Proposed Heat Pump Incentive Program Could Rapidly Transform the US Residential Market and Deliver $27 Billion in Consumer Energy Bill Savings

The proposed program offers a pragmatic and cost-effective pathway to convert the entire US supply chain of unitary ACs into heat pumps. It aims to “raise the floor” for electric space heating in the residential HVAC market, delivering 45 million new installations over 10 years and paving the way for more ambitious decarbonization efforts.

A new proposal from CLASP, supported by researchers at HVAC 2.0 and Harvard University, presents a low-barrier, least-cost policy package to rapidly deploy efficient space heating and cooling solutions in the United States. The study finds that a temporary Federal subsidy for residential electric heat pumps could save Americans more than $27 billion on their energy bills and deliver $80 billion in additional societal benefits over a ten-year period.

Residential heating and cooling account for 51% of household energy use and 40% of household energy bills in the US. Inefficient gas and electric resistance furnaces and air conditioners (ACs) account for more than 80% of all products currently in use. Heat pumps, which can provide both cooling and heating services, are up to four times more efficient than traditional equipment and have the potential to save consumers money on their energy bills and reduce greenhouse gas emissions.

Heat pumps are a critical technology on the path to net-zero emissions, but their deployment to date has been slow. Without intervention, heat pumps are unlikely to achieve 100% of the US market share on their own. Three million heat pumps are sold each year, compared to more than five million conventional unitary ACs. This imbalance can “lock-in” outdated infrastructure for 15 years or more.

The proposed ‘3H’ Hybrid Heat Homes program outlines an incentive program for residential electric heat pumps. While the program does not aim to achieve full heating electrification, it offers a pragmatic and cost-effective pathway to convert the entire US supply chain of unitary ACs into heat pumps. It aims to “raise the floor” for electric space heating in the residential HVAC market, delivering 45 million new installations over 10 years and paving the way for more ambitious decarbonization efforts.

The 3H program centers on a comprehensive Federal subsidy beginning in 2022 with a regulatory backstop to take effect in 2029. By ensuring that heat pumps are available and installed at the time of every future AC replacement, the market share of heat pumps in the US can increase from 10% to 44% by 2032.

Program benefits are substantial and will touch every corner of the country. On average, participating household energy bills will decrease by $169 each year, with cumulative energy bill savings totaling $27 billion over a 10-year period. Additional program benefits, estimated at $80 billion over the same 10-year period, include reduced climate impacts, cleaner air, and healthier communities.  In 2032 alone, greenhouse gas emissions will be reduced by up to 49 million tons of CO2e. Cleaner air will result in 888 fewer premature deaths, 920 fewer emergency room visits, 1,029 fewer nonfatal heart attacks, 24,476 fewer asthma exacerbations, 36,953 fewer respiratory and acute bronchitis incidents, 571,034 fewer minor restricted activity days, and 97,906 fewer lost workdays.

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