German Economy Minister Robert Habeck has been traveling these days. He toured Germany for three days with the goal of debunking misinformation about heat pumps. So far, sales figures have fallen well short of the Economy Minister’s expectations. Malte Kreutzfeldt analyzes why the situation is nevertheless better than the statistics suggest.
Another technology that could become crucial for climate action is the capture and storage of carbon dioxide using direct air capture (DAC). China successfully tested a DAC plant for the first time, and European and US manufacturers are also reporting successes. Nico Beckert has researched how China and the USA are pushing ahead with the new technology and where major hurdles remain.
In the news, we take a look at the United States and how much Donald Trump’s political ideas would slow down climate action. We also report on two negotiating points that will be relevant at COP29: Countries have submitted their proposals on the new climate finance target and wording on the role of fossil fuels has been softened in an important UN document. Nobel laureates and former heads of state have voiced clear criticism of this. We also report on banks that are failing to meet their climate targets and on green technologies that are becoming increasingly efficient.
Robert Habeck spared no effort in his fight for the heat pump earlier this week. At manufacturer Stiebel Eltron in Holzminden in southern Lower Saxony, he personally helped assemble one of the devices under expert guidance. And in narrow cellars and hot gardens of houses of various sizes in Hanover and Bremen, he inspected newly installed heat pumps and – accompanied by numerous camera teams and journalists – had contractors, residents and landlords tell him how well everything was working.
The Minister of Economic Affairs – just back from a three-week vacation and obviously full of vigor – was determined to turn the heating transition, which the public has tended to perceive as the biggest mistake of his time in office, into a winning issue. The declared aim of the trip was to dispel prejudices against the technology and highlight its benefits. And in some respects, it succeeded.
For example, Habeck was given a demonstration in Laatzen near Hanover that – contrary to what has often been reported in the past – a heat pump can be installed in an existing single-family home without any special requirements. The home owned by 75-year-old Roswitha Mende is a house like millions of others in Germany: A two-story brick house with a secondary suite, in which the windows have been replaced, but with neither an insulated façade nor underfloor heating.
Replacing the 22-year-old gas heating system with a heat pump with an output of 15 kilowatts was nevertheless no problem. This is confirmed by the employees of the nationwide installation company 1Komma5 Grad, who installed the device a few months ago – along with a rooftop PV system, a battery, and a smart meter in the basement. It took less than a week, Mende enthusiastically explained.
The investment also paid off financially; the additional costs compared to a new gas heating system are expected to pay for themselves within a few years, estimated 1Komma5Grad. The heat pump with all its associated equipment costs around 41,000 euros. Retiree Mende only had to pay around 17,000 euros for this, and the German state subsidized the rest. An additional 22,000 euros were spent on the solar system and battery, which are not subsidized but are expected to amortize quickly. This is because they allow the heat pump to be operated with electricity from her own roof – or to draw electricity from the grid with a dynamic tariff whenever it is particularly low.
The state subsidy for Roswitha Mende is comparatively high. Because her taxable income is less than 40,000 euros per year, she receives the maximum subsidy of 70 percent for a portion of the costs. When this so-called income bonus was introduced, some doubted that many people would receive it. However, figures from the KfW Bank, which is responsible for subsidizing, now show that it does play an important role: Accordingly, the income bonus was granted to 35 percent of heat pump applications in the first half of this year; in many cases, these are likely to be elderly retirees for whom a significant proportion of their pension is not taxable income. The grant for the remaining applications is usually 50 or 55 percent of the eligible costs – these are capped.
That is why Habeck is convinced: “The heat pump is a super product – and it pays off,” he repeated in every statement and interview during the trip. He also urged people to hurry because it is unclear whether the subsidy will remain at the same level after the next election. He warned that anyone interested should get it now rather than later. “The time to act is now.”
