Can we *please* fix the EU's Heat Pump policy?

When energy policymakers preach one thing and do another, it is more than just hypocrisy. In our business the proper term is greenwashing.

The EU heat pump market has stalled, and the industry is in dire straits. This fiasco is partly due to political meddling that caused the glut of cheap gas while failing to uphold the EU’s heat pump action plan which was supposed to go into effect last year.

You’d expect the EU to take action, what with the environmental challenges we face and the ambitious goals policymakers set. Apparently, the EU can’t chew bubblegum and walk at the same time. I mean we can’t have cheap gas while also making a transition to more sustainable heating right?

What would real leadership look like in terms of policy?

I think it would only really take two bold steps to make heat pumps the de facto choice for all new residential heating systems in the EU, achieving all heating electrification and decarbonization targets quickly.

The two main barriers for heat pump adoption are affordability (they are not accessible to all households due to their high purchase and installation cost) and the (currently) lower cost of gas due to subsidies.

So here’s what decisive action could look like.

1) Increase clean energy output while shifting taxation over to fossil fuels

REpowerEU, is a proposal implemented by the EU to reduce the dependence of the EU on Russian gas. The goals they mention include support for the green transition, but from the actions taken one would assume this appears to be secondary to the political goal of disconnecting Russia from the European gas supply chain.

Yes, energy independence is a noble and desirable goal we should aspire to achieve for a better and safer European future but switching one gas exporter for another will do nothing for this.

Focusing our efforts achieving environmental goals through renewables and electrification is a much more rewarding route as it will automatically achieve greater energy independence while also bringing us closer to the desired and agreed-upon climate outcomes.

That’s the key driver behind China’s domination of renewables, to be less dependent on importing fuel for energy.

But despite all the rhetoric gas still benefits from significant subsidies before it reaches consumers.

Why not incentivize the adoption of heat pumps with a lower VAT rate while curbing fossil fuel use with higher VAT rates?

A lower, or even zero VAT rate on electricity used for heating would be a great way of driving electrification of heating across the EU.

A study recent study pointed out how energy taxes disproportionately affect lower-income households and that any increase in energy taxation may require compensatory measures for low-income households to offset the negative impacts.

Using taxation to implement social policies and to affect consumer behavior isn’t something new.

Diesel used for heating has enjoyed lower taxation compared to diesel used for transportation in many countries.

Since heat pumps can be used with smart meters to distinguish between heating / cooling electricity use and non-heating use, this opportunity could be explored further.

Even today taxation policies still favor fossil fuel use for heating purposes, while deterring electricity use.

Yes, taking this approach would also require the necessary transmission grid and power generation capacity. It would also be somewhat pointless if this was powered by dirty power such as coal. But isn’t that the point? Shouldn’t these projects already be in progress?

We’ve been working on integrating load balancing and peak shaving technologies into our products so that our heat pumps aren’t a major burden on the grid.

Although these technologies can have a substantial impact on protecting the grid, we can’t have our cake and eat it too if we need electrified heating. There’s no way around it, the proper infrastructure needs to be in place.

2) Interest-free financing for heat pump adoption

Heat pumps have a high upfront cost that makes it hard for the majority of homeowners to purchase. The vast majority of European households at around or below the average household income would struggle to make such a purchase without access to substantial savings.

But heat pumps also have a long lifespan, about double that of gas boilers and other legacy systems, and they provide substantial long-term savings. So, if they could be financed at a low cost they would become the most practical option.

Yes, the days of cheap financing are over for now, but if governments want to achieve their electrification goals, there is no better way to make heat pumps accessible than to offer subsidized financing for them.

Some national schemes available offer subsidies worth ~50% of the system’s cost, but even that won’t make heat pumps affordable to below-average income households with few or no savings.

A €8.000 grant towards a €12.000 heat pump system still means a prospective owner would need €4.000 – a tall order for so many households, even if the system is incredibly profitable in the long-run.

Instead of an expensive policy that favors early adopters, isn’t it better to make heat pumps accessible to everyone with no-interest financing?

Offering interest-free financing would actually work out cheaper per household for governments while making heat pumps a truly accessible solution.

When political problems get in the way of practical solutions, the only way out is to find political solutions.

So, what policies do you think would work to get heat pumps back on track?