The Inflation Reduction Act offers subsidies for heat pumps — will U.S. homeowners warm to them?

·Senior Editor
·11 min read

Kari Plog didn’t expect she would ever need air conditioning in her detached, single-family house in Tacoma, Wash. She grew up near the port city 30 miles from Seattle and was accustomed to coastal Washington’s historically mild summers.

In recent years, however, climate change has pushed summer temperatures to 90 degrees and higher for days on end. So she and her husband decided to shell out for what was previously unthinkable for most residents in the Pacific Northwest.

“We made the decision after I got pregnant in 2020,” Plog told Yahoo News. “Our house doesn’t do a great job of regulating temperature. I’ve grown up in Washington, I had never experienced these annual heat waves on an annual basis.”

Babies are especially sensitive to heat, and with climate change, Plog and her husband realized that a home without air conditioning could be dangerous for their child. Of course, adding air conditioning can dramatically increase electricity bill costs. But Plog found a more economical alternative to conventional air conditioning: an electric heat pump.

Air-source heat pumps take heat from the air and use a refrigerant that circulates it between an indoor fan coil unit and an outdoor compressor to expel the cold air and pipe in the hot air. By extracting heat from outside air and transferring it inside the home — and doing the reverse in the summer — heat pumps heat buildings more efficiently than the oil and gas burners historically used for home heating. They also cool more efficiently than window air-conditioning units or conventional central air conditioning customarily used in the summer.

“The reason a heat pump is really efficient is because — even as compared to gas furnaces, as an example — they’re simply moving heat, rather than combusting a fuel to generate heat,” David Smedick, senior associate with the carbon-free buildings program at the energy policy think tank RMI, told Yahoo News. “Heat pumps are a really good way for homes to improve the efficiency of their heating — and cooling for that matter.”

Three air heat pumps at the back of a house.
Heat pumps installed in a backyard. (Getty Images)

The downside is the upfront cost. Buying and installing a new electric heat pump system for an average-sized single-family home is pricey, and Plog said she paid $11,000 for hers.

Some environmentally friendly states such as Washington offer subsidies to offset the costs of installing heat pumps.

“We started looking into it and found out that our local utility has some incentives for folks to do energy efficiency in their homes, and so they gave us a rebate, I think it was for $500, and you can also do interest-free financing over three years,” Plog said. “And so, for us, it was a no-brainer.”

Plog’s house, which was built in the 1950s, previously had electric baseboard heating, a system notorious for its ineffectiveness at heating rooms and wildly inefficient in its rampant electricity use. So, in addition to providing the family with an affordable central air-conditioning system, Plog’s heat pump has reduced her energy costs in the winter months.

“At the highest points of our electricity bill every year, we were spending $200 more than we do now in a billing cycle,” Plog said.

Electric heat pumps cost anywhere between $3,500 and $20,000, according to the sustainable lifestyle research organization Carbon Switch. According to This Old House, the home improvement news and entertainment outlet, a new gas furnace costs between $1,700 and $9,700 and a new oil furnace costs $4,300 to $9,200. Heat pumps do, however, eliminate the need to also buy an air conditioner, since they provide both heating and cooling. Central air conditioning typically costs $3,810 to $7,480, according to Bobvila.com.

President Biden with Joe Manchin, Chuck Schumer and James Clyburn
President Biden, with, from left, Sen. Joe Manchin, D-W. Va., Sen. Chuck Schumer, D-N.Y., and Rep. James Clyburn, D-S.C., after the president signed the Inflation Reduction Act into law, Aug. 16. (Leah Millis/Reuters)

Eliminating the greenhouse gas emissions that cause global warming will be a two-step process, experts say. It will first require electrifying everything — cars, home heating and cement production, for example — rather than burning fossil fuels like oil and gas. Next, states will need to go about creating a clean power grid based on wind and solar energy rather than gas or coal.

Switching from fossil-fuel-burning furnaces to electric heat pumps is part of the first step. Even with the current energy mix, which is still largely powered by fossil fuels, a study from scientists at the University of California, Davis, in April found that residential heat pumps reduce carbon dioxide emissions by 38% to 53% over a gas furnace. Moreover, electric heat pumps are more efficient than electric resistance heating systems like baseboard heating, so they even reduce emissions relative to other electric heating systems.

“You use the electricity more efficiently through the heat pump. That’s a way to actually reduce overall your demand coming from the electric grid,” Smedick said. “So that’s one of the ways that, even as we’re still continuing to clean the grid, we are seeing emissions reductions associated with heat pumps.”

Heat pumps are currently the primary heating system for 18.87 million U.S. homes, out of the 140 million homes in the country, according to the Department of Energy. There were 3.4 million heat pumps sold in the U.S. in 2020, the most recent year for which data is available.

In light of the fact that heat pumps have the potential to reduce emissions but are only installed in about 1 of out every 7 U.S. homes, promoting the transition to them is a major focus of the recently passed Inflation Reduction Act (IRA). The new law creates a federal tax credit for 30% of the total cost of your heat pump, up to $2,000, and the new law will hand out funding to states for a rebate program. Households making less than 80% of their state’s median household income can receive $8,000 for a heat pump and $1,750 for a heat pump water heater. Households with income between 80% and 150% of their state’s median income will be eligible for half of each rebate: $4,000 for a heat pump and $875 for a heat pump water heater.

