The Affordability Crisis of Carbon-Intensive Heating: Assessing the Impact of EU ETS-2 on Households in Austria

In 2023, the European Union's second Emissions Trading System (EU ETS-2) was launched and is planned to take effect in 2027 (European Union, 2023). This scheme will cover buildings and the road transport sector and represents a critical turning point for housing affordability in Austria. This regulatory shift introduces a market-based carbon pricing mechanism that will cover the building sector, fundamentally altering the cost structure of heating. Under current Austrian legislation (Republic of Austria, 2022), there is no regulation for cost-sharing between landlords and tenants, unlike in neighbouring jurisdictions of Germany. This stands in sharp contrast to the regulatory framework in Germany, where the Kohlendioxidkostenaufteilungsgesetz (BGBl. I S. 2154) has established a tiered liability model. While this German statute forces landlords to assume up to 95% of carbon costs in energy-inefficient buildings to incentivise retrofitting, the Austrian system currently transfers the full financial weight of rising carbon prices directly to tenants. Consequently, the full financial weight of rising carbon prices will be transferred directly to tenants, exacerbating the financial burden on households already struggling with energy costs, unless they are protected by the Social Climate Fund (European Union, 2023). As energy cost were in the recent past significant rising and contributing significantly to Austria’s inflation, the regulatory gap exacerbates the financial burden on households already struggling with energy costs, creating a "double penalty" for low-income tenants, which already reside in buildings with the highest carbon intensity and energy consumption as described in the statistic Austria’s report on energy poverty (Statistik Austria, 2024). Since the year of strong inflation in Austria, the cost of living is moving stronger in the concern of the Austrian: 50% of respondents are concerned about how to finance the cost of living in future, and 66% stated that affordable housing plays an important role in their voting decision (FORESIGHT, 2024). These figures emphasise the social significance of affordable housing and illustrate the consequences if housing costs strain households further due to ETS-2, while wages may struggle to keep pace. The aim of this paper is to understand how a potential change in policy from the current Austrian “the tenant pays anyhow for it” to a cost-splitting approach, as in Germany, would affect the critical affordability requirements for renters set by many landlords. Methodologically, the study combines a comparative legal analysis with a dynamic financial simulation. First, the Austrian legislative framework (NEHG) is contrasted with the German Kohlendioxidkosten¬aufteilungsgesetz to define the structural “Liability Gap” between the two jurisdictions. Second, the research performs a longitudinal stress test on a representative sample of Austrian residential listings, stratified by energy efficiency and heating source. By assuming a "lock-in" scenario where a tenant rents an apartment in 2025, the model projects the total cost of occupancy through 2035 under rising EU ETS-2 carbon prices. The core metric analysed is the "Break-Even Wage Growth" – the annual income increase required for a household to maintain housing costs below the critical 40% affordability threshold. The analysis compares this required growth rate against Austria's historical wage inflation, identifying the specific “affordability gap” created by the decoupling of carbon costs from income trends in the area of decarbonising the Austrian housing stock.