing them a lifeline.
The Viessmann hangover and the heat pump crash
The manufacturing sector is in a state of shock. Companies like Vaillant and Bosch spent billions retooling for a heat pump revolution that has been legally throttled. The sale of Viessmann’s climate division to Carrier Global in 2023 now looks like the trade of the decade. Viessmann exited at the peak of the hype. Those who remained are left holding the bag. Inventory levels for heat pumps are at record highs while demand has cratered by 40 percent in the last quarter alone.
Investors are fleeing the green tech space. The DAX energy sector index shows a clear divergence. Traditional utility providers are seeing a resurgence. Renewable pure-plays are being re-rated downward. The market no longer believes in the 2030 targets. Merz’s move confirms that the timeline was a fiction. The infrastructure simply isn’t there. The grid cannot handle a wholesale shift to electric heating without hundreds of billions in upgrades that the German state cannot currently afford.
German Heating Installation Market Share Projections
A geopolitical pivot back to pragmatism
Energy security has trumped climate goals. The reliance on expensive LNG imports has crippled the German middle class. By allowing new gas boilers, Merz is betting on a diversified energy mix. This includes a quiet rehabilitation of natural gas as a bridge fuel for the next two decades. The move also signals a shift in Berlin’s relationship with Brussels. Germany is no longer leading the charge for stricter EU climate regulations. It is now the primary obstacle.
The technical reality of the German grid is the silent killer of the green dream. According to data from Yahoo Finance, the cost of grid stabilization in Germany has increased by 150 percent since 2022. The system cannot balance the intermittent nature of renewables with the surge in demand from electric heating. Merz’s policy is a recognition of this physical limitation. You cannot legislate physics. You can only ignore it until the lights go out.
Heating Cost Comparison February 2026
| Heating Type | Installation Cost (€) | Annual Operating Cost (€) | CO2 Tax Exposure |
|---|---|---|---|
| Natural Gas (New Condensing) | 8,500 – 12,000 | 2,400 | High |
| Heating Oil | 7,000 – 10,000 | 2,800 | Very High |
| Air-Source Heat Pump | 25,000 – 35,000 | 1,900 | Low |
| Hybrid (Gas + Electric) | 15,000 – 20,000 | 2,100 | Medium |
The table above illustrates the economic trap that the previous government set for homeowners. While operating costs for heat pumps are lower, the upfront capital expenditure is prohibitive without massive state intervention. Merz has removed the mandate, but the CO2 tax remains. This creates a market-driven incentive rather than a bureaucratic command. Homeowners are now free to choose their own financial ruin. Most are choosing the lower upfront cost of gas, betting that future governments will be forced to cap carbon prices to prevent a total social collapse.
The next milestone to watch is the March 15 meeting of the European Council. Merz is expected to lead a coalition of Eastern European states to demand a revision of the 2035 ban on internal combustion engines. If the heating ban can fall, the car ban is next. Watch the carbon credit pricing on the ETS. If the industrial lobby succeeds in weakening the cap, the price of carbon will plummet, making fossil fuel heating even more attractive. The green premium is evaporating in real-time.
