Europe’s push to electrify buildings is running into a stubborn obstacle: the continent’s aging gas networks, which remain fixed in place even as governments mandate heat pump installations and fossil fuel phase-outs. New research from the Kiel Institute for the World Economy—presented at this month’s Kiel-CEPR International Economics Seminar—reveals how these locked-in gas infrastructure costs are distorting the economics of building decarbonization, delaying climate targets by years in some cases.
While EU member states have committed to cutting building emissions by 60% by 2030 under the Fit for 55 package, the reality on the ground shows a slower transition. Matthias Paustian, a senior researcher at the Kiel Institute, warns that the stranded costs of maintaining gas pipelines—estimated at €120 billion across the EU by 2040—are creating a “lock-in effect” that makes electrification projects less attractive to developers and homeowners alike.
The core challenge? Even as governments offer subsidies for heat pumps and solar panels, the cost of decommissioning gas lines and retrofitting buildings for all-electric systems remains unclear. “You can’t just flip a switch,” Paustian says. “The financial and logistical hurdles are real—and they’re being underestimated in policy discussions.”
Why Gas Networks Are Still a Major Barrier to Electrification
Unlike renewable energy projects, which can be scaled incrementally, gas infrastructure was built for a different era—one where central heating and cooking relied on pipelines. Today, those networks remain operational, but their future is uncertain. The European Commission’s 2023 Building Performance Directive accelerates electrification, yet it doesn’t address the financial burden of phasing out gas connections.
Paustian’s analysis shows that in countries like Germany and the Netherlands—where gas dependency runs deep—the cost of decommissioning pipelines and converting buildings to all-electric systems can add 20–30% to renovation budgets. For a single-family home, that could mean an extra €15,000–€25,000 in upfront costs, a figure that discourages many homeowners from acting.
Worse, the uncertainty over who bears these costs—local governments, utilities, or property owners—has created a “wait-and-see” mentality. “If you’re a developer, you don’t want to invest in electrification if you’re not sure whether gas will still be available in 10 years,” says Paustian, whose research was published in the Journal of Environmental Economics and Management.
How Stranded Gas Costs Are Delaying the Transition
The financial drag isn’t just about upfront expenses. Paustian’s modeling suggests that in high-gas-density regions, the €120 billion in stranded costs could reduce the net present value of electrification projects by up to 40%—effectively pushing back the EU’s 2030 emissions targets by 3–5 years in the worst-affected areas.
This isn’t just a European problem. In the U.S., similar dynamics are playing out, where natural gas accounts for 30% of residential energy use. A 2023 study by the Resources for the Future think tank found that stranded gas infrastructure could add $50–$100 billion to U.S. decarbonization costs by 2050.
What makes the EU’s situation particularly complex is the patchwork of national policies. While France and Sweden have made progress with heat pump incentives, Germany’s reliance on gas for industrial use—and its Energiewende—has slowed electrification in residential sectors. “The transition isn’t linear,” Paustian notes. “It’s being pulled in different directions by economic realities and political will.”
Who Pays for the Gas Network Phase-Out?
The biggest unresolved question is who will foot the bill for decommissioning gas infrastructure. Options include:
- Utility companies: Some argue that gas providers should cover costs, given their historical reliance on fossil fuels. However, ENTSOG, the European gas network operator, has warned that this could lead to €50–€80 billion in additional costs for consumers.
- Governments: Subsidies could offset renovation expenses, but EU funds are already stretched thin. The Just Transition Fund allocates €19.2 billion for energy transitions, but critics say this is insufficient for gas phase-outs.
- Property owners: Passing costs onto homeowners risks deepening inequality, as lower-income households may struggle to afford retrofits.
Paustian’s research suggests that without clear cost-sharing mechanisms, electrification projects will stall. “The longer we wait to address this, the higher the total cost becomes,” he says. “It’s a classic case of procrastination increasing the bill.”
What Happens Next? Policy Moves and Deadlines
The European Commission is expected to release a strategic plan for gas phase-outs by mid-2025, but details remain vague. Key milestones include:
- June 2025: EU proposal on gas infrastructure decommissioning costs, including potential funding mechanisms.
- 2026: Mandatory heat pump installations in new buildings (already in place in France, Sweden, and Norway).
- 2030: Target date for 60% emissions reduction in buildings, though Paustian’s data suggests this may slip in high-gas regions.
In the meantime, cities like Amsterdam and Copenhagen are taking matters into their own hands. Amsterdam’s heat transition plan requires gas connections to be phased out by 2040, with utilities covering decommissioning costs. Copenhagen aims to be carbon-neutral by 2025, with 95% of heating coming from district energy systems—a model that avoids stranded gas costs entirely.
Key Takeaways: The Electrification Dilemma
- Stranded gas costs could add €120 billion to EU decarbonization efforts by 2040.
- Uncertainty over who pays for gas phase-outs is slowing electrification projects.
- Cities like Amsterdam and Copenhagen are leading with clear phase-out timelines.
- The EU’s 2030 emissions target may slip in high-gas regions without policy intervention.
- Heat pumps remain the most viable electrification solution, but upfront costs deter adoption.
The next critical checkpoint is the EU’s June 2025 proposal on gas infrastructure costs. Until then, developers, homeowners, and policymakers are caught in a limbo—where the push for electrification is real, but the financial and logistical barriers remain unresolved.
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