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Five findings from an extremely thorough study by the National Renewable Energy Lab.
Some Americans install heat pumps because they care about climate change. But most people aren’t going to make the switch until it makes sense economically. Pinpointing where and for whom heat pumps are a good investment is surprisingly tricky because U.S. housing is so diverse, with a wide range of building sizes and ages, situated in different local climates with different utility rates.
But for the first time, researchers at the National Renewable Energy Lab have sorted through much of this complexity to get deeper to the truth about the costs, benefits, and challenges of deploying heat pumps in the U.S.
Ultimately, they found that heat pumps are a cost-effective choice in roughly 65 million U.S. homes, or about 60% of the country — and that’s before taking into account available subsidies. But there are substantial economic barriers to widespread adoption.
It’s hard to overstate how detailed the study is. The authors started with a model of 550,000 statistically representative households — basically housing archetypes that typify different combinations of building size, age, occupancy level, local climate, heating usage patterns, and existing heating systems. Each one represents about 242 real-world households. Then the authors looked at how switching to a heat pump would affect greenhouse gas emissions and energy bills across all of these different homes in a wide range of scenarios. They considered heat pumps with lower and higher efficiency ratings, and whether or not the building owner pursued insulation upgrades. They looked at different scenarios for how quickly the grid would decarbonize, how sensitive the results were to energy prices, and how subsidies from the Inflation Reduction Act affect the economics.
The paper has many interesting findings beyond the top-line result. Here are five things that stood out.
Eric Wilson, a senior research engineer at NREL and the study’s lead author, told me one of his motivations was to try to settle the question of whether heat pumps reduce emissions.
“I see a lot of people saying, well, the grid is still dirty in this state, and maybe it makes sense to wait five years to put in a heat pump because it could increase emissions,” he said.
But he found that in each of the 48 contiguous U.S. states, switching to a heat pump reduces emissions today, even if that heat pump is one of the cheaper, less-efficient models. Heat pumps are just so much more efficient than other options that they still reduce emissions despite today’s relatively dirty grid.
On average, each home could cut between 2.5 to 4.4 tons of carbon over the approximately 16 years the equipment lasts, meaning widespread adoption could result in a 5% to 9% drop in national economy-wide emissions. The effect is much more pronounced in some states, like those in the Northeast, where a lot of homes currently use fossil fuels for heating. A household in Maine that installs a high efficiency model, combined with completing insulation upgrades, would reduce emissions by an average of 11 tons per year — or about the equivalent of taking two cars off the road for a year.
The study breaks down the costs of switching to a heat pump in a few different ways.
First, there’s the up-front costs of upgrading to a heat pump, which are relatively high. A lower-rated, less efficient heat pump system may be a cheaper option than a new furnace or boiler for about 43% of households. But a higher-performing heat pump is almost always more expensive, costing an extra $8,000 to $13,000 before government subsidies (more on them later). That alone might keep heat pumps out of reach for many households.
Next, there's the potential for bill savings — which is significant. Using state average electricity and gas rates in the winter of 2021 to 2022, the study found that 86% of households can save money on their utility bills by switching to a medium-efficiency heat pump, and a whopping 95% of households will see their bills go down if they install the highest efficiency system.
So in theory, if homeowners do have the extra cash to put down, there’s a chance they could make up for high up-front costs in bill savings over time. But how good a chance?
Putting this all together, the authors looked at what percentage of households that upgraded to heat pumps would see a positive cash flow, calculated as the “net present value,” from the initial investment. Here, the results were less rosy. In many cases, high up-front costs cancel out potential savings. For example, despite the near-certain bill savings from buying one of the most efficient heat pump models, only 21% of households would see an overall economic benefit from the switch.
Still, more than half of all homes would see a positive cash flow by switching to a cheaper, minimum-efficiency heat pump.
Distribution of energy bill savings, upgrade costs, and unsubsidized net present value, relative to a reference equipment replacement scenario, using energy prices from winter 2021 to 2022 Courtesy NREL / Wilson et al., Heat pumps for all? Distributions of the costs and benefits of residential air-source heat pumps in the United States, Joule (2024), https://doi.org/10.1016/j.joule.2024.01.022
These findings underscore the importance of bringing down the cost of more efficient heat pump models, which are out of reach for many Americans but can provide significant energy bill savings. The authors suggest that policymakers can help by deploying incentives more strategically and pursuing research on “lower-cost, higher performance, and easier to install equipment.” There also may be opportunities for bulk purchasing and aggregating installations across an apartment building or neighborhood.
