By Mark Krebs — September 18, 2024
“The Competitive Enterprise Institute is leading a coalition of free market advocates attempting to organize support to stop the IRA’s obscene and consumer abusive funding. In response, the Biden (mis)Administration is attempting to shovel IRA funding out the door as fast as it can to contractually shield it.”
Early this month, Lucas Davis, a Professor in Business and Technology at the Haas School of Business, University of California, Berkeley, published an article titled: How Do We Pump Up the Impact of Heat Pump Subsidies? In April, Professor Davis published a precursor article titled: Why Are Heat Pump Sales Decreasing?
The upshot is that despite Federal rebates of up to $8,000 per the “Inflation Reduction Act,” real-world economics of electric heat pumps are dismal. Several commenters to the second article aptly summarized why from a consumer perspective.
Case Study One
As the owner of a 30-year-old gas furnace, I was in the market for a heat pump during all of 2023. As a low-income retiree, I also looked forward to an $8,000 subsidy from the Inflation Reduction Act passed in November of 2022. Well, as readers of this blog probably know already, the IRA subsidies did not take effect in 2023 (and are now projected to be available in California no sooner than late summer 2024).
I had gotten a bid in the summer of 2022 of $25,000 for a heat pump, but I was waiting for the IRA subsidy to take effect. Then I discovered that the bidder had failed to mention that installing a heat pump would also require new ductwork because the existing ducts were too small to handle the larger air volumes required by a heat pump. Two subsequent bids in mid- and late-2023 ranged from $30K to $40K when ductwork was included.
So when the furnace failed in December 2023 at age 31, I had to make a quick choice: a replacement gas furnace (costing $12K with an 18-month 0% loan, and a 2-day wait for installation), or $30K+ for a heat pump with a couple month wait for installation. The estimated fuel savings from the heat pump worked out to under $1000 per year, not even close to enough to outweigh the $18K capital cost differential. The fact that the estimated life for the heat pump was 15 years, versus 30 years for the gas furnace, didn’t help at all.
So there’s my anecdotal story: it wasn’t interest rates, it wasn’t tax law, it largely wasn’t fuel prices, it was mostly capital costs. Had the original bid of $25K been legit and had the $8K subsidy been available by mid-2023, I would have chosen the $17K heat pump over the $12K furnace based on environmental concerns. But at $30K versus $12K, I didn’t.
Case Study Two
I also got pricing for a 6 head mini-split heat exchange system that would be mounted in each room, and it came to $26,000 for the two pumps and 6 heads wired, installed and tested. Pricing is important.
Yes, pricing (meaning total installed cost) is important. Total installed costs for heat pumps (as evidenced by the above commenters) can include expensive retrofit expenses that normally are avoided when not switching from a traditional gas furnace to an electric heat pump. And heaven forbid something like a motherboard failure out of warranty (that tend to be much shorter than furnace warranties).
Alas, however, our Federal energy efficiency “experts” are also making sure that traditional/inexpensive (non-condensing gas furnaces are going to soon be illegal as a result of their abuse of regulatory authority regarding minimum appliance efficiency standards under the Energy Policy and Conservation Act of 1975 ( EPCA) in response to the “1973 oil crisis by creating a comprehensive approach to federal energy policy.”
The American Public Gas Association (APGA) explains:
The Office of Energy Efficiency and Renewable Energy (EERE) within DOE issued a notice of proposed rulemaking establishing a new 95% annual fuel utilization efficiency (AFUE) standard for furnaces. This proposed standard can only be met by condensing furnaces, effectively banning non-condensing furnaces that have been in millions of American homes for a generation or more.
“But wait, there’s more” (in the immortal words of Ron Popeil). EPCA also states that DOE can include “any such other factors as the Administrator deems appropriate.” The social cost of carbon SCC is a prime example of how DOE is using this nebulous authority to impose carbon reduction benefits within its cost/benefit analyses. The Competitive Enterprise Institute’s (CEI), Ben Lieberman, explains SCC:
Junk Science Behind Federal Appliance Regs About to Get Junkier
The Biden-Harris administration has embarked on a wave of anti-consumer home appliance regulations over the last several years. Each was justified in part by overblown claims of climate change benefits. And now, the Department of Energy (DOE) has proposed using a new methodology that would further inflate these hypothetical benefits to justify even worse regulations in the years ahead.
