Heat Pump Installations Slow, Impeding Biden’s Climate Goals

Heat Pump Installations Slow, Impeding Biden’s Climate Goals

More Americans are buying heat pumps, an environmentally friendly alternative to furnaces and air-conditioners that can significantly lower monthly energy bills. But the pace of installations has slowed in the past year, posing an obstacle to the Biden administration’s climate plans.

Rising interest rates and inflation combined with a slow and confusing rollout of federal government incentives for the purchase of heat pumps are largely responsible for the recent drop in sales, energy analysts said. These headwinds, if they persist, could jeopardize President Biden’s goals of effectively eliminating U.S. emissions of greenhouse gases by 2050.

Mr. Biden’s signature climate law, the Inflation Reduction Act, offers tax credits 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. Those incentives defray only a small portion of the $16,000 an average heat pump installation costs, according to Rewiring America, a nonprofit group that is working to increase the use of cleaner forms of energy.

A much more generous program that would provide rebates of up to $8,000 for heat pump purchases, which Mr. Biden’s climate law also authorized, is not expected to be up and running until sometime next year; the timing will vary by state. That program is taking longer to set up because it will be run by state governments, which have to devise a system for dispensing the money and then submit those plans for approval by federal officials.

“We’re not on track,” said Alexander Gard-Murray, a political economist at Brown University’s Climate Solutions Lab. “We need to speed up adoption dramatically.”

Installations have slowed recently because the cost of installing a new heat pump is significant enough that many homeowners need to borrow money to buy one. That is not something many people are eager to do, given that mortgage and other lending rates 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 overcome the effect of higher interest rates on HVAC installations,” said Trevor Houser, a partner at the Rhodium Group, an independent research firm, referring to heating, ventilation and air-conditioning systems.

Other people, including most lower-income Americans, cannot take advantage of the credits because they do not owe enough in taxes.

Unlike air-conditioners or furnaces that cool or heat the air inside homes, electric heat pumps transfer heat, moving it either into or out of buildings. As a result of how they function, heat pumps can operate at more than 100 percent efficiency, which is much higher than a typical air-conditioner or furnace.

The typical homeowner can save more than $500 a year in energy and heating bills by replacing an older heating and cooling unit with a heat pump, according to Carbon Switch, a renewables and clean energy company.

The I.R.A. limits the use of the heat pump tax credit to devices that meet or exceed high-efficiency standards. Higher-efficiency heat pumps generally cost more than lower-efficiency ones and are harder to find.

More expensive heat pumps are a necessity in states that have harsher winters. Nick Bender, a contractor in the Minneapolis area who has been installing heat pumps for more than 15 years, said he favored inverter heat pumps, which are more efficient, are less noisy and work at lower temperatures than older models.

“If you’re really trying to put in a heat pump that’s going to heat well in Minnesota, you need an inverter heat pump,” Mr. Bender said.

Some homeowners who have recently purchased heat pumps said the federal incentives in the I.R.A. were difficult to use.

Becca Zerkin, an engineer in Chapel Hill, N.C., said she and her installer had spent hours combing through a federal database to figure out which model would qualify for the $2,000 federal tax credit. Even after all that work, Ms. Zerkin said, she is still not sure if the system she bought, which cost her $11,000, will qualify for the tax break when she files her tax return next year.

“The installer and I were doing a ton of research, following every link, and I kept ending up in the same cycle of ‘OK, I still don’t know the answer,’” Ms. Zerkin, 52, said.

Mr. Houser said that investments in electric vehicles and solar panels were accelerating faster than heat pumps, but that the market was growing relative to competing devices that burn fossil fuels.

Total heat pump shipments this year have been higher than orders for warm-air furnaces fueled by gas or oil, according to the Air-Conditioning, Heating and Refrigeration Institute, an industry group. Biden administration officials also noted that the recent drop in installations had followed a surge in the pandemic when lots of Americans were renovating homes. Sales of heat pumps this year are still expected to be higher than they were in 2019 before the pandemic.

“President Biden’s historic clean energy investments are leading consumers to choose more clean energy appliances and lowering their costs,” Ashley Schapitl, a Treasury Department spokeswoman, said in a statement.

Energy experts said interest in heat pumps should pick up when states began rolling out rebates, which will immediately lower costs and will not require people to wait for tax filing season to claim a credit.

The rebate programs provide a total of $8.8 billion for various home energy efficiency and electrification projects. States have until the end of January 2025 to seek the money. The Energy Department expects rebates to become available “in much of the country” next year.

Some states were offering heat pump incentives long before Congress passed the I.R.A. Maine started its 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 administers the state’s energy programs.

Montana, which has one of the lowest rates of heat-pump sales in the country, has seen an uptick in interest for installations, said Ben Brouwer, head of the energy department at 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 hand out as rebates. But even once the state’s rebate program is up and running, which Mr. Brouwer said would be in early 2024, he expects a variety of challenges.

Montana will have to get more contractors trained to install heat pumps, especially in more rural areas. “There’s a limited pool of contractors available to deliver the measures incentivized in these programs, whether it’s by contractors or energy auditors, plumbers, electricians,” Mr. Brouwer said.

Another bigger problem is that many Americans are not aware that they could save thousands of dollars through the Inflation Reduction Act’s programs. Just 22 percent of Americans had heard “a great deal” or “a good amount” about the tax credits for heat pumps, while 77 percent had heard “a little” or “nothing at all,” according to a July poll by The Washington Post and the University of Maryland. About 32 percent had heard “a great deal” or “a good amount” about tax credits for electric vehicles.

Ari Matusiak, the chief executive of Rewiring America, said officials still had a lot of work to do to increase awareness of the incentives included in the I.R.A.

“Right now, it’s fair to say that people don’t know a lot about what’s available,” Mr. Matusiak said. “On the other hand, what we’ve seen is that there’s quite a lot of interest once people do learn that there are these incentives.”

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