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The Heat Is On: A State-Level Plan to Keep Heat Pumps Pumping

What states can do to fill the gap when federal tax credits for heat pumps disappear

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State Climate Action

Thursday, August 28, 2025

A man installs a ductless heat pump on a roof © 2021 Vernon Air Conditioning/Flickr CC BY 4.0

Taking on the climate crisis and improving our health starts right where we live—by getting fossil fuels out of our homes. The key? A simple, yet powerful piece of technology: the heat pump.

To reach net-zero emissions by 2050, we need to completely transform how we heat our homes, and there's no time to waste. With heating systems lasting 15-20 years, we must start selling only zero-emission heat pumps within the next five years to ensure all 133 million U.S. homes are upgraded in time.

Republicans just made this goal harder, but not impossible. Through the so-called One Big, Beautiful Bill Act (OBBBA), Congressional Republicans voted to eliminate the Energy Efficient Home Improvement Credit (25C) at the end of the year, taking away millions of dollars in tax incentives for home upgrades from families nationwide. This includes $2,000 tax credits for households installing a heat pump or heat-pump water heater, $1,200 for upgrading insulation, $600 for electrical panel upgrades, and $150 for home energy audits.

Millions of people have saved money with these credits by upgrading their homes and reducing their electricity bills.

Electricity prices since November 2024

Now, states and cities must do their part to educate households on the savings and health benefits of switching to a heat pump, urge homeowners to use the credits while they are still available, and create policies that keep heat pump installation on track even after the credits expire.

To maintain momentum when federal tax credits for heat pumps disappear, states should have a comprehensive plan to make heat pumps affordable and accessible, including:

- Providing financial support so households can invest in upgrading their homes, especially for low and middle-income households.
- Developing a trained and efficient workforce that knows how to install heat pumps affordably in every type of home.
- Making sure electricity rates are affordable for people who use heat pumps.

In this blog, we’ll break down options for helping families cover the upfront costs of upgrades. In future pieces, we’ll dig into workforce development and electricity rates.

How Can States Help Families Pay the Upfront Costs of Upgrades?

No one is happy when their current water heater or furnace breaks and they have an unexpected, and potentially significant, expense. But instead of replacing outdated technology with more of the same, families should choose a state-of-the-art heat pump. Although a heat pump’s installation may cost more upfront than a polluting furnace or water heater, it offers long-term savings from lower energy bills and less maintenance. Plus, heat pumps don’t have the same risk of gas or carbon monoxide leaks, making them a healthier and safer choice. States should make this decision a no-brainer by helping families cover the initial cost, benefiting everyone’s finances and health.

Trump signs the One Big Beautiful Bill Act at the White House, surrounded by Republicans. — President Trump signed the “One Big Beautiful Bill” into law in June 2025. This catastrophic legislation locks in higher household energy bills, kills American jobs, and kicks Americans off health coverage and food assistance.

Addressing the Greatest Barrier to Investment: Funding

The biggest challenge states face in investing in this transition is finding adequate funding sources. Even before the recent cuts, most states were already struggling to fund their building decarbonization programs. Now, with the OBBBA making drastic cuts to essential services like Medicare and food assistance, their budgets are stretched even thinner, leaving less money for other important initiatives. But there are still three key funding sources that states can pursue

1. Utility Incentive Programs

Most states already have Energy Efficiency Resource Standards and other utility incentive programs that support reducing electricity use through efficiency. Many of those programs still need to be updated so they can effectively support the beneficial electrification of homes. Maryland is a good example of a state that has updated its EmPOWER program, so that utilities are now required to reduce greenhouse gas emissions, and not just reduce electricity use, which unlocks the program for supporting heat pumps and electrification. While these programs often draw their funding from electric utility customers, which can sometimes raise rates, energy efficiency reduces bills overall by decreasing peak load and avoiding the need for expensive grid infrastructure.

2. Cap and Invest

A few states also have programs like cap and invest, which make polluters pay and direct revenue toward reducing emissions and addressing the impacts of climate change. Building efficiency and electrification upgrades can do both by reducing household emissions and making homes more resilient to extreme weather—a real win-win! California, Washington, and New York all have, or are developing, cap and invest programs that can and should dedicate funding for building upgrades. A New York study showed how cap and invest could help almost half of households in the state upgrade their homes and set them up to save up to $1,000 per year on utility bills.

3. Clean Heat Standard

States without a cap and invest program should consider implementing a Clean Heat Standard (CHS), which would require heating fuel providers to provide a steadily increasing amount of “clean heat.” Similar to a Renewable Portfolio Standard, a CHS would require fuel providers to hit clear targets for providing clean heat, which they could do by upgrading people’s homes and businesses to low- or zero-emission heating systems or doing weatherization.

Colorado is already implementing a first-in-the-nation policy that will direct over $100 million per year to electrification and energy-efficiency measures, and other states like Maryland, Massachusetts, and Vermont are exploring similar policies.

Three Ways to Ensure Programs Are Equitable and Effective

Once a funding source is determined, it’s also critical to direct that funding efficiently to make the most equitable and effective use of it. That generally means focusing direct incentives on low-income households first, and looking toward solutions like low-cost financing for moderate and higher income households.

1. Low-Income Household Direct Install Programs

For low-income households, it’s important to have a robust program for direct-install whole home retrofits that can simultaneously upgrade heating equipment, weatherize the home, and address issues such as lead and asbestos. Many states already have, or are exploring, whole-home retrofit programs that can provide a one-stop shop for households to access a variety of programs and incentives for a coordinated home upgrade project. States can and should leverage their Weatherization Assistance Program and Low Income Heating Assistance Program money for such programs, as well as leveraging funding sources noted above.

Also, the Home Energy Rebates (HER) program survived the GOP megabill and is still a tool available to state energy offices to fund home upgrade programs. Unfortunately, Trump’s Department of Energy (DOE) has been slow-walking approval of these state programs. States must urge DOE to approve those programs and release funding that households are waiting for.

2. Creating Incentives and Rebates

Not every household needs a direct install program, but many might need an upfront incentive or rebate to support them in upgrading to a heat pump. States, utilities, and municipalities from across the country provide incentives for customers to switch to heat pumps and heat-pump water heaters. These programs can and should be expanded, ideally with funding targeted toward low- and moderate-income households. Such programs should be simple, transparent, and easy for households to access, with funding available at the point of sale or installation. New York’s EmPