A major goal of the sprawling Inflation Reduction Act, signed into law in August 2022, is to create incentives for U.S. households and businesses to shift to technologies that consume less energy and cut greenhouse-gas emissions. To meet U.S. climate goals, tens of millions of families and businesses must switch from using gas-fed engines, furnaces, and appliances to vehicles, HVAC units, and stoves that tap into an electrical grid increasingly powered by renewables such as wind, solar, and hydro.

The law allots more than $350 billion for energy and climate programs. About $80 billion of that goes toward rebates of up to $14,000 for households that make green energy upgrades over the next decade.

Some of the law’s biggest incentives encourage households to install heat pumps to heat and cool their homes. Beginning in 2023, buyers of efficient air-source models qualify for a tax credit of $2,000. Households that meet income requirements can qualify for additional rebates of $4,000 or $8,000 for switching from gas-, oil-, and propane-burning furnaces to heat pumps for all their heating needs. Click here for info on available incentives.

Because we have mild winters, in this area heat pumps are wise purchases. Many homeowners can get rid of their furnaces in favor of using just heat pumps—and collect thousands in rebates. Although even basic heat pumps are more expensive (most are $8,000 to $10,000) than new furnaces or central ACs, for most families the new $2,000 tax credit and federal rebate will cover most of the increased upfront costs. Then, because they cost less to run than furnaces, using heat pumps will provide lower utility bills for years to come—while cutting emissions.

What’s a “Heat Pump”?

A heat pump basically is an air conditioner that can be reversed to operate in heating mode. During warm weather, most heat pumps work just like ACs do: They collect air inside a building, extract heat from it, and blow the captured warm air outside and return the cooler part indoors. During cold weather, heat pumps reverse that process, grabbing air from outside, wringing heat from it, and blowing the warm air indoors.

As outside temps drop, there’s less energy available in the air for heat pumps to use. Most standard heat pumps operate effectively enough to keep homes warm if outdoor temperatures don’t get below 30 or 40 degrees; for well-insulated homes, many basic units can keep up with thermostats when temps drop to 25 degrees or so. For regions that experience cold winters, there are also heat pumps designed to operate effectively even when temperatures outside drop well below 20 degrees. But these units are prohibitively expensive—typically more than $18,000 installed. There are also mini-split ductless heat pumps (see below) that can operate efficiently even when it’s as cold as 5 degrees outside.

In colder regions than ours, if the heat pump can’t produce warm air fast enough, a secondary heating source is needed. If the home has a furnace, its system can be configured to switch over to using it; if there’s no furnace, an electrical resistance device—essentially a large space heater—can be added to the heat pump. But electrical resistance is a very inefficient way to produce heat; it will consume three times more electricity than a basic heat pump.

Over the next several years, as manufacturers continue to improve heat pump technology, and as demand increases for devices that can operate in cold climates, ever-more-efficient units with lower price tags should become available.

Three types of heat pumps are most commonly installed in single-family homes:

Central Air-Source Heat Pumps

These look and operate much like central air conditioning units. If you already have central AC, replacing it with a basic heat pump usually is a straightforward job and will cost $2,000 to $4,000 more than replacing it with a new AC.

If you don’t have central AC but do have ductwork for your furnace, adding a heat pump (or central AC) likely will require more work and expense, especially if you need electrical upgrades to handle increased demand. Such improvements can cost $1,000 to $5,000 or more, depending on what’s needed. If you’re converting all your heating (and cooling) to a heat pump, the new federal rebates will also cover the costs of electrical-system upgrades.

Ductless Mini-Split Units

If you don’t have ductwork, are planning an addition, or want to improve heating or cooling in one part of your home, consider installing a mini-split ductless unit. These devices, common in Europe, employ the same technology as central heat pumps but are easy to install—one can be hung on any exterior wall.

Because they don’t lose energy by transmitting air through ductwork, and because they can quickly warm up or cool down spaces on demand, rather than running all the time, these devices consume very little electricity—about 30 percent less than most whole-house units.