DOE is in the process of creating new energy use limits for stoves, dishwashers, furnaces, washing machines, water heaters, ceiling fans, refrigerators, and more. The agency always asserts that consumers experience net gains from these regulations, but CEI has filed comments highly critical of these rosy assumptions. In reality, such rules often raise the up-front costs of appliances more than is likely to be earned back in the form of energy savings. Some rules also compromise appliance choice, performance, and reliability.
But DOE’s fictitious consumer benefits are only part of the problem. CEI has also taken issue with the agency’s assertions that these regulations deliver quantifiable climate change benefits. For example, DOE’s costly 2023 final rule for residential furnaces was estimated by the agency to provide $16.2 billion worth of such benefits.
The agency arrives at this figure by calculating the reduced energy use attributable to the efficiency standards and then estimating the amount of greenhouse gas emissions avoided as a result – mostly carbon dioxide emitted to produce electricity at coal or natural gas-fired power plants. Then it multiplies the tons of emissions avoided by the calculated per unit dollar cost to society of such emissions.
Until now, DOE has relied upon the 2021 Interagency Working Group on the Social Cost of Greenhouse Gases (IWG 2021). IWG 2021 provides the agency with the per ton Social Cost of Greenhouse Gases (SC-GHG) values.
Relying on IWG 2021 was bad enough, but in its most recent proposed rule for commercial refrigeration equipment DOE is switching to an updated 2023 version of SC-GHG provided by the Environmental Protection Agency.
The new methodology takes several already-dubious assumptions in IWG 2021 and stretches them further. For one category of commercial refrigeration equipment covered in the proposed rule, DOE calculates the climate benefits of $48-$320 million dollars under IWG 2021 but a whopping $564-$1,713 million under the new way. That’s around 5-10 times higher.
More Concerns
In May of 2022, I wrote an article published in Real Clear Energy titled Fallacies of Supplying American LNG and Electric Heat Pumps to Europe to Fight Putin and Global Warming. Primarily, it summarized the flawed “energy efficiency” physics behind this Biden administration plan that has since been regurgitated in the so-called Inflation Reduction Act a few months later. This article, which I stand by, received 189 comments.
This leads to my overarching concern: What is the fundamental motive behind all of this. It is:
- Globalized social control through the establishment of an all-electric energy monoculture.
- The transformation and growth of energy efficiency regulations into carbon efficiency regulations.
The following graphic cogently illustrates:
“Transitioning” energy efficiency to carbon efficiency grows the regulation business
Source: “Electrification – What Does It Mean for Energy Efficiency?”
In short: DOE and its minions are running out of stuff to regulate under existing energy efficiency statutes within EPCA. A move to carbon efficiency regulation vastly expands their regulatory empire. The IRA is providing obscene amounts of taxpayer funding to force-feed this anti-consumer agenda. For more information, see Dangerous ‘Deep Decarbonization’ (Krebs PowerPoint to Cooler Heads Coalition). For the record, that presentation identified the $8,000 heat pump tax credit stated at the beginning of this article.
As Travis Fisher testified before the House Energy & Commerce Subcommittee on Energy, Climate, and Grid Security on September 11th, “ The subsidies in the IRA for wind, solar, and batteries alone could cost American taxpayers $3 trillion by 2050.” Fisher also testified: “Between the IRA subsidies and the EPA rules, I would summarize the administration’s power grid policy as this: Green the grid and brace for blackouts.”
