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More Americans are purchasing heat pumps, an environmentally friendly alternative to furnaces and air conditioners that can significantly reduce monthly energy bills. But the pace of installations has slowed over the past year, posing a hurdle to the Biden administration’s climate plans.
Rising interest rates and inflation, combined with a slow and confusing rollout of federal government incentives for purchasing heat pumps, are largely responsible for the recent sales decline, energy analysts say. If these headwinds continue, it could jeopardize President Biden’s goals of effectively eliminating U.S. greenhouse gas emissions by 2050.
Biden’s signature climate bill, the Inflation Reduction Act, offers tax breaks of up to $2,000 a year for the purchase of heat pumps, devices that can heat and cool homes and are significantly more efficient than oil and gas heaters. These incentives cover only a small portion of the average $16,000 installation cost for a heat pump, according to Rewiring America, a nonprofit organization dedicated to increasing the use of cleaner forms of energy.
A much more generous program that would offer rebates of up to $8,000 for the purchase of heat pumps, which Mr. Biden’s climate law also allowed, is not expected to be operational until sometime next year; timing varies by state. That program will take longer to set up because it will be administered by state governments, which must come up with a system for delivering the money and then submit those plans to federal officials for approval.
“We are off track,” said Alexander Gard-Murray, director of the Greenhouse Institute, a climate think tank. “We need to dramatically accelerate adoption.”
Installations have slowed recently because the cost of installing a new heat pump is so high that many homeowners must borrow money to purchase one. That’s not something many people are eager to do, as interest rates on mortgages and other loans are at or near their highest levels in decades.
“The level of incentive for heat pumps in the Inflation Reduction Act is not large enough to offset the effect of higher interest rates on HVAC installations,” said Trevor Houser, partner at the Rhodium Group, an independent research firm, referring to heating. ventilation and air conditioning systems.
Other people, including most lower-income Americans, can’t take advantage of the credits because they don’t owe enough taxes.
Unlike air conditioners or furnaces that cool or heat homes, electric heat pumps can do both by transferring heat into or out of buildings. Due to the way they work, heat pumps can achieve efficiency of more than 100 percent, which is much higher than that of a typical air conditioner or furnace.
According to Carbon Switch, a renewable energy and clean energy company, the average homeowner can save more than $500 per year in energy and heating costs by replacing an older heating and cooling unit with a heat pump.
The IRA limits the use of the heat pump tax credit to devices that meet or exceed high efficiency standards. Heat pumps with a higher efficiency generally cost more than heat pumps with a lower efficiency and are harder to find.
More expensive heat pumps are a necessity in states with harsher winters. Nick Bender, a Minneapolis-area contractor who has been installing heat pumps for more than 15 years, said he prefers inverter heat pumps, which are more efficient, make less noise and operate at lower temperatures than older models.
“If you really want to install a heat pump that is going to heat well in Minnesota, you need an inverter heat pump,” Mr. Bender said.
Some homeowners who recently purchased heat pumps said the federal incentives in the IRA were difficult to use.
Becca Zerkin, an engineer in Chapel Hill, N.C., said she and her installer spent hours searching a federal database to find out which model would qualify for the $2,000 federal tax credit. Even after all that work, Ms. Zerkin says, she’s still not sure if the system she purchased, which cost her $11,000, will qualify for the tax credit when she files her taxes next year.
“The installer and I did a ton of research, following every link, and I kept getting into the same cycle of, ‘Okay, I still don’t know the answer,’” Ms. Zerkin, 52, said.
Mr Houser said investment in electric vehicles and solar panels was increasing faster than that in heat pumps, but the market was growing compared to rival appliances that burn fossil fuels.
Total shipments of heat pumps this year exceeded orders for gas- or oil-powered warm-air furnaces, according to the Air-Conditioning, Heating and Refrigeration Institute, an industry group. Biden administration officials also noted that the recent decline in installations was due to a surge in the pandemic as many Americans renovated homes. Heat pump sales are still expected to be higher this year than in 2019 before the pandemic.
“President Biden’s historic investments in clean energy are driving consumers to choose more and lower the costs of clean energy appliances,” Treasury Department spokeswoman Ashley Schapitl said in a statement.
Energy experts said interest in heat pumps should increase as states implement rebates, which will immediately lower costs and not require people to wait for tax filing season before claiming a credit.
The rebate programs will provide a total of $8.8 billion for various residential energy efficiency and electrification projects. States have until the end of January 2025 to obtain the money. The Energy Department expects rebates to become available “in much of the country” next year.
Some states offered heat pump incentives long before Congress started the IRA Maine’s rebate program in 2012. So far this year, more than 32,000 heat pumps installed in the state have received rebates, up from more than 28,000 in 2022 and more than 8,000 in 2018, according to Efficiency Maine, which manages the state’s energy programs.
Montana, which has some of the lowest heat pump sales in the country, has seen a rise in interest in installations, said Ben Brouwer, energy division chief for Montana’s Department of Environmental Quality.
The state has applied for $1.8 million in administrative funding from the federal government, which it will then use to apply for $71 million to distribute as rebates. But even once the state rebate program is up and running, which Mr. Brouwer said would be early 2024, he expects a variety of challenges.
Montana will need to train more contractors to install heat pumps, especially in more rural areas. “There is a limited group of contractors available to implement the measures encouraged in these programs, whether they are building contractors or energy auditors, plumbers and electricians,” said Mr Brouwer.
Another bigger problem is that many Americans are unaware that they can save thousands of dollars through the Inflation Reduction Act programs. Only 22 percent of Americans had heard “a lot” or “a good amount” about heat pump tax credits, while 77 percent had heard “a little” or “nothing at all,” according to a July poll in The Washington. Post and the University of Maryland. About 32 percent had heard “a lot” or “a good amount” about electric vehicle tax credits.
Ari Matusiak, the CEO of Rewiring America, said officials still have much work to do to raise awareness of the IRA’s incentives.
“Right now it’s fair to say people don’t know much about what’s available,” Mr. Matusiak said. “On the other hand, we have seen that there is quite a lot of interest once people know that these incentives are there.”