The downside of ductless systems is that in a large house you’ll need several units. Each costs about $1,000 to $4,000 installed, depending on model and whom you hire.

Ground-Source/Geothermal Heat Pumps

Instead of grabbing heat from outside air, ground-source (also called “geothermal”) heat pumps extract it using coils or pipes buried below ground, where winter temperatures remain consistently warmer than above ground (and vice versa during summer).

Although ground-source heat pumps are incredibly energy efficient, the Bay Area’s mild winters mean lower-cost air-source heat pump systems are better choices here. The digging or drilling work to install ground-source heat pumps is very expensive—most projects cost $35,000 or more. Although a generous 30 percent federal tax credit can cover a large share of those costs, most homeowners still don’t want to shell out more than $25,000 for HVAC systems.

More Options

Heat pumps can also be used to create hot water and dry clothes, and a few manufacturers now sell window-unit heat pumps.

What’s So Hot About Heat Pumps?

Because they are energy efficient, can run on electricity generated by renewables, and can keep homes more comfortable than furnaces, most area households should consider buying heat pumps—especially those that want to cut emissions.

They Are Energy Efficient and Pollute Less

Saving energy at home starts with reducing heating and cooling costs, by far the biggest energy eater for most U.S. residences. In the Bay Area heating costs typically account for about 40 percent of utility expenses.

Keeping our abodes comfy contributes to climate change and other problems: About 13 percent of the greenhouse gas emissions in the U.S. comes from heating, cooling, and powering buildings, according to the EPA, which also notes that a disproportionate chunk of that pollution comes “primarily from fossil fuels burned for heat.”

Although heat pumps need electricity, which is responsible for 25 percent of carbon emissions in the U.S., those emissions can be lowered drastically by increasingly relying on renewable energy sources. Heat pumps can run on electricity generated using solar, wind, and hydro; furnaces must burn fuel.

Even in areas of the U.S. where electricity is predominantly generated by burning natural gas or coal, heat pumps are still cleaner and more affordable than furnaces. A study by researchers at the University of California, Davis concluded that, depending on region, residential heat pumps can reduce carbon dioxide emissions by 38 to 53 percent over gas furnaces. A widescale switchover to heat pumps would also eliminate a lot of leaky natural gas pipes and fittings, large sources of methane pollution, an incredibly harmful greenhouse gas.

Gas furnaces are inherently wasteful. The most efficient models waste only about two percent of the fuel they consume, but the units bought by most homeowners waste 20 percent. Heat pumps, on the other hand, can produce more watts of heat than they consume to create it. That’s because instead of burning fuel to create warm air, heat pumps essentially just move heat around, capturing it outdoors and transferring it indoors.

The refrigerants used by heat pumps (and air conditioners) are powerful greenhouse gasses, especially from homes and businesses operating old and poorly maintained units. But on the whole, heat pumps are still less harmful to the atmosphere than furnaces, and better refrigerants are being developed.

They Eventually Will Cut Your Energy Bills

As we discussed previously, for most homes in this region getting rid of your furnace and installing a heat pump is a sensible move. Unlike most areas of the U.S., outdoor temps here rarely dip into the 30s, so even a basic heat pump can produce enough warm air on its own to keep you comfortable. With current energy prices, it costs about the same to run a heat pump as a gas furnace in the Bay Area. But in the future, as price increases for natural gas will likely exceed those for electricity, making the switch will lower your energy bills while cutting your home’s carbon emissions.

Switching from a gas furnace to a heat pump is expensive—$8,000 to $12,000, according to contractors we surveyed. While some homeowners want to reduce their energy use and emissions regardless of cost, most will balk at spending that much to decommission their furnaces. But the new rebates provided by the Inflation Reduction Act are designed to give households a big carrot for doing so: Beginning in 2023, they can collect up to $8,000 for heat pump retrofits plus a $2,000 tax credit. While most Bay Area homeowners will also have to pay for electric-system upgrades to handle the load from new heat pumps, the federal rebate provides additional money to cover all or most of those costs.

