States get a blueprint to speed up heat-pump adoption

Heat pumps are slowly catching on. In the U.S., the units outsold gas furnaces by their biggest-ever margin last year, but their share of the market is still modest. Citing data from the Air-Conditioning, Heating, and Refrigeration Institute, a trade association, Levin said that in 2021, heat pumps accounted for about 25% of the combined shipments of gas furnaces, heat pumps, and air conditioners, the three largest reported HVAC categories. In 2024, they’d risen to about 32%.

“No matter how you look at it, there are still a lot of gas furnaces being sold, there are still a lot of one-way central air-conditioners being sold — all of which could really become heat pumps,” Levin said.

Produced in consultation with state agencies, environmental justice organizations, and technical and policy experts, the NESCAUM report lays out a diverse set of more than 50 strategies — both carrots and sticks — covering equity and workforce investments, obligations to reduce carbon, building standards, and utility regulation. A wide range of decision-makers, often in collaboration, can pull these levers — from utility regulators to governor’s offices, state legislatures, and energy, environment, labor, and economic development agencies. Here are six recommendations from the report that stand out.

1. Make heat pumps more accessible to lower-income and renter households. A number of barriers need to be overcome to make heat pumps available to these groups, who often struggle to afford the appliances or lack the autonomy to install them. For example, contractors can’t put heat pumps in homes with hazards like mold, lead, asbestos, and rotten beams, but the process to address these problems can itself cost tens of thousands of dollars. Philadelphia’s Built to Last program coordinates aid to carry out these necessary pre-electrification repairs. On the other side of the country, California is launching a program this fall to install heat pumps in qualifying low- and moderate-income homes — for free. Notably, owners of low-income multifamily buildings can also use the program to upgrade their tenants’ heating systems, but they must agree to keep rent from increasing more than 3% per year for up to 10 years after the project.
2. Set an all-electric standard for new buildings. States have the ability to establish the minimum health, safety, and energy standards that developers must adhere to. New York recently became the first state to require that most new buildings be electric only, making heat pumps the default heating appliances. The rules withstood a legal challenge in July and take effect on Dec. 31.
3. Use building performance standards to encourage heat pumps in existing structures. Such standards require building owners to meet specific annual limits on energy use or carbon emissions and bring them down over time, or face penalties. Several states and cities have already developed these rules. Maryland, for one, stipulates that owners of most edifices 35,000 square feet or greater must report their CO₂ emissions starting this year, hit standards by 2030, and fully ditch fossil-fueled appliances by 2040.
4. Leverage emissions rules that improve air quality and protect public health. For example, in 2023, the San Francisco Bay Area air district, home to more than 7 million people, set landmark rules requiring that new residential water and space heaters don’t spew health-harming nitrogen oxides, starting in 2027 and 2029, respectively. Heat pumps fit the bill. Switching to the tech nationwide could avert more than 2,600 premature deaths annually, according to electrification advocacy nonprofit Rewiring America.
5. Push utilities to deliver clean heat.States can require utilities to slash emissions and electrify buildings. For example, in 2021, Colorado adopted a first-in-the-nation clean-heat law doing just that. Lawmakers also mandated that utilities file their implementation plans for approval. In 2024, regulators greenlit a $440 million proposal from Xcel Energy, the state’s largest utility, which included electrifying 200,000 homes with heat pumps by 2030. Maryland is developing a similar standard.
6. Reform electricity rates so that they incentivize zero-emissions heating. Households with heat pumps tend to use more electricity than other customers, which means they pay disproportionately for fixed costs to maintain the grid on their energy bills. Utilities can correct that imbalance with adjusted rates. For example, Massachusetts has required its three major electric utilities to offer discounted winter electricity rates to households with heat pumps. Elizabeth Mahony, commissioner of the state’s Department of Energy Resources, said she expects the new rates to save heat-pump owners on average $540 per year.

NESCAUM’s Levin stressed that the report is ​“a menu — not a recipe.” Each state will need to consider its own goals and constraints to pick the approaches that fit it best, she added.

Still, ​“I see [heat-pump electricity] rates as one of the areas that’s most promising,” Levin said. Massachusetts’ reforms ​“are really going to change their customer economics to make it more attractive to switch to a heat pump.”

When done right, rate design also avoids the need for states to find new funding. ​“You’re not raising costs on anybody, you’re only reducing costs,” Levin said. At a time when households are seeing energy prices rise faster than inflation, the tactic could have widespread political appeal, she noted.

NESCAUM plans to check back in with states and report out on their progress each year, Levin said. ​“The cool thing about our work is that we bring states together to learn from one another,” she added. ​“Part of making this transition happen more rapidly is lifting up the things that are really working well.”