The Power of Rules: Regulation as Consumer Protection in the Buildings Sector

This perspective paper examines the effectiveness of regulatory approaches in promoting energy efficiency in sectors characterised by long investment cycles, using recent discussions around the German Building Energy Act (Gebäudeenergiegesetz, GEG) as a case study. Although regulation is often criticised for restricting individual autonomy, analysis shows that such criticism overlooks regulation’s protective role in guiding long-term investment decisions. The GEG has long applied conditional renovation requirements: whenever building components such as roofs, exterior walls, or windows are replaced, minimum thermal insulation standards must be met. In 2023, this logic was extended to heating systems, stipulating that at least 65% of the energy used had to be renewable when a system was replaced. This requirement was subsequently repealed in 2026 and replaced by a less prescriptive regulatory framework. Its introduction triggered an intense public debate, with critics arguing that it constituted excessive interference with personal freedom compared to alternative policy instruments such as carbon pricing. Our contribution challenges this argument. While different policy instruments can, in principle, achieve climate targets, our analysis reveals significant differences in their ability to protect consumers from lock-in effects, misleading investment signals, and substantial expenses linked to long-lived building components, including heating systems. These risks are further amplified by infrastructure-related consequences, particularly the development of gas grids. Our analysis also highlights the importance of information and incentive asymmetries, especially in landlord–tenant relationships, which further increase the need for robust regulatory frameworks. Overall, our findings suggest that well-designed regulations can be highly effective in promoting timely investments in energy efficiency and low-carbon heating, thereby supporting climate targets while ensuring a high level of consumer protection.