Social and contextual determinants of heat pump adoption in the US: Implications for subsidy policy design

Building electrification with heat pumps (HPs) is an important pillar of decarbonization. The US Inflation Reduction Act (IRA) of 2022 provides unprecedented cash incentives to households. However, little is understood of peoples’ preferences or constraints, and hence of the efficacy of these incentives. We develop a residential heating appliance choice model that identifies socio-demographic, contextual and economic determinants of adoption using structural estimation methods with data from the American Housing Survey (AHS). We find that households in warmer, urban areas, with younger heads of household, in larger homes, and with better insulation are more likely to adopt HPs. Using New York state as a case, we predict willingness to pay (WTP) for and adopt HPs under the IRA incentives. We estimate that half of New York households would be willing to adopt HPs by 2030, setting aside other market barriers that could prevent actual adoption. The total subsides would amount to almost four times the IRA’s initial allocation of 9 billion for home improvement for the entire US. The subsidy cost of replacing 70 percent of the heating appliance stock by 2030 could be a third higher. However, this cost could be reduced by 15 percent if subsidies were weighted more towards higher income households, implying a modest trade-off between equity and cost efficiency. These findings underscore the importance of better understanding the heterogeneous home and household conditions that influence HP adoption. Funding for building electrification would have to be increased substantially to achieve high adoption rates.