When it comes to bill savings, the study found that those who have systems that run on propane, fuel oil, or electric resistance heaters will pretty much always lower their bills by switching to a heat pump, no matter how efficient it is. But those who use natural gas are far more likely to lower their bills if they can afford to switch to one of the pricier, better-performing heat pumps — which cuts into the value proposition.
The following maps show the percentage of homes in each state that would see a positive cash flow from switching to a heat pump, looking at those switching from natural gas, electric resistance, or fuel oil and propane, illustrating how the value proposition is most challenging for those using natural gas.
Percentage of homes that currently have air conditioning that will see a positive cash flow from switching to a heat pump from natural gas, electricity, and fuel oil and propane. Courtesy NREL / Wilson et al. 2024
The authors also note that fixed charges on natural gas bills can play a significant role in the economics of switching to a heat pump. Most natural gas utilities charge customers a fixed amount each month, regardless of how much gas they use. If a homeowner switches to heat pumps but continues using gas for cooking, they’ll still have to pay the full fee, which can be as high as $34 a month, whereas homes that fully electrify can avoid these fees.
The results I described in the previous two sections include homes both with and without existing air conditioning systems of some kind. (With the exception of the maps, which only consider homes that have air conditioning already.)
But since heat pumps provide both heating and cooling, the economics are actually quite different for those households who already have air conditioners versus those who don't. If a household already has A/C, heat pumps appear more favorable, because a family would be able to replace two systems — an air conditioner and a furnace — with just one. If there is no pre-existing air conditioner, the heat pump will not only have higher up-front costs, but it’s more likely to increase energy bills, since the family might start using the heat pump for cooling in addition to heating.
Here are the same maps included in the previous section, but looking just at homes that do not have air conditioning.
Percentage of homes that do not have air conditioning that will see a positive cash flow from switching to a heat pump. The first column is homes that currently use natural gas, the second column is those that us electricity, and the third is those that use fuel oil and propane. Courtesy NREL / Wilson et al. 2024
There are basically zero cases where a house with natural gas heating, and no A/C, will save by switching to a heat pump. However, that result doesn’t take into account the benefits of getting air conditioning for the first time.
“They didn't include the new value that someone has, especially in a warming world and a world with more heat waves, of now having an air conditioner in your home,” Kevin Kircher, an assistant professor of mechanical engineering at Purdue University, told me. “So if you add that in, I think the economics look better.”
None of the results in the previous sections take into account the various subsidies that states and the federal government offer for heat pumps. For example, the Inflation Reduction Act included a $2,000 tax credit for heat pumps and an additional $11,500 in rebates for low- and moderate-income households. Both will increase the percentage of households for whom the investment will pencil out.
The study also doesn’t take into account the potential for homes to use smart controls that optimize their systems, or the opportunity for households to participate in demand response programs which will pay them to turn down their thermostats by a few degrees when the grid is taxed. Kircher, the Purdue professor, recently published a study of a real-world house in a cold climate where smart controls reduced heating energy costs by 23-34%.
Finally, one big takeaway from the study was that the results are very sensitive to the price ratio between natural gas rates and electricity rates, and there are reasons to believe that may become more favorable. For example, as more renewable energy is deployed, electricity could become more affordable. Meanwhile, if the U.S. increases exports of liquified natural gas, the cost of domestic natural gas could go up. The study cites a 2022 survey of oil and gas executives which found that 69% expect ‘‘the age of inexpensive U.S. natural gas to end by year-end 2025.”
“Big modeling like this entails a lot of assumptions about the future that are really hard to pin down with any real precision,” said Kircher. “But I think there's cause for optimism there.”
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With the federal electric vehicle tax credit now gone, automakers like Ford and Hyundai have to find other ways to make their electric cars affordable.
We finally know what Tesla means by an “affordable” electric vehicle. On Tuesday, the electric automaker revealed the stripped-down, less-fancy “Standard” version of its best-selling Model Y crossover and Model 3 sedan. These EVs will sell for several thousand dollars less than the existing versions, which are now rebranded as “Premium.”
These slightly cheaper Ys and 3s aren’t exactly the $25,000 baby Tesla that many fans and investors have anticipated for years. But the announcement is an indication of where the electric vehicle market in the United States may be headed now that the $7,500 federal tax credit for purchasing an EV is dead and gone. Automakers have spent the past few months rejiggering their lineups and slashing prices as much as they can to make sure sales don’t crater without the federal incentive.
