Heat pumps are the ‘central technology’ for low-carbon heating, concludes IEA

§ Huge growth in sales

Heat pumps are currently undergoing a global surge in popularity. The IEA says this has been given a boost by policies and incentives linked to climate concerns and high gas prices.

Around one-tenth of global space heating needs were met by heat pumps in 2021. Sales of heat pumps increased by 13% from the previous year, with faster growth rates of 35% seen in the EU.

As it stands, North America has the most heat pumps installed and China has the largest market, but the EU – which has been scrambling to cut energy ties with Russia since its invasion of Ukraine – is the fastest-growing market.

The IEA says it expects sales to hit record levels this year in response to the global energy crisis. It notes that this is especially true in Europe, where some countries have already seen sales double in the first half of the year, compared to 2021.

Heat pump penetration in Europe is highest in cold regions such as Norway and Finland, due to long-standing government support. The IEA notes that this “undercut[s] the argument that heat pumps are unsuitable for cold climates”.

As the chart below shows, Poland and Italy, which have introduced large financial incentives to encourage heat-pump installation, saw growth rates of more than 60% in 2021.

Globally, the report notes that subsidies for heat pumps are now available in more than 30 countries, covering around 70% of worldwide space heating demand in residential buildings.

Heat pumps have a combined capacity of more than 1,000 gigawatts (GW) today. By 2030, the IEA says the STEPS would see this double to 2,100GW and APS would result in 2,600GW being deployed . The large increase in STEPS is attributed to significant policy interventions such as the Inflation Reduction Act in the US.

This increase by heat pumps to encompass around one-fifth of heating needs in the APS can be seen in the chart below. It also demonstrates the significant role that heat-pump market expansion in China is expected to have over the coming decade.

In an additional scenario that is consistent with the Paris Agreement target of limiting global warming to 1.5C (NZE), heat pump sales accelerate even faster and make up one-quarter of heating demand by 2030.

§ Cutting fossil fuels 

The report emphasises the potential for heat pumps to quickly cut the world’s dependence on gas and other fossil fuels. 

As it stands, more than one-sixth of global gas use is for keeping buildings warm. In the EU, which is currently trying to wean itself off Russian gas, this figure is one-third. 

To cut out Russian imports before 2030 as part of the REPowerEU plan, the APS suggests the number of heat pumps in the EU needs to triple to reach 45m units.

With annual heat pump sales set to approach 7m by 2030 in this scenario, in line with REPowerEU, gas consumption in the bloc’s buildings would be cut by 21bn cubic metres (bcm) by 2030. The IEA points out that this is roughly equal to 15% of Russian imports into the EU in 2021, before the bloc took steps to reduce its fossil fuel ties with Moscow.

Other nations, such as Japan and South Korea, are also heavily reliant on imported fossil fuels. The chart below shows how a large-scale switch to heat pumps in the APS would boost energy security by significantly cutting the need for fossil fuel imports.

Overall, in the APS, global gas use in buildings drops by 21% by 2030, saving 160bcm – more than the combined annual output of the UK and Norway in 2021. This reduction by 2030 is more than three times larger than seen in STEPS. 

There is also a reduction in the use of oil and coal, the latter of which is still employed for heating in some nations such as China and Poland. The use of these fuels for space and water heating falls by 29% in the APS.

For both gas and fossil fuels more broadly, roughly half of the reduction in use by 2030 is attributed to heat pumps. The remainder comes from improvements to building insulation.

These reductions can be seen in the charts below. The left-hand chart shows how these changes would nearly wipe out the use of coal as a source of heat in buildings, reducing it to what the IEA calls “negligible” levels.

While the IEA notes that scaling up heat pumps “inevitably” means increased electricity demand, “this is far outweighed by the savings in fossil fuels due to their much greater efficiency”. (In the chart above, heat pumps raise electricity demand by 2EJ by 2030 but also cut demand for coal, oil and gas by around 2EJ each.)

The heat-pump rollout in the APS would add “little” to electricity demand in “major heating regions”, pushing it roughly 1.5% to 2.5% higher than 2021 levels by 2030, according to the IEA. However, it adds that this could still require additional investment in capacity, customer connections, distribution grids and flexibility. 

§ Cutting emissions

Keeping buildings warm produces one-tenth of global energy-related carbon dioxide (CO2) emissions. Reducing the use of fossil fuels to heat buildings therefore comes with a significant emissions reduction. 

