Germany's Coalition Agrees Changes To Green Heating Law After Dispute

Germany's ruling coalition on Tuesday agreed changes to a bill on phasing out oil and gas heating systems after weeks of wrangling that raised doubts whether coalition could survive until the end of its term.

The coalition is led by the Social Democrats (SPD), supported by the pro-business FDP and the Greens.

The FDP had criticised the draft law drawn up by the Greens-led economy ministry aiming to promote a faster switch to climate-friendly heating systems from 2024, saying it was too costly and complicated.

The bill is part of Germany's drive to become climate neutral by 2045 as the construction sector emitted 112 million tonnes of greenhouse gases last year, or 15% of the total.

The SPD also sought changes to ensure that replacing heating systems wouldn't overburden low-income households.

Under the agreement, a rule on switching heating systems in old buildings to ones that run with 65% renewable energy from 2024 will initially only apply if there is a municipal plan for the heating supply in the area, according to the agreement document seen by Reuters.

Germany aims to have a country-wide municipal heating plan by 2028 at the latest.

This would give homeowners time to decide whether to switch to a heat pump, connect their homes to district heating or install a gas heater that can be converted to run on hydrogen.

Gas heaters may still be installed starting from next year if they can be converted to hydrogen, including in new buildings if they are not part of new development zones.

In new development areas, heating systems installed still have to run on 65% renewable energy.

Economy Minister Robert Habeck welcomed the agreement.

"The building energy law is coming, the core is preserved," he said in a statement.

FDP parliamentary leader Christian Duerr said the changes in the bill, which must still pass the parliament, were fundamental.

Under the deal, the government will subsidise the switch with money from its Climate And Transformation Fund, the document said, adding subsidies would take individual needs into account.

"We do not want to oblige anyone to do something that is not affordable," the document read.

The original draft had estimated the cost for Germans at about 9.16 billion euros ($10 billion) per year until 2028, falling to 5 billion from 2029 as growth in renewable energy and heating pump production makes the switch cheaper.

Greens co-leader Katharina Droege said the government's support could be around 1.5 billion euros per year.

(Writing by Riham Alkousaa; Editing by Mark Potter)