Americans who install heat pumps are eligible for large benefits under the Inflation Reduction Act, worth up to $2000. However, the requirements for heat pumps to qualify may be so high that many of those that are now on the market may not qualify, similar to how its “Buy American” regulations for electric cars now exclude many EVs that are on the market, particularly those produced by Hyundai and Kia.
According to Canary Media , some in the industry are concerned that the IRA’s performance standards, which are meant to encourage manufacturers to create more efficient heat pumps, may restrict the range of products that are available to consumers who want to take advantage of federal incentives to help pay for the transition from fossil fuel to electric heating. According to Nate Adams, an advocate for electrification and CEO of HVAC 2.0, a business that develops software used by HVAC contractors, this might harm the technology and the tax credits intended to promote it.
“Too many negative encounters can seriously slow down progress. For an industry that is still primarily structured around local and regional networks of contractors and installers, word-of-mouth marketing is extremely important, he added. Hundreds of people have read bad reviews.
Heat pumps must “meet or surpass the highest efficiency tier” established by the Consortium for Energy Efficiency in accordance with the Inflation Reduction Act in order to qualify for the tax credit. The company notes on its website that “Efficiency can be a challenging sell. Efficiency is after all difficult to detect, its initial cost can be substantial, and it isn’t always obvious when it exists. Furthermore, a product’s claim of decreased energy and running expenses is simply one of its features. CEE develops common reference points that make efficiency visible and verifiable, draw in numerous stakeholders, and boost the effectiveness of efficiency messages in order to address these difficulties. A CEE concept of efficiency crosses gaps between customers and stakeholders to create market focus. Those of us who support electric vehicles are well aware of how challenging it is to convey the importance of efficiency to the general public.
Currently, Energy Star , the other major US standard for appliance efficiency, which is administered by the Department of Energy and the Environmental Protection Agency, is significantly less strict than CEE’s highest efficiency tiers for air source heat pumps, the heat pumps that heat and cool the air in buildings.
In reality, less than 10% of the heat pumps on the market in North America, according to Adams, exceed the maximum requirement set by CEE in the category most frequently used for residential central heating. Even one of those is significantly more efficient than electric resistance heating and significantly cleaner than heating systems powered by fossil fuels. The majority of the remaining technologies are marginally less efficient but are still quite capable.
Additionally, he added, those high efficiency systems often cost at least $3,000 more than the less efficient heat pumps that are more frequently available. If the price premium for qualified equipment is higher than the tax credit itself, it is challenging to convince a customer to use a heat pump tax credit, he noted.
THIS WEEK, THE CEE WILL MEET. However, all can change following this week’s board of directors meeting of CEE. The panel is anticipated to make decisions at that time regarding updated heating and cooling standards that will go into effect in 2023, the same year that tax credits become available.
Regarding the options it is evaluating for its new standards, CEE declined to comment. However, a document from September 30 obtained by Canary Media shows the company is thinking about changing its present efficiency tier system to have a simpler framework that would allow the majority of heat pumps that currently have Energy Star ratings to be qualified for the tax credits.
If this modification with CEE is approved, it will make Adams really happy, she said. “A lot of equipment becomes available to us if the efficiency criteria are fair.” This includes some expensive ($4,000–$5,000) equipment that offers good performance in cold areas. The’s where that $2,000 tax credit helps most, according to Adams.
Sealed, a home efficiency startup with headquarters in New York, welcomes the planned alignment with Energy Star, according to Nate Kinsey, senior policy manager for Sealed. According to data from 2021, 39% of heat pumps now on the market in North America are Energy Star certified. In addition, consumers are more familiar with the Energy Star badge than they are with the specific efficiency criteria employed by CEE. According to him, there is a very small window of opportunity to align the heat pump tax credit eligibility with Energy Star.
THE SECOND PERSPECTIVE ON HEAT PUMPS However, several energy efficiency specialists and environmentalists are concerned that CEE’s suggested revisions would undermine the Inflation Reduction Act’s unmistakable goal of fostering greater efficiency in the US heat pump sector.
According to Mark Kresowik, senior policy director for the American Council for an Energy Efficient Economy , “we feel that the goal was to ensure that consumers can buy a very high-efficiency, quality device that can meet their heating needs.” Our opinion is that CEE should keep pushing the market forward, especially considering how generous these tax benefits are.
Our membership is working hard to establish performance requirements that are likely to meet the goals of our members, who have long-standing incentive programs for customers and share concerns about product availability, cost effectiveness, and incremental benefits associated with higher performance levels, a CEE spokesperson told Canary Media.
According to Sealed’s Kinsey, he is aware that lowering the efficiency standards for heat pumps could pave the way for lowering the standards for fossil fuel appliances as well. To speed up wider market adoption of a technology that not only completely eliminates the use of fossil fuels in buildings, but also utilizes energy much more effectively than the systems it replaces, he underlined the need to increase heat pump accessibility and cost.
Adams pointed out that the tax credits provided by the Inflation Reduction Act for EVs are income-based, with more expensive vehicles and wealthy consumers being ineligible. Moving against this trend would be to only make the most expensive heat pumps eligible for a tax credit. In his words, “it’s like saying you can only get the EV tax credit if you can afford the Tesla Plaid.”
On the other hand, Kresowik pointed out that government regulations have played a significant role in the efficiency improvements for consumer goods like lightbulbs and washing machines. “Manufacturers should match that rising demand for all the benefits that efficient products give,” he said, rather than changing those criteria to make more existing products eligible for tax credits and other types of government incentives.
HEAT PUMP POLICY REPERCUSSIONS Similar debates concerning which type of vehicle is superior—a hybrid, a plug-in hybrid, or a battery-electric vehicle—appear here. Should all of them be qualified for government subsidies? Should incentives for more efficient electric vehicles be increased? There are no simple solutions.
Dana Fischer, director of regulatory strategy at Mitsubishi Electric, stated at a webinar last week presented by Rewiring America that heat pump manufacturers can restructure their equipment designs and production processes to adapt to changing rules. However, he added, “it takes a lot of work to make those significant shifts in the marketplace occur and it doesn’t happen in a vacuum.” “Sustained growth is necessary.”
Manufacturers update their product lines gradually as well. The expenses of waiting for those improvements can be significant. Tighter efficiency criteria might seriously impede the development of a technology that is viewed as essential to addressing climate change if they end up slowing down the widespread adoption of heat pumps by raising prices and decreasing the impact of the new tax credits. According to the International Energy Agency, in order to keep the world on track to reach net zero carbon emissions by 2050, the global installation of heat pumps must triple by 2030. However, the US heat pump market only had a 15% growth last year.
According to Fischer, it will be crucial to maximize the effectiveness of the tax credit scheme in order to revolutionize the US heat pump business. “I think the tax credit is probably the key mover” among all of the Inflation Reduction Act’s incentive programs for building electrification.
The heat pump tax credit is accessible without restrictions for the next ten years, in contrast to the two other principal home electrification and efficiency incentive schemes established by the IRA, which are capped at about $9 billion. Depending on how rapidly electrification takes off, there may be tens of billions of dollars in tax credits awarded over the course of the next ten years, according to Fischer.
Canary Media contends that speed is crucial. The heat pump tax credit will be more effective in reducing emissions if more people use it over the next ten years. If our readers have any suggestions for how to overcome these policy issues, please let us know. Please share your opinions in the comment section.
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