As the European Union tries to free itself from Russian gas, it should offer subsidies and policy supports to boost heat-pump adoption, a new report says. Jeff St. John discusses in an article on the Canary Media website.
How to move Europe from gas heat to heat pumps — fast
Heat pumps play a major role in Europe’s plans to cut its fossil fuel use. Russia’s invasion of Ukraine has jolted those plans into emergency overdrive.
European governments are scrambling to revamp already-aggressive policies to reduce greenhouse gases and further reduce reliance on Russia, which provides about 40 percent of the continent’s fossil gas supply. In the U.S., a proposal to invoke federal authority to boost manufacturing of heat pumps for export to Europe is being considered by the Biden administration.
But according to a new report from European energy and decarbonization analysts, the main barrier preventing more rapid adoption of heat pumps isn’t a shortfall in the supply of heat pumps. Instead, it’s a combination of policies that make heat pumps too expensive compared to their fossil-fueled competition, as well as institutional inertia that “keeps people hooked to a certain way of heating their homes.”
That’s how Andreas Graf, senior associate with think tank Agora Energiewende and a co-author of the report, described the state of play for Europe’s heat-pump market during a Tuesday webinar.
“Economics do not work in favor of heat pumps at the moment,” Graf said. Compared to gas boilers connected to extensive urban gas networks or oil boilers used in rural areas, heat pumps can cost four to five times as much to buy and install, he said.
Europe’s reliance on these boilers for heating homes and buildings, rather than on the furnaces and central air heating systems more common in the United States, also presents some complications for heat-pump retrofits, the report states. Because boilers operate at higher temperatures than heat pumps, buildings converting to heat pumps must undergo significant upgrades to be able to use them, said Richard Lowes, a senior associate with the Regulatory Assistance Project and report co-author.
“Many people don’t have the cash lying around” to overcome these higher upfront costs, Lowes said.
Long-term costs are another barrier, Graf said. Heat pumps are much more efficient than burning fossil fuels in terms of converting energy inputs into building heat. But in many parts of Europe, electricity is costly and fossil gas is not. “The ratio of gas prices in relation to electricity prices is such that heat pumps are disadvantaged,” he said.
Much of this difference lies in how different countries have invested in underlying infrastructure, Graf said. In Germany and Belgium, “on the electricity versus gas-price side, there’s been a massive imbalance.”
“These are countries where gas grids are very well established, so there’s an existing technology that households are hooked on,” with entrenched cost structures that privilege gas use, he said. What’s more, “the policy environment is often very favorable to fossil fuel heating,” with subsidies that reduce costs compared to electric-powered heat pumps.
These underlying conditions have led to an uneven rate of adoption of heat pumps across Europe, Graf said. While some European countries have invested heavily in heat pumps — Norway, Sweden and Finland are in the top tier — about four-fifths of European buildings relied on fossil fuels for heating as of 2017, according to EU data.
Europe’s climate policies are driving efficiency and electrification — but not at the pace needed to rapidly reduce reliance on Russian fossil gas. According to a 2021 report from European nonprofit Environmental Coalition on Standards, more than 75 percent of the energy used for European residential heating came from the direct burning of fossil fuels.
Policy fixes for boosting European heat pumps
Tuesday’s report proposes “multiple policy reforms for heat pumps to be supported at scale,” Lowes said. They range from revisions to the European Union’s “Fit for 55” package — its plan for cutting greenhouse gas emissions 55 percent by 2030 relative to 1990 levels — to actions that individual countries can take in advance of that EU-wide directive.
“The Fit for 55 package is a great win,” Lowes said, “but it could go further on heat pumps — and it should, because they’re such a critical technology.”
Heat-pump proponents are advocating to boost the energy-efficiency and renewable-energy provisions of the Fit for 55 package to ensure that heat pumps powered by renewable energy receive additional economic incentives, said Marie Baton, the head of the European policy and analysis team at Clasp, an international nonprofit focused on appliance energy efficiency.
Clasp also supports changes to energy taxation and carbon-emissions-trading rules that would favor carbon-free electricity over fossil fuels, she said. This illustrative graphic from Tuesday’s report indicates how favorable tax and carbon-pricing treatment can combine with subsidies to reduce the upfront cost burden of switching to heat pumps compared to fossil gas heating.
Efficiency measures that effectively ban fossil-fuel-only boilers from the market could also help, although they would need to be paired with financial support for homeowners who might struggle with the costs of alternative technologies, Baton added.
Lowes highlighted the importance of strong rules for new construction in driving heating-equipment manufacturers, distributors and installers to ramp up their capacity for heat pumps.
“The new-building space is the big one that can be made a real priority because that can rapidly transform the market,” he said. “If you have hundreds of thousands of homes being built per year, and the majority [are] currently being fit with gas boilers, which is the case in some European countries, you can flip that.”
In light of that potential, “it does seem totally backward that 20 [EU] member states still have policies that still allow gas boilers to be connected to new homes,” Lowes said. Some EU countries have imposed bans on oil- or coal-burning boilers, and a smaller subset are restricting fossil-gas heating, but those remain in the minority, he said.
As for existing buildings, “providing capital for households is one of the most simple and most effective policies” to overcome the upfront cost barriers to heat pumps, he said. That could come in the form of grants, but it could also include loan structures that reduce financing costs.
Increasing the pool of trained heat-pump installers is also an important step, Lowes said. “In the U.K…the [low] availability of installers is a particular holdup.” That lack of available workforce has come up in conversations about the proposal to boost U.S. heat-pump production to supply European markets, Lowes pointed out.
“In the discussions about U.S. heat pumps, there’s also been a discussion of whether we can ship the people over to [install] them,” he joked, adding, “I’m not sure if that would actually work. It’s not the number of people; it’s the number of people with the right skills.”
In light of these barriers, the REPowerEU plan — the European Commission effort launched after Russia’s invasion of Ukraine to make Europe independent of Russian gas by 2030 — should increase its target of deploying 10 million new heat pumps by 2025, according to Graf.
“We think it can go further,” he said. “And no matter what happens, we are now having a societal conversation around the measures that will actually be needed for that to happen in the short run.”