Habeck found out just how urgent this appeal was on the first evening of his trip to Stiebel Eltron. In the parking lot outside the factory, he had to justify to protesting employees of the heat pump manufacturer that sales figures are developing significantly worse than politicians had predicted. According to the Federal Ministry for Economic Affairs and Climate Action (BMWK), Germany would have to install 500,000 units per year to meet its climate target in the building sector. However, while the number of heat pumps sold reached a record 356,000 in 2023, sales figures have slumped this year: Around 90,000 were sold in the first half of the year, while the German Heat Pump Association is forecasting 200,000 for the overall year.
Mathematically, this represents a decrease of around 44 percent. However, these numbers actually suggest that the slump is larger than it is. This is because the figures communicated by the heating industry do not indicate how many heat pumps have been installed, but how many have been shipped by manufacturers – and the two figures have recently differed significantly. After the energy price crisis caused by the war in Ukraine led to a sharp rise in demand in late 2022 and early 2023, many distributors and large installers stocked up on heat pumps. When demand slowed down in the second half of last year, they could not get rid of some of them.
The German Heat Pump Association estimates that around 50,000 to 80,000 heat pumps in stock at the turn of the year will not be installed until this year. In order to reflect actual demand, this figure must be deducted from the heat pumps shipped in 2023 and at least partially added in 2024. This still results in a decline between 2023 and 2024 – but it is more likely to be around 10 to 20 percent than 40 percent.
However, this won’t be of much help to manufacturers, who were expecting the market to grow strongly due to the political announcements and have invested in new production facilities accordingly. According to Ulrich Stiebel, Chairman of the Supervisory Board, Stiebel Eltron will have to cut staff – albeit to a lesser extent than the 1,000 jobs recently reported. He expects the “lean period” to last until 2026, when the extensive ban on new gas and oil heating systems originally planned for 2024 will come into force.
On the other hand, Habeck expects sales figures to pick up again sooner. “The mood has shifted,” he said. More and more people are recognizing the advantages of heat pumps. This is shown, for example, by the application figures for heat pump subsidies at KfW, which have recently risen significantly every month; in July, they were around 80 percent higher than in April.
There have been some recent success stories in direct air capture (DAC) technology: China has also successfully tested a larger DAC plant for the first time, and companies such as Climeworks and CarbonCapture have reported new developments. The progress is significant because limiting global warming to 1.5 degrees will require large quantities of CO2 to be removed from the atmosphere and permanently stored. Will China, with its large industrial capacities, also help this technology achieve a breakthrough? What role will the billions in US subsidies play? And what about the developments of Western companies?
The DAC system successfully tested by China for the first time is a so-called CarbonBox fitted in a shipping container. It is capable of filtering 600 tons of CO2 from the ambient air every year. The People’s Republic has already used subsidies to set up mass production in solar and battery manufacturing, significantly contributing to the immense cost reduction in these key energy transition technologies. Could this also work for DAC technologies?
China’s “companies and local governments are looking for the ‘next big thing‘” in climate technologies, says Cory Combs, energy expert at the consulting firm Trivium China, optimistically. As soon as costs and investment risk fall, investment in China could pick up, says Combs. Milestones such as the CarbonBox test are “important signals.” So far, however, the central government has not focused too much on DAC. However, Combs says the central government’s “focus on innovation-driven growth” could provide subsidies and other support for DAC technologies in the future.
“China’s mass production capabilities could help bring down the cost of new types of DAC filters or other equipment,” says Julia Attwood, an industrial decarbonization specialist at BloombergNEF. However, DAC technology differs in many ways from solar panels and batteries, meaning that China’s strengths in mass production would not be as strong:
DAC companies in Europe and the United States also report new developments. For example, the US company CarbonCapture presented a modular DAC system in a shipping container in June 2024, similar to the Chinese CarbonBox. Mass production is set to start in a factory in Arizona. The Swiss company Climeworks also recently announced a breakthrough: New filter material reportedly captures twice as much CO2, uses only half the energy and can be used three times longer than existing technology. The company claims to be well on the way to reducing the cost per ton of CO2 filtered and stored to between 400 and 600 US dollars by 2030. At the current exchange rate, it would be around 360 to 540 euros. At present, the costs are still twice as high. The company believes that technological advances, mass production and larger factories will reduce costs beyond 2030.