Larry Vanay bends down to inspect a new gas furnace.
Home inspector Larry Vanay inspecting the gas furnace and water heater of a new house near Manassas, Va., in 2007. (Gerald Martineau/The Washington Post via Getty Images)

There are downsides to consider when buying an air-source heat pump, including the fact that they don’t function as efficiently in very cold weather, because it is more difficult for them to extract heat from colder air. For many customers, the ideal solution is to buy a heat pump and keep a backup furnace that only switches on when the temperature drops below a certain point. For those who want to go completely fossil fuel-free, the backup heater could be an electric furnace, which is less efficient but works in any weather. Overall, buying an electric heat pump can still save a lot of money on utility bills, and lower one’s carbon footprint.

“When we bought our newest house, the house was on propane [for heat], and we would be using it at least nine months out of the year,” Toby Barnett, a real estate broker who lives in the Seattle suburb of Arlington, Wash., told Yahoo News. “We wouldn’t stop using propane until June-ish, usually. And with a heat pump, we can stop using propane around early March because the heat pump works down to about 38 degrees. So, once we get over that 38-degree temperature, the heat pump turns on and then we’re using electricity instead of the high-cost propane.”

Barnett paid $8,600 for a heat pump for his 4,000 square-foot house, but he said, “the savings in the propane bill paid for the heat pump in three years.”

There are ways of using heat pumps in colder temperatures. Cold climate heat pumps use refrigerants with a lower boiling point than the usual heat pump refrigerants. Some of these models work at temperatures as low as minus 13 degrees Fahrenheit. No industrywide prices are available for cold climate heat pumps specifically, but experts say they are more expensive to install on average, meaning they would probably cost between $10,000 to $20,000.

There are also ground-source heat pumps, also known as geothermal heat pumps, which are installed several feet below ground rather than above it, with pipes that extend far deeper, over 100 feet, below the surface. The steady temperature underground makes this variety of heat pump more effective in colder climates. But they are also more expensive than air-source heat pumps. According to the website ClimateBiz, installing a ground-source heat pump in a 2,000-square-foot house — which is just under the median single-family home size — costs between $10,000 to $20,000 on average.

Still, experts argue that homeowners will save money in the long run by making the switch, especially when taking into account the Inflation Reduction Act’s subsidies.

“One of the ways that heat pumps really make sense is, of course, they can serve as an air conditioner, as well as a heater,” Lowell Ungar, director of federal policy at the American Council for an Energy-Efficient Economy, a nonprofit research organization, told Yahoo News. “So when people replace their air conditioners, they should replace them with heat pumps. They’re not that much more money than the [central] air conditioner. And you get the air conditioning and also get heating, and they can leave the old heater in place and use that as a back up if they need it.”

For a long time, natural gas was so cheap that people in colder climates, who didn’t necessarily need central air conditioning, didn’t stand to save much money by switching their heating system from a gas burner to a heat pump. But this year, in response to the energy crunch caused by Russia’s invasion of Ukraine, oil and gas prices have surged, making other alternatives more appealing.

A spacious clapboard home with steps up to a porch set on a verdant lawn.
The Arlington, Wash., home of Toby Barnett. Credit: Toby Barnett

Some skeptics, however, argue that gas furnaces may still make more sense for some consumers. Asked for comment for this story, the American Gas Association (AGA) noted that the Inflation Reduction Act makes natural gas heat pumps, which are essentially air-source heat pumps powered by natural gas, eligible for the same $2,000 tax credit as electric heat pumps.

“The Inflation Reduction Act includes numerous provisions in support of renewable natural gas and green hydrogen, and its inclusion of natural gas heat pumps is a testament to the continued importance of the role natural gas plays in providing safe, reliable and affordable energy to Americans and helping to achieve our nation’s environmental goals,” the AGA said in a statement emailed by a spokesperson.

Natural gas heat pumps can achieve an energy efficiency of up to 140% — meaning that each unit of energy put in generates 1.4 times as much heat — compared to 90% for a conventional boiler. However, electric heat pumps can reach energy efficiencies of 300% to 400%.

On Tuesday, a coalition of 26 environmental and public health advocacy organizations submitted a petition to the Environmental Protection Agency asking the agency to effectively ban oil and gas boilers in homes by 2030. The environmental groups argued that electric heat pumps will be sufficiently available and accessible by the end of the decade to obviate the need for new fossil-fuel home furnaces or hot water heaters.

The AGA came out strongly against that proposal, saying that switching to electric heating would overburden the electricity grid and increase emissions from power plants, many of which burn gas or coal.

Some industry observers also express skepticism that American consumers will switch to electric heat pumps en masse. “The HVACR [heating, ventilation, air conditioning and refrigeration] industry will sell you what you want to buy,” Frank Maisano, a partner in the policy resolution group at Bracewell, a law and lobbying firm that represents energy companies and heating and air-conditioning manufacturers, told Yahoo News. “What they find is that people are not choosing those options.”

To be sure, the Inflation Reduction Act’s subsidies don’t erase the cost barrier for many people who might otherwise be inclined to purchase a heat pump. For a couple making, say, $160,000 in a high-cost area like New York City or Los Angeles who don’t qualify for significant rebates, it may be unaffordable to pay $10,000 to $20,000 for an electric heat pump with only a $2,000 tax credit to help offset the cost.

But some industry experts say that demand for electric heat pumps is increasing and that their adoption will continue to rise in the coming years.

“We are seeing the shift in demand here really move toward these efficient electric alternatives, both for comfort, energy savings and climate perspectives,” Smedick said.