The Effect of Rebate and Loan Incentives on Residential Heat Pump Adoption: Evidence from North Carolina

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Electrification can promote deep decarbonization to tackle climate change with a cleaner power grid. Electric heat pumps provide a feasible and energy-efficient way to replace fossil-fuel furnaces for space heating. Rebate and loan programs are the two most widely used incentives for residential heat pump installations in the U.S. This study compares the impacts of rebate and loan incentives on residential air-source heat pump adoption in North Carolina. First, our results show that the rebate program ($300–$450 per system) increases the adoption density by 13% in a year. Second, we find that the rebate program is more effective in promoting heat pump adoption for average consumers than two loan programs (annual loan interest rate: 9%, 3.9%). Third, we find the rebate program is less effective for low-income households than high-income households. Lastly, we compare the rebate with the loan programs in terms of cost-effectiveness and we find the rebate program is more cost-effective under certain circumstances.

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Environmental and Resource Economics