These high costs highlight the significant challenges of DAC technology. So far, companies such as Microsoft, JPMorgan Chase, Facebook parent company Meta, Klarna and Stripe have voluntarily purchased carbon credits from DAC systems on a relatively small scale. However, if DAC systems are to offset hundreds of millions of tons of emissions in the future, experts believe a price of 400 US dollars is too high. The target value for the economic viability of DAC was 100 US dollars for many years. However, there is little to suggest that this value will be reached quickly.
Funding projects and tax breaks from the US government could give DAC technology new momentum in the coming years. The Biden administration has earmarked 3.5 billion US dollars in funding, which will be awarded when companies reach certain milestones. The USA initially wanted to use the money to fund four so-called DAC hubs, which include several facilities for filtering and storing CO2. That sounds like a lot of money at first. However, only two promising sites have been found so far. That is why part of the funding is being held back or used for basic research until two more hubs can be found.
The two DAC hubs in Texas and Louisiana could receive up to 1.2 billion US dollars in state funding in the long term. However, the money will be paid out in phases. The Louisiana site, for example, which is expected to filter one million tons of CO2 from the air from 2030, only received 50 million US dollars in funding. The construction of the plant has yet to receive any funding. The project is still at an early stage. The companies involved first have to win over local residents and obtain permits for operation.
Moreover, the Inflation Reduction Act (IRA) provides a tax credit of 180 US dollars per ton of CO2 filtered from the atmosphere. Thanks to these support programs, the USA is considered “a leader in political support for DAC,” as the International Energy Agency writes. Both the Democratic and Republican parties support DAC. However, analysts from the consulting firm Rhodium Group warn that even the announced US billions in funding will hardly be enough. They say that in order to create a substantial DAC industry that could capture enough CO2 from the air, “The magnitude of policy necessary to support a gigaton-scale CDR industry is on the order of 20 times larger than current policy support today.”
German Economy Minister Robert Habeck has been traveling these days. He toured Germany for three days with the goal of debunking misinformation about heat pumps. So far, sales figures have fallen well short of the Economy Minister’s expectations. Malte Kreutzfeldt analyzes why the situation is nevertheless better than the statistics suggest.
Another technology that could become crucial for climate action is the capture and storage of carbon dioxide using direct air capture (DAC). China successfully tested a DAC plant for the first time, and European and US manufacturers are also reporting successes. Nico Beckert has researched how China and the USA are pushing ahead with the new technology and where major hurdles remain.
In the news, we take a look at the United States and how much Donald Trump’s political ideas would slow down climate action. We also report on two negotiating points that will be relevant at COP29: Countries have submitted their proposals on the new climate finance target and wording on the role of fossil fuels has been softened in an important UN document. Nobel laureates and former heads of state have voiced clear criticism of this. We also report on banks that are failing to meet their climate targets and on green technologies that are becoming increasingly efficient.
Robert Habeck spared no effort in his fight for the heat pump earlier this week. At manufacturer Stiebel Eltron in Holzminden in southern Lower Saxony, he personally helped assemble one of the devices under expert guidance. And in narrow cellars and hot gardens of houses of various sizes in Hanover and Bremen, he inspected newly installed heat pumps and – accompanied by numerous camera teams and journalists – had contractors, residents and landlords tell him how well everything was working.
The Minister of Economic Affairs – just back from a three-week vacation and obviously full of vigor – was determined to turn the heating transition, which the public has tended to perceive as the biggest mistake of his time in office, into a winning issue. The declared aim of the trip was to dispel prejudices against the technology and highlight its benefits. And in some respects, it succeeded.
For example, Habeck was given a demonstration in Laatzen near Hanover that – contrary to what has often been reported in the past – a heat pump can be installed in an existing single-family home without any special requirements. The home owned by 75-year-old Roswitha Mende is a house like millions of others in Germany: A two-story brick house with a secondary suite, in which the windows have been replaced, but with neither an insulated façade nor underfloor heating.