The Competitive Enterprise Institute is leading a coalition of free market advocates attempting to organize support to stop the IRA’s obscene and consumer abusive funding. In response, the Biden (mis)Administration is attempting to shovel IRA funding out the door as fast as it can to contractually shield it. For further information, see Dismantling the Inflation Reduction Act green Subsidies Coalition Letter
——————–
Mark Krebs, a mechanical engineer and energy policy consultant, has been involved with energy efficiency design and program evaluation for over thirty years. Mark has served as an expert witness in dozens of State energy efficiency proceedings, has been an advisor to DOE and has submitted scores of Federal energy-efficiency filings. His many MasterResource posts on natural gas vs. electricity and “Deep Decarbonization” federal policy can be found here. Mark’s first article was in Public Utilities Fortnightly, titled “It’s a War Out There: A Gas Man Questions Electric Efficiency” (December 1996). Recently retired from Spire Inc., Krebs has formed an energy policy consultancy (Gas Analytic & Advocacy Services) with other veteran energy analysts.
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Supply and demand curve lesson #2
Subsidies and credits artificially shift the demand curve.
The shift in demand curve allows the seller the increase the sales price of the product above the natural equiliberium price. Most of the credit or subsidy goes to the seller not the buyer in the form of a higher sales price
example – Natural equilibrium price for Heat pump is $20k, subsidy of $5k . Seller raise price to $25k. Buyer payes $25k and gets $5k subsidy back for a net $20k. buyer still pays the same net price. Seller keeps the extra $5k
Caveat – price increase will normally be in the range of 70% to 90% of the subsidy and/or credit. though I presume everyone understands the concept.
The first-hand reports about the disappointing performance of “heat pumps” (nee reverse-cycle split system air conditioners) are legion.
Now made mandatory in most new residential strata complexes, according to some owners in my low 13c / kwh electricity cost locality, the “heat pumps” are too expensive to run in their units, so they’re firing up the gas heating, and/or making do with portable space heaters and baseboard heaters when the outside temp gets to near zero.
In my opinion, “heat pump” is a marketing name applied to products that are not fit for the need they’re being claimed to meet.
I am not disputing your point on the efficiency of heat pumps, only noting that Norway apparently has high percentage of the residential market using heat pumps. Not sure what other features are used to make them viable in a colder climate. If anyone could provide info, i would appreciate the info
joe-D, some of the following might be of interest:
I have a “stick-built” house, 1980’s vintage. The walls are built with so called 2 by 4s, meaning wood that is 1.5 inches by 3.5 inches. The 3.5 inch void is filled with fiberglass insulation. (New construction uses 2x6s, so 5.5 inches of void with insulation.) The house is just one floor, 1,600 square feet. It was built with ducts under the floor and a return air-duct in the center ceiling of the house. Near the center is an enclosure for a heater/air-conditioner, and a water tank. Water is heated with electrical resistance bars; hot water is piped to kitchen and bathrooms.
I have a Trane heat pump built and installed about 20 years ago. It looks similar to the one in this photo:
Trane-xl18i-2-Stage-Condenser.jpg (734×979) (dsairandheat.com)
The image at this site is just one type of system – the stacked boxes are the components of the air-handler. Mine is hidden in closet because it is in the center of the one-story house.
The Anatomy of a Ductwork System – How Your Ducts Are Built | Dust Doctors Blog (dust-doctors.com)
The two units (inside / outside) work together to move heat into the house, or to move heat out of the house. Such a system does not use radiators. Warm air comes up from under the floor at covered outlets. Search images for “floor registers air outlets.” The tank for hot water is a totally separate unit.
Newer heat pumps are more efficient. Mine, when outside temperature is well below freezing the “air handler” switches to resistant heating (uses more electricity). I use a modern wood stove with a catalytic burner as supplemental and emergency heat. Except for the work required of me, the wood is free. I burned about 3 cords this past winter season.
Because heat pumps require electricity, except in rare situations, any house will need an emergency source of heat.
My current “Energy Delivered” cost is $0.1021/kwh. There is also a monthly set fee of $26.60 called a Facility Charge. The rate is set once each year and does not vary otherwise. Nearest gas line is 6 miles away.
Match most of the above and maybe a heat-pump will work for you.
Sad to say but I didn’t get any rebate or other when I upgraded the ancient heat pump & air handler to a much more efficient heat pump & air handler in July of 2020. What I did get with the new heat pump was greatly reduced electric bills AND greater comfort inside the home.