If your household income is too high to qualify for the rebate, you should still consider replacing a dying furnace with a heat pump. Within a few years, this might cost less, since the rebate program is designed to increase consumer demand for heat pumps and other greener products, which will be met by manufacturers and contractors. Manufacturers are already receiving their own incentives to design and build new heat pumps that cost less and can operate in even bitterly cold temperatures. Over time, basic heat pumps should cost less and be better designed for furnace-replacement retrofits.

They Create More Comfortable Living Spaces

Decades ago, many homeowners with heat pumps complained they were noisy and blew chilly air around their homes.

Heat pumps sold these days are very quiet—they make far less noise than forced-air furnaces—and they can produce air that will feel about as warm as gas-burning furnaces.

Many heat pumps can more consistently keep homes cozy. While furnaces typically operate in one of two ways—on or off—many new heat pumps operate at variable capacities. By running at a low strength, and constantly circulating air, a heat pump is far better than a furnace at maintaining consistent levels of temperature and humidity throughout the home. Variable running speeds also lower your electricity bill: It takes less energy to constantly move around a little bit of warm or cool air than it does to generate a large amount of hot or cold air and spread it throughout the building quickly.

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Will Consumers Be Convinced?

Americans often believe that green solutions are a downgrade. Yes, paper straws are lousy, but in this case heat pumps are sensible purchases for most homeowners and better for the environment. But because—at least for now—heat pumps are expensive, it will take work to convince homeowners and contractors to consider them.

Several states and municipalities have already passed laws that set short- and long-term goals for reducing greenhouse emissions with new rules for how buildings are heated and cooled.

In July 2019, Berkeley, Calif., became the first locality to effectively ban new natural-gas hookups. Since then, more than 50 California cities and counties, including San Francisco, have passed similar measures that severely limit the use of natural gas in new construction. Several states are considering similar measures, and a few have already passed laws aimed at lowering emissions, often by requiring homes and businesses to shift toward products that can run on renewables.

While in many statehouses and city halls there’s lots of traction for new climate laws, most legislation focused on lowering use of natural gas, propane, and heating oil so far has focused on zoning rules that affect only new building projects.

The rebate program created by the Inflation Reduction Act takes a different approach by creating incentives for owners of existing homes: The big discounts are meant to create voluntary demand. But consumers will have to get interested enough in heat pumps and other devices for the program to be effective.

Contractors can help. The new federal law also provides small rebates for companies that install heat pumps. As better heat pumps become available, HVAC services can educate customers about better choices. But for now, most homeowners aren’t getting that type of guidance: The owners of the many HVAC companies we interviewed admitted they rarely mention heat pumps as options to customers, for fear that they’ll be seen as trying to oversell them on more expensive products.

Another possible obstacle? While the new federal law sets rebate amounts it largely leaves it up to states to administer them and provides them with leeway on setting their own qualification standards. When we went to press, the U.S. Department of Energy had provided guidance to states on distributing rebates, but few states had yet announced how they’d manage their programs—or whether they would impose energy-efficiency standards or other requirements. There’s real concern that some states will impose inconvenient or ineffective rebate programs, and that some states will work far harder than others to promote them.

In addition to changing contractors’ minds about heat pumps, “We also need thousands and thousands of skilled HVAC contractors who can look holistically at homes to address air leaks and recommend the right heat pumps for peak comfort and energy savings,” said Pantano. “There just aren’t enough contractors who know how to do this well.”

It’s possible that some contractors will see all this rebate money as a business opportunity, in much the same way that solar energy system installation outfits rely on scooping up tax credits as a vital part of their business models. In a few years, we wouldn’t be surprised to see ads from companies offering families “free” heat pumps or pitches claiming homeowners can “Get a new heating and cooling system for $10 a month!”