Replacing the 22-year-old gas heating system with a heat pump with an output of 15 kilowatts was nevertheless no problem. This is confirmed by the employees of the nationwide installation company 1Komma5 Grad, who installed the device a few months ago – along with a rooftop PV system, a battery, and a smart meter in the basement. It took less than a week, Mende enthusiastically explained.
The investment also paid off financially; the additional costs compared to a new gas heating system are expected to pay for themselves within a few years, estimated 1Komma5Grad. The heat pump with all its associated equipment costs around 41,000 euros. Retiree Mende only had to pay around 17,000 euros for this, and the German state subsidized the rest. An additional 22,000 euros were spent on the solar system and battery, which are not subsidized but are expected to amortize quickly. This is because they allow the heat pump to be operated with electricity from her own roof – or to draw electricity from the grid with a dynamic tariff whenever it is particularly low.
The state subsidy for Roswitha Mende is comparatively high. Because her taxable income is less than 40,000 euros per year, she receives the maximum subsidy of 70 percent for a portion of the costs. When this so-called income bonus was introduced, some doubted that many people would receive it. However, figures from the KfW Bank, which is responsible for subsidizing, now show that it does play an important role: Accordingly, the income bonus was granted to 35 percent of heat pump applications in the first half of this year; in many cases, these are likely to be elderly retirees for whom a significant proportion of their pension is not taxable income. The grant for the remaining applications is usually 50 or 55 percent of the eligible costs – these are capped.
That is why Habeck is convinced: “The heat pump is a super product – and it pays off,” he repeated in every statement and interview during the trip. He also urged people to hurry because it is unclear whether the subsidy will remain at the same level after the next election. He warned that anyone interested should get it now rather than later. “The time to act is now.”
Habeck found out just how urgent this appeal was on the first evening of his trip to Stiebel Eltron. In the parking lot outside the factory, he had to justify to protesting employees of the heat pump manufacturer that sales figures are developing significantly worse than politicians had predicted. According to the Federal Ministry for Economic Affairs and Climate Action (BMWK), Germany would have to install 500,000 units per year to meet its climate target in the building sector. However, while the number of heat pumps sold reached a record 356,000 in 2023, sales figures have slumped this year: Around 90,000 were sold in the first half of the year, while the German Heat Pump Association is forecasting 200,000 for the overall year.
Mathematically, this represents a decrease of around 44 percent. However, these numbers actually suggest that the slump is larger than it is. This is because the figures communicated by the heating industry do not indicate how many heat pumps have been installed, but how many have been shipped by manufacturers – and the two figures have recently differed significantly. After the energy price crisis caused by the war in Ukraine led to a sharp rise in demand in late 2022 and early 2023, many distributors and large installers stocked up on heat pumps. When demand slowed down in the second half of last year, they could not get rid of some of them.
The German Heat Pump Association estimates that around 50,000 to 80,000 heat pumps in stock at the turn of the year will not be installed until this year. In order to reflect actual demand, this figure must be deducted from the heat pumps shipped in 2023 and at least partially added in 2024. This still results in a decline between 2023 and 2024 – but it is more likely to be around 10 to 20 percent than 40 percent.
However, this won’t be of much help to manufacturers, who were expecting the market to grow strongly due to the political announcements and have invested in new production facilities accordingly. According to Ulrich Stiebel, Chairman of the Supervisory Board, Stiebel Eltron will have to cut staff – albeit to a lesser extent than the 1,000 jobs recently reported. He expects the “lean period” to last until 2026, when the extensive ban on new gas and oil heating systems originally planned for 2024 will come into force.
On the other hand, Habeck expects sales figures to pick up again sooner. “The mood has shifted,” he said. More and more people are recognizing the advantages of heat pumps. This is shown, for example, by the application figures for heat pump subsidies at KfW, which have recently risen significantly every month; in July, they were around 80 percent higher than in April.