The impending end of the tax credit on September 30 helped propel Tesla to record sales numbers in the third quarter of 2025. It was a stark reversal from months of disappointing sales stemming from factors like increased competition and Elon Musk’s political antics that alienated potential buyers. Money talks, of course; Tesla sent me a blitz of emails to make sure I didn’t forget what a good deal I could get before September’s end. But now, with the deadline passed, Musk’s company needed a new shot in the arm to stop sales from falling off a cliff.
The budget Teslas are, indeed, lesser vehicles. They have simpler headlights, less power, and less range than the now-Premium versions. They even come in fewer colors. But the prices — $40,000 for a Model Y Standard and $37,000 for a Model 3 Standard — effectively mirror what those cars would have cost if the tax credit were still in place. In other words, you can still buy a Tesla in the $35,000 to $40,000 range. It just won’t be as good a Tesla as you used to be able to get for the money.
The tax credit deadline had looked like one that would demarcate two distinct EV eras, with October 1 acting as the beginning of new, less-affordable time. But it turns out things aren’t quite so black and white. Lots of automakers are experimenting with ways to soften the financial blow for those who still want to get into an EV. After all, there’s always a loophole.
For example, as the September tax credit deadline approached, Reuters reported on a scheme orchestrated by Ford and General Motors to allow the American car giants to keep the good times going by buying their own cars. It goes like this: Before the September 30 deadline, the financing arms of these big corporations began the process of purchasing a host of their own vehicles from their dealerships. By making the down payment before the end of September, Ford and GM qualified these vehicles for the federal tax benefit. (They even checked with the IRS to make sure this plot was legitimate, Reuters said.) They plan to pass on the savings by leasing those vehicles back to everyday Americans.
According to Car and Driver, a number of citizens did something similar to what the corporations devised — that is, some buyers made their first payments on EVs that won’t be delivered to them for weeks or months in order to qualify for the tax break. These shenanigans are for the short term, though. Ford and GM could pre-purchase only so many of their own vehicles, and Ford said this deal effectively extends the tax credit only another quarter, through the end of December.
The bigger question is whether the automakers can — or will — simply cut prices on their EVs to make the loss of federal incentives sting a little less.
That’s the plan at Hyundai. The Korean giant has announced an enormous price cut on its successful Ioniq 5, one that more than makes up for the vanishing federal incentive. The most basic version of that car will fall from $42,600 to $35,000, putting it on par with the Chevy Equinox EV that’s been a hit at that price. Fancier versions of the Ioniq 5 will fall by more than $9,000 for the 2026 model year. Hyundai and its partner Kia are offering some of the best October lease deals, too.
Other car companies have begun to follow suit. BMW will simply offer a $7,500 discount on its electric models for those who take delivery by the end of October. Stellantis, the parent company of Jeep, Chrysler, Dodge, Ram, and others, will do the same for electric sales through the end of the year. No word yet on what happens after these deals expire.
Incentives like the federal tax credit for EVs aren’t meant to last forever, of course. In theory, their purpose is to lift up a new technology until it can compete at scale with the tech that has been around forever.
Whether electric cars have reached that point is a contentious question. Ford has only just announced a roadmap to overhaul its entire EV production system in order to stop losing billions on electric vehicles. Hyundai’s EVs are profitable — or, at least they were before the Trump administration began monkeying with tax incentives and tariffs. A batch of more affordable EVs are on the way, though the ever-changing map of tariffs makes it unclear exactly how much they’ll cost when they finally arrive.
The short-term picture may well be that electric cars continue to be a loss leader for some automakers still trying to find their footing in the space. Whether their shareholders will tolerate this long enough for the margins to become sustainable — well, that’s the real question.
Current conditions: In the Atlantic, the tropical storm that could, as it develops, take the name Jerry is making its way westward toward the U.S. • In the Pacific, Hurricane Priscilla strengthened into a Category 2 storm en route to Arizona and the Southwest • China broke an October temperature record with thermometers surging near 104 degrees Fahrenheit in the southeastern province of Fujian.