I’m in northern Florida (Alabama is 4 miles away) with an electric cost of $0.1591 per kilowatt hour. I spent $9,100 for the 20 SEER Rheem heat pump & air handler for my 1,550 sq ft house, built in 1939 and remodeled in 1970. In 2020 along with the heat pump, I added spray foam insulation to the underside of the roof and to the walls in the attic. With the ancient heat pump & air handler, my electric bills each month were in and around $150-200 range, while the new one dropped those bills to under $100 each month.
Air conditioning is almost a necessity here in the Deep South for about 8 months of the year and heating for about 3 months. About a month to a month and a half of the year, just opening the doors & windows results in easy sleeping temperatures. Winter doesn’t last long here and we usually get a week or two of temps in the teens with the rest below the 60’s. I usually keep the temps in the house at 76° F most of the year and 78° F during those cold winter months.
“Because heat pumps require electricity, except in rare situations, any house will need an emergency source of heat.”
An oil furnace needs electricity too. So I should install a generator but I can’t afford it.
Joe,
I cannot verify the truth of this but I read that in Scandinavia log burners are very common in houses there. Plenty of wood there so i see no reason not to disbelieve that story?
In the U.K., our 80 sq metre annexe is heated just by a wood burner. We have underfloor heating but the wood burner keeps the temperature above the thermostats’ switching point, so very effective.
Scandinavians are also wise to have many woody biomass power plants and chip producers for chip burning stoves Sweden considers the burning of wood for energy coming from well managed forests to be carbon neutral.
I don’t know about what they use in Norway, but mine has electric heating elements that engage when it gets too cold for the “pump” part to work, or if it needs to heat faster than the pump is able to.
Fortunately I have a wood-burning fireplace as well, so I use that to avoid engaging that heating element too often.
“Now made mandatory in most new residential strata complexes, according to some owners in my low 13c / kwh electricity cost locality, the “heat pumps” are too expensive to run in their units, so they’re firing up the gas heating, and/or making do with portable space heaters and baseboard heaters when the outside temp gets to near zero.”
If they’re leaving half their unit cold that makes some sense, but if they closed off the ducts in the parts of the house they want to keep cold then the heat pump would still be cheaper. Even at 0F, a modern heatpump that’s properly installed is twice as efficient as baseboard or space.
If comparing to a house heated with oil or gas and not turning off the heat in rooms not needing to be heated, but you can turn off the heat in those rooms when you have an oil or gas furnace too. Then do the comparison.
All the talk of 8-10 year payback on “heat pumps” (if true) ignores the lost profits on investing $25k for that period. And, consider the extra cost if the $25K had to be borrowed. Under those circumstances a heat pump would wear out before payback time.
It’s known as opportunity cost
“The social cost of carbon SCC is a prime example of how DOE is using this nebulous authority to impose carbon reduction benefits within its cost/benefit analyses.”
No doubt about it, the SCC is a fictitious, pernicious, instrument of intentional coercion. There are no “externalized” “costs” borne by society by the CO2 emissions resulting from the beneficial use of natural hydrocarbons as fuel. The entire notion is fabricated from an illusion. Incremental CO2 is simply not capable of driving the direction of any climate trend – certainly not to harmful effect.
In the UK the price per Kwh equivalent means Gas is 1/5 the price of electricity. Even with Gas being burnt at 80% efficiency then a heat pump needs a COP of 4 to make its running cost equal to the Gas boiler. Most heat pumps are air source heat pumps with lower COP’s than Ground source heat pumps so you end up paying more so you can be virtuous. It would make sense for me if the nearest steam was closer than 100M as water sourced heat pumps have the best COP’s of all. But how many homes have a stream or lake near enough.
Kommando,
I believe the minimum efficiency by law for a gas or oil boiler now is 90%?
The other negative of air source is that the CoP drops as outside air tempertaure drops, in other words, the heater performs worse the colder it is. Not a good feature.
Yes it is but its tested under laboratory conditions designed by the industry so the combustion takes place under ideal conditions ie self condensing. But once you get into colder conditions the self condensing stops, this results in an overall efficiency of 85% and there are still a lot of older boilers around. So 80% is a safer figure to take.