Ready to Heat Pump It Up? Here’s How to Avoid Trouble

Our ratings of local HVAC contractors will help you identify knowledgeable and diligent installers; hiring one is critical to any HVAC work. How equipment will perform depends heavily on the design of the system and the quality of the installation. Although our ratings identify several HVAC companies you’ll want to avoid, they fortunately also turned up dozens of others that do great work at fair prices.

PLEASE Get Several Bids

The savings and incentives you can collect for installing heat pumps and other green products will be wasted if you overspend by signing on with a high-priced contractor. It’s critical that you collect proposals from several companies; for installation jobs we often find that some companies charge prices that are $1,500 or more than other equally qualified contractors for the exact same work.

The price comparison scores reported on our Ratings Tables will help you identify companies that quoted low prices to our undercover shoppers for a sample of repair and small installation jobs. For major installation projects, collect proposals from at least three, but preferably five, contractors. If you’re not sure what equipment you want to buy, ask them to price out several options.

Don’t assume low prices indicate lousy work. Many contractors that receive high ratings from their customers also offer low prices.

Make Sure You Qualify for Tax Credits and Rebates

To collect the federal rebates, you likely will have to work with “approved” contractors and have paperwork reviewed before installation begins. Make sure your contractor does everything it should to ensure you receive any financial incentives available for your job. Get in writing the tax credits and rebates for which you’re eligible.

Take Basic Steps to Eliminate Energy Waste Around Your Home

Some states likely will require homeowners to obtain energy audits to identify and fix air leaks and other problems before granting approval for new equipment installations. That’s sensible: As we often note, many homes passively waste energy by letting too much warm air escape during winter.

Starting in 2023, there’s a federal tax credit to help pay for audits (up to $150) and for air-sealing materials and improvements (up to $600). The new rebates also offer up to $1,600 for insulation and ventilation improvements, and thousands more if these tasks are expected to reduce your home’s energy usage by 20 percent or more.

In our section on saving energy at home, we provide a list of 32 ways to save energy at home. Many are cheap-yet-effective tasks that will have a big impact on energy use. Others require some upfront spending but quickly pay for themselves with lower utility bills. You don’t have to spend a lot of money to sharply reduce your home’s energy usage. Often the combined effects of making inexpensive improvements, adopting better habits, and buying better products can do the trick.

Get the Right Size

Make sure that the equipment you buy is the right size for your home. Undersized units won’t effectively heat or cool spaces; oversized units cost more and cycle on and off constantly, making more noise, requiring more frequent maintenance, and dying sooner.

Most states will probably set performance standards that must be met to qualify for rebates, including requirements that homeowners install correctly sized systems. Ask companies to do a load calculation to determine the right size of unit for your space.

Compare Energy Efficiency Options and Features

The efficiency of air-conditioning equipment is measured by seasonal energy efficiency ratio (SEER). The efficiency of air-source heat pumps in heating mode is measured by heating seasonal performance factor (HSPF).

The U.S. Department of Energy sets minimum efficiency standards for all HVAC equipment. In this area all new central air conditioners must have ratings of SEER 15 or better, and all air-source heat pumps must have HSPF ratings of 8.8 or better.

While these standards require that all new central heat pumps and ACs be relatively energy efficient, it’s worth considering installing equipment that’s more efficient than the minimum. While nearly all new heat pumps meet the conditions to qualify for the $2,000 tax credit, states will probably impose higher energy-efficiency standards to collect the new rebates for converting to heat pumps for all heating and cooling needs. As we’ve already discussed, while the most efficient heat pumps have expensive price tags, prices should come down over the next few years.

Get an Airtight Contract

We review here several additional points that should be covered in HVAC installation contracts. It’s critical that all details are put in writing, and that you get a solid installer’s warranty and favorable payment schedule. Also ask contractors if they’ll provide a performance guarantee that your new equipment can attain proper and consistent temperatures throughout your home.