In the APS, CO2 emissions from heating buildings drop by 1.2bn tonnes (GtCO2), or more than a quarter. The large-scale switch from boilers fuelled with gas and other fossil fuels to heat pumps is responsible for 500MtCO2 of this reduction.

This is nearly 2% of all energy-related CO2 emissions today. It is equivalent to Canada’s emissions footprint in 2021, the IEA notes.

Crucially, emissions would fall even though heat pumps often rely on fossil fuel combustion for power, including on coal-heavy grids such as China’s. This is because heat pumps are between three and five times more efficient than fossil fuel boilers.

The emissions savings also account for the leakage of F-gases, potent greenhouse gases that can be released during the manufacture and use of heat pumps.

The IEA estimates that heat pumps currently cut emissions by “at least 20%” compared to a gas boiler “even when running on emissions-intensive electricity”. This can rise to 80% when running on a cleaner grid.

This can be seen in the figure below, which shows Canada as an example of a relatively low-carbon grid and China as one with higher emissions intensity due its reliance on coal.

The yellow bars show emissions from a gas boiler per unit of heat delivered. Emissions from a heat pump with “full leakage” of F-gases into the environment are still far lower than the gas boiler. The green bars show emissions from heat pumps using hydrocarbon-based (HC) refrigerants.

The chart below left shows the overall emissions savings from space and water heating in buildings under the APS. Emissions related to electricity fall even though demand for electric heating rises due to heat pumps, because of the wider shift to low-carbon power in the APS.

The chart on the right shows that while heat pumps are key for cutting emissions in the APS, energy efficiency measures in homes are responsible for a larger chunk of cuts.

§ Falling costs

High gas prices have made heat pumps much more competitive against conventional gas boilers in terms of their running costs, according to the IEA.

Heat pumps already had lower running costs than gas boilers in many countries before the global energy crisis and high gas prices have increased this advantage further, as the chart below shows.

The IEA emphasises that for low-income households, savings can be 2-6% of their household income, meaning heat pumps “can meaningfully address energy poverty”.

These lower operating costs mean that heat pumps often already compete with gas boilers on an overall cost of ownership basis, despite higher installation costs. 

The chart below showing the “levelised cost” of heating and cooling – including equipment and installation, as well as operating and maintenance costs – demonstrates that air-to-air heat pumps are already cheaper than gas alternatives in several leading heating markets. 

Some, such as the UK and Canada, still need subsidies to make heat pumps cost-competitive.

Heat pumps are a more attractive prospect than gas boilers for many reasons, the IEA says. Not only are they three-to-five times more energy efficient, they are often also able to serve as air conditioners for the 2.6 billion people living in regions requiring both heating and cooling by 2050.

In contrast, the IEA is dismissive of hydrogen as a low-carbon alternative to gas boilers. The report says it will have a “negligible role” in the space and water heating fuel mix of the APS by 2030. It states:

“A key reason is that when accounting for the energy losses associated with hydrogen conversion, transport and use, hydrogen technologies for use in buildings are much less efficient than heat pumps and other available options.”

Despite the advantages of heat pumps, the report acknowledges the barriers posed by their high up-front costs. 
As the chart below shows, in a small number of countries air-to-air heat pumps can already be cheaper to install than gas boilers, but for the most part the IEA says “subsidies remain key to increase the competitiveness of air-to-water and ground-source units”.

Overall, the APS requires a “huge increase” in spending on equipment and installation by building owners – a tripling of investment by 2030 to $350bn. 

This is $160bn more than the costs of installing conventional heating systems such as gas boilers, the IEA says. However, it notes that much of this incremental investment is already being covered by government incentives. Moreover, the additional costs will be paid back by fuel savings:

“[I]ncremental costs [of investing in a switch to heat pumps] are outweighed by the economy-wide savings on fuel, especially should the global energy crisis continue.”

§ Other benefits

In the APS, employment in the heat pump industry roughly triples, reaching 1.3 million workers in 2030. 

However, the report warns of the need for training programmes, partly covered by public funding, to ensure enough workers are available. It also notes that many relevant skills are interchangeable with the fossil fuel heating industry, meaning people could be retrained.

Finally, the APS not only drives down greenhouse gas emissions but also cuts major air pollutants that can be harmful to peoples’ health.

Overall, the IEA concludes that this pathway would yield a 15-40% reduction in such emissions and would also cut other hazards associated with fuel combustion such as carbon monoxide leaks, explosions and fire risk.