There have been some recent success stories in direct air capture (DAC) technology: China has also successfully tested a larger DAC plant for the first time, and companies such as Climeworks and CarbonCapture have reported new developments. The progress is significant because limiting global warming to 1.5 degrees will require large quantities of CO2 to be removed from the atmosphere and permanently stored. Will China, with its large industrial capacities, also help this technology achieve a breakthrough? What role will the billions in US subsidies play? And what about the developments of Western companies?
The DAC system successfully tested by China for the first time is a so-called CarbonBox fitted in a shipping container. It is capable of filtering 600 tons of CO2 from the ambient air every year. The People’s Republic has already used subsidies to set up mass production in solar and battery manufacturing, significantly contributing to the immense cost reduction in these key energy transition technologies. Could this also work for DAC technologies?
China’s “companies and local governments are looking for the ‘next big thing‘” in climate technologies, says Cory Combs, energy expert at the consulting firm Trivium China, optimistically. As soon as costs and investment risk fall, investment in China could pick up, says Combs. Milestones such as the CarbonBox test are “important signals.” So far, however, the central government has not focused too much on DAC. However, Combs says the central government’s “focus on innovation-driven growth” could provide subsidies and other support for DAC technologies in the future.
“China’s mass production capabilities could help bring down the cost of new types of DAC filters or other equipment,” says Julia Attwood, an industrial decarbonization specialist at BloombergNEF. However, DAC technology differs in many ways from solar panels and batteries, meaning that China’s strengths in mass production would not be as strong:
DAC companies in Europe and the United States also report new developments. For example, the US company CarbonCapture presented a modular DAC system in a shipping container in June 2024, similar to the Chinese CarbonBox. Mass production is set to start in a factory in Arizona. The Swiss company Climeworks also recently announced a breakthrough: New filter material reportedly captures twice as much CO2, uses only half the energy and can be used three times longer than existing technology. The company claims to be well on the way to reducing the cost per ton of CO2 filtered and stored to between 400 and 600 US dollars by 2030. At the current exchange rate, it would be around 360 to 540 euros. At present, the costs are still twice as high. The company believes that technological advances, mass production and larger factories will reduce costs beyond 2030.
These high costs highlight the significant challenges of DAC technology. So far, companies such as Microsoft, JPMorgan Chase, Facebook parent company Meta, Klarna and Stripe have voluntarily purchased carbon credits from DAC systems on a relatively small scale. However, if DAC systems are to offset hundreds of millions of tons of emissions in the future, experts believe a price of 400 US dollars is too high. The target value for the economic viability of DAC was 100 US dollars for many years. However, there is little to suggest that this value will be reached quickly.
Funding projects and tax breaks from the US government could give DAC technology new momentum in the coming years. The Biden administration has earmarked 3.5 billion US dollars in funding, which will be awarded when companies reach certain milestones. The USA initially wanted to use the money to fund four so-called DAC hubs, which include several facilities for filtering and storing CO2. That sounds like a lot of money at first. However, only two promising sites have been found so far. That is why part of the funding is being held back or used for basic research until two more hubs can be found.
The two DAC hubs in Texas and Louisiana could receive up to 1.2 billion US dollars in state funding in the long term. However, the money will be paid out in phases. The Louisiana site, for example, which is expected to filter one million tons of CO2 from the air from 2030, only received 50 million US dollars in funding. The construction of the plant has yet to receive any funding. The project is still at an early stage. The companies involved first have to win over local residents and obtain permits for operation.
Moreover, the Inflation Reduction Act (IRA) provides a tax credit of 180 US dollars per ton of CO2 filtered from the atmosphere. Thanks to these support programs, the USA is considered “a leader in political support for DAC,” as the International Energy Agency writes. Both the Democratic and Republican parties support DAC. However, analysts from the consulting firm Rhodium Group warn that even the announced US billions in funding will hardly be enough. They say that in order to create a substantial DAC industry that could capture enough CO2 from the air, “The magnitude of policy necessary to support a gigaton-scale CDR industry is on the order of 20 times larger than current policy support today.”