The Department of Energy appears poised to revoke awards to two major Direct Air Capture Hubs funded by the Infrastructure Investment and Jobs Act in Louisiana and Texas, Heatmap’s Emily Pontecorvo reported Tuesday. She got her hands on an internal agency project list that designated nearly $24 billion worth of grants as “terminated,” including Occidental Petroleum’s South Texas DAC Hub and Louisiana's Project Cypress, a joint venture between the DAC startups Heirloom and Climeworks. An Energy Department spokesperson told Emily that he was “unable to verify” the list of canceled grants and said that “no further determinations have been made at this time other than those previously announced,”referring to the canceled grants the department announced last week. Christoph Gebald, the CEO of Climeworks, acknowledged “market rumors” in an email, but said that the company is “prepared for all scenarios.” Heirloom’s head of policy, Vikrum Aiyer, said the company wasn’t aware of any decision the Energy Department had yet made.
While the list floated last week showed the Trump administration’s plans to cancel the two regional hydrogen hubs on the West Coast, the new list indicated that the Energy Department planned to rescind grants for all seven hubs, Emily reported. “If the program is dismantled, it could undermine the development of the domestic hydrogen industry,” Rachel Starr, the senior U.S. policy manager for hydrogen and transportation at Clean Air Task Force told her. “The U.S. will risk its leadership position on the global stage, both in terms of exporting a variety of transportation fuels that rely on hydrogen as a feedstock and in terms of technological development as other countries continue to fund and make progress on a variety of hydrogen production pathways and end uses.”
Remember the Tesla announcement I teased in yesterday’s newsletter? The predictions proved half right: The electric automaker did, indeed, release a cheaper version of its midsize SUV, the Model Y, with a starting price just $10 shy of $40,000. Rather than a new Roadster or potential vacuum cleaner, as the cryptic videos the company posted on CEO Elon Musk’s social media site hinted, the second announcement was a cheaper version of the Model 3, already the lower-end sedan offering. Starting at $36,990, InsideEVs called it “one of the most affordable cars Tesla has ever sold, and the cheapest in 2025.” But it’s still a far cry from Musk’s erstwhile promise to roll out a Tesla for less than $30,000.
That may be part of why the company is losing market share. As Heatmap’s Matthew Zeitlin reported, Tesla’s slice of the U.S. electric vehicle sales sank to its lowest-ever level in August despite Americans’ record scramble to use the federal tax credits before the September 30 deadline President Donald Trump’s new tax law set. General Motors, which sold more electric vehicles in the third quarter of this year than in all of 2024, offers the cheapest battery-powered passenger vehicle on the market today, the Chevrolet Equinox, which starts at $35,100.
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Trump’s pledge to revive the United States’ declining coal industry was always a gamble — even though, as Matthew reported in July, global coal demand is rising. Three separate stories published Tuesday show just how stacked the odds are against a major resurgence:
As you may recall from two consecutive newsletters last month, Secretary of Energy Chris Wright said “permitting reform” was “the biggest remaining thing” in the administration’s agenda. Yet Republican leaders in Congress expressed skepticism about tacking energy policy into the next reconciliation bill. This week, however, Utah Senator Mike Lee, the chairman of the Senate Committee on Energy and Natural Resources, called for a legislative overhaul of the National Environmental Policy Act. On Monday, the pro-development social media account Yimbyland — short for Yes In My Back Yard — posted on X: “Reminder that we built the Golden Gate Bridge in 4.5 years. Today, we wouldn’t even be able to finish the environmental review in 4.5 years.” In response, Lee said: “It’s time for NEPA reform. And permitting reform more broadly.”
Last month, a bipartisan permitting reform bill got a hearing in the House of Representatives. But that was before the government shutdown. And sources familiar with Democrats’ thinking have in recent months suggested to me that the administration’s gutting of so many clean energy policies has left Republicans with little to bargain with ahead of next year’s midterm elections.
Soon-to-be Japanese prime minister Sanae Takaichi.Yuichi Yamazaki - Pool/Getty Images
On Saturday, Japan’s long-ruling Liberal Democratic Party elected its former economic minister, Sanae Takaichi, as its new leader, putting her one step away from becoming the country’s first woman prime minister. Under previous administrations, Japan was already on track to restart the reactors idled after the 2011 Fukushima disaster. But Takaichi, a hardline conservative and nationalist who also vowed to re-militarize the nation, has pushed to speed up deployment of new reactors and technologies such as fusion in hopes of making the country 100% self-sufficient on energy.
“She wants energy security over climate ambition, nuclear over renewables, and national industry over global corporations,” Mika Ohbayashi, director at the pro-clean-energy Renewable Energy Institute, told Bloomberg. Shares of nuclear reactor operators surged by nearly 7% on Monday on the Tokyo Stock Exchange, while renewable energy developers’ stock prices dropped by as much as 15%
Researchers at the United Arab Emirates’ University of Sharjah just outlined a new method to transform spent coffee grounds and a commonly used type of plastic used in packaging into a form of activated carbon that can be used for chemical engineering, food processing, and water and air treatments. By repurposing the waste, it avoids carbon emitting from landfills into the atmosphere and reduces the need for new sources of carbon for industrial processes. “What begins with a Starbucks coffee cup and a discarded plastic water bottle can become a powerful tool in the fight against climate change through the production of activated carbon,” Dr. Haif Aljomard, lead inventor of the newly patented technology, said in a press release.
Last week’s Energy Department grant cancellations included funding for a backup energy system at Valley Children’s Hospital in Madera, California
When the Department of Energy canceled more than 321 grants in an act of apparent retribution against Democrats over the government shutdown, Russ Vought, President Trump’s budget czar, declared that the money represented “Green New Scam funding to fuel the Left's climate agenda.”
At least one of the grants zeroed out last week, however, was supposed to help keep the lights on at a children’s hospital.
The $29 million grant was intended to build a 3.3-megawatt long-duration energy storage system at Valley Children’s Hospital, a large pediatric hospital in Madera, California. The system would “power critical hospital operations during outage events,” such as when the California grid shuts down to avoid starting wildfires, according to project documents.
“The U.S. Department of Energy’s cancellation of funding for [the] long-duration energy storage demonstration grant is disappointing,” Zara Arboleda, a spokesperson for the hospital, told me.
Valley Children’s Hospital is a 358-bed hospital that says it serves more than 1.3 million children across California’s Central Valley. It has 116 neonatal intensive care unit beds and nationally ranked specialties in pediatric neurology, orthopedics, and lung surgery, among others.
Energy Secretary Chris Wright has characterized the more than $7.5 billion in grants canceled last week as part of an ongoing review of financial awards made by the Biden administration. But the timing of the cancellations — and Vought’s gleeful tweets about them — suggests a more vindictive purpose. Republican lawmakers and President Trump himself threatened to unleash Vought as a kind of rogue budget cutter before the federal government shut down last week.
“We don’t control what he’s going to do,” Senator John Thune told Politico last week. “I have a meeting today with Russ Vought, he of PROJECT 2025 Fame, to determine which of the many Democrat Agencies, most of which are a political SCAM, he recommends to be cut,” Trump posted on the same day.
Up until this year, canceling funding that is already under contract with a private party would have been thought to be straightforwardly illegal under federal law. But the Supreme Court’s conservative majority has allowed the Trump administration to act with previously unimaginable freedom while it considers ruling on similar cases.
Faraday Microgrids, the contractor that was due to receive the funding, is already building a microgrid for the hospital. The proposed backup power system — which the grant stipulated should be “non-lithium-ion” — was supposed to be funded by the Energy Department’s Office of Clean Energy Demonstrations, with the goal of finding new ways of storing electricity without using lithium-ion batteries, and was meant to work in concert with that new microgrid and snap on in times of high stress.
That microgrid project is still moving forward, Arboleda, the hospital’s spokesperson, told me. “Valley Children’s Hospital continues to build and soon will operate its microgrid announced in 2023 to ensure our facilities have access to reliable and sustainable energy every minute of every day for our patients and our care providers,” she added. That grid will contain some storage, but not the long-term storage system discussed in the official plan.
Faraday Microgrids, formerly known as Charge Bliss, didn’t respond to a request for comment, but its website touts its ability to secure grants and other government funding for energy projects.
In a statement, a spokesman for the Energy Department said that the grant was canceled because the project wasn’t feasible. “Following an in-depth review of the financial award, it was determined, among other reasons, that the viability of the project was not adequate to warrant further disbursements,” Ben Dietderich, a spokesman for the Energy Department, told me.
The children’s hospital, at least, is in good company. On Tuesday, a Trump administration document obtained by Heatmap News suggested the Energy Department is moving to kill bipartisan-backed funding for two direct air capture hubs in Texas and Louisiana. And although California has lost the most grants of any state, the Energy Department has also sought to terminate funding for new factories and industrial facilities across Republican-governed states.
Editor’s note: This story initially misstated the number of neonatal intensive care unit beds at Valley Children’s Hospital. It has been corrected.