I’m surprised that the climate whack jobs don’t demand that the efficiency be 99%.
they should try it at Fallingwater
You will be cold, in the dark, and hungry, but you will be happy.
/s
Because all we peasants need are sturdy sandals, to carry the sedan chairs of the elites.
There’ll be lots of jobs for sedan chair carriers. Gotta think positive. 🙂
The Sergeant Major used to order us to look at our situation like that in my army days.
But if I recall correctly, we were NOT happy at all.
We’ll be thrilled to know that the temperature doesn’t exceed 1.5 C above 1850. /s
It can’t be said enough, our government is bad, really bad. It needs to be cut drastically. The problem is primarily in the new departments that have been created in the last half of the twentieth century. I feel like we could do without all of the new agencies.
Bob,
Then keep pushing for EPA to.closd in every article you write and hope that the mood catches on. Geoff S
It might never be closed but at least it should be castrated. 🙂
Congress needs to show more than usual resolve, and revise the original legislation to remove the regulatory overreach. The problem is that one party agrees with the apparatchiks, but does not want to take responsibility for their actions.
Governments that mandate that industry produce certain items and not others are known as fascist.
Democrats are now the party of fascists. It doesn’t matter what their excuse is. If the shoe fits then they wear it. There is no other explanation necessary.
If you have natural gas, then it’s a really affordable way to heat your house.
If you aren’t on a natural gas line, then heat pumps might be economic. Where I lived according to my calculations, heat pumps beat propane by a decent margin.
If you live somewhere that you need central air, and if your central air unit needs replacement, then putting in a heat pump is a pretty easy choice, because you can avoid the cost of the furnace completely, and the heat pump is only trivially more expensive than the AC compressor, because it’s the same thing, only with an added reversing valve. And if your current house has AC and resistance heat, then the heat pump will cut your heating bill in half.
Well the economics change if you include that you are getting an air conditioner as well as a heater.
That said, if heat pumps were economical, there would be no need to subsidize them. People would just buy them. As to how much “carbon” they save, I would object to that calculation as well. Those things cost more in part because it requires more energy to make them. So where are they made and how much energy from what source is used to make them? I dunno but I bet the “carbon” required is a lot more than to make a gas furnace.
The price quote seems to be about twice what it should be. Googling a 4 ton unit gives me about $8,000. Granted, you probably made a good decision because the heat pump might not last a full 30 years but mine is a 2007 and though I blew a couple of capacitors and an outside fan, it’s still running. I don’t have natural gas and the HOA would have a fit if I installed propane plus living in Phoenix, I need cooling so it will be another heat pump for me. It’s important with a heat pump to have an honest repair man because there are a lot of scams in the business.
In Oz modern RC aircons last 10-12 years on average whether they’re ducted or splits whereas the ducted I just replaced in a modest rental unit lasted nearly 35 years with two regasses 3 new zone motors and a new control pad. While the new inverter replacement is more efficient the $10k AUD has to be amortised over one third of the life of the previous unit that used ozone depleting refrigerant.
Is it the change of refrigerant that’s the problem with longevity (that I suspect) or they just don’t make them like they used to? In any case after a decade or so the tech has changed (indoor and outdoor units can’t accommodate later refrigerants) and spare parts are unavailable. A common Achilles Heel with a fritzed motherboard spells throwaway time out of warranty.
Only a government, particularly a leftist one, could conceive of policies that simultaneously made life more difficult and more expensive and then impose them by threatening costly legal persecution. What a time to be alive.
Mr. Keitho: I agree, a small government would conceive of the policies, but not have resources to actually make life difficult or carry out legal threats. Those of us who promote less government understand this- there is no government so small that it can’t conceive of the policies, seems to be in the hard-wired nature of government.
There are no climate change benefits in any of this. Wake up everybody
The UK has lots of Victorian and later terraced housing too small for ground sourced heat pumps. A survey by the Energy & Utilities Alliance found that there were significant “limiting factors” in installing heat pumps in 12 million of them.
One of the most common difficulties was lack of available space to install such a pump and the needed larger radiators as well as double glazing.
This hasn’t stopped the large energy companies from pushing heat pumps though, because all they see is £££ signs.