Switch to electric/hybrid heat pumps in buildings
The use of electric or hybrid heat pumps is becoming more competitive economically in recent years and can accelerate the process of decarbonization.
Energy use in buildings contributes around 27% of global CO2 emissions in 2022, producing approximately 9.9 giga tonnes of CO2 emissions per year in both residential and non-residential buildings (direct and indirect emissions included). The space and water heating industry (residential and commercial buildings) account for 6.9% of annual global CO2 emissions, producing approximately 2.5 giga tonnes of CO2 emissions per annum (1). The remaining 20% of CO2 emissions are indirect emissions from the production of electricity and heat used in buildings (at 7.4 giga tonnes CO2e/year) (2).
Electrification of space and water heating can accelerate the process of decarbonization through renewable heat and electricity generation.1 The use of electric or hybrid (electric and gas) heat pumps is becoming more competitive economically in recent years due to lower costs of operations and equipment. Additionally, product developments enable today’s electric heat pumps to be 2.2 to 4.5 times more efficient than gas furnaces (3).
Using this solution is not viable in buildings that require high operating temperatures or in regions with higher electricity costs or price volatility. Electric or hybrid heat pump retrofits are suited to buildings with forced air or low-temperature hot water distribution and regions with district heating (central facility decarbonization).
Electric heat pumps use external air thermal energy transfer to heat the building (or in reverse to cool indoors). Meanwhile, hybrid heat pumps work alongside another heat source, typically a fossil fuel-based boiler (e.g. gas, coal or oil).
The current distribution system means system and source by which heat is distributed within building(s) or district(s).
Image: Are heat pumps a fit?
Source: McKinsey. Building decarbonization: How electric heat pumps could help reduce emissions today and going forward
Electric or hybrid heat pumps enable local low-carbon cooling or heating. They are currently used in few regions globally, with a significant share in markets including Sweden, Finland, Japan and the United States. Although demand is growing, electric or hybrid heat pumps have not yet been adopted at scale. This is mainly due to a high initial cost, together with low public awareness and limited local availability at service providers.
Heat pumps are a mature and highly developed solution. Their energy efficiency can further be improved when paired with rooftop photovoltaics, battery storage, smart controls and electric vehicle charging. Few countries (e.g. Germany and Italy) are offering incentives or financial support to promote heat pumps to citizens through educational programs.
The following implementation options are typically considered by companies aiming to install electric or hybrid heat pumps in buildings:
Invest directly in electric or hybrid heat pump system purchase and installation
Engage with third party to enter a Heat as a Service (HaaS) agreement
Targeted emissions sources
The implementation of electric or hybrid heat pumps for building heating affects Scope 1, 2 and 3 in:
Category 1 (Purchased goods and services)
Category 3 (Fuel- and energy-related activities not included in Scope 1 or 2)
Category 11 (Use of sold products)
Category 12 (End-of-life treatment of sold products)
The sourcing and manufacturing of electric or hybrid heat pumps is an established solution and production creates few carbon dioxide emissions. Products can be recaptured for end-of-life recycling
Using electric or hybrid heat pumps is expected to lower annual heating costs due to increased efficiency. This lowers CO2 emissions throughout the use phase of a product by up to 75%, depending on the available regional electricity mix or use of renewable energy
End-of-life treatment carbon dioxide emissions are lower due to the potential for recycling heat pumps
Higher heating system efficiency, lower operating costs, increasing indoor air quality, low operating noise, increased solution safety (compared to other options), longer product lifetime, possibility of local tax breaks/subsides.
Impact on operating costs
Operating costs through the use of electric or hybrid heat pumps can be significantly lower (depending on local electricity prices) and is expected to decrease by up to 40%.
Investment for the installation of electric or hybrid heat pumps is significantly higher compared to other solutions. However, with a life cycle of 20-25 years, return on investment is guaranteed (compared to gas boiler lifespan of 15 years).
Regional and country-specific subsidies or financial supports may apply based on location of use.
Indicative abatement cost
Abatement cost for electric or hybrid heat pumps (dependent on technology currently in use):
-10 to 50 USD/tCO2e (2022)
Impact beyond climate and business
Local air quality improvement, overall carbon dioxide emissions reduction, improved local air quality (health benefits in large cities), increased local safety.
Possibility of local visual pollution through building external radiators in densely populated regions.
Typical business profile
All individual and institutional clients in most industries and sectors interested in electric or hybrid heat pumps installation within their buildings.
The implementation of electric or hybrid heat pumps should be locally considered for use case viability based on current building insulation level and cost of installation. It is advisable to consult product specialists regarding suitability. The use of heat pumps may need insulation efficiency improvements or retrofitting and could lead to high investment costs.
Company functions: All functions
Main providers: Top manufacturers of heat pumps by revenue – Mitsubishi Electric, Daikin America Inc., Carrier Corporation, Johnson Controls Inc., Danfoss Power Solutions Co.
Other: property users and heat providers.
Key parameters to consider
Solution maturity: established, available across all world regions and still rapidly developing
Lifetime: 20-25 years
Technical constraints or pre-requisites: initial cost of installation, local solution viability must be assessed
Additional specificities (e.g. geographical, sector or regulation): current building’s heating system efficiency and geographical relevance of solution implementation
Eventual subsidies available: local subsidies and tax breaks may apply
Implementation and operations tips
The adoption of electric or hybrid heat pumps must be considered on many levels, including current building heating system efficiency and distribution systems, local costs of retrofitting and installation investment. Maintenance services cost and provider availability must be ensured.
This solution is expected to scale rapidly within the next decade, as it enables heating savings and can help to maximize decarbonization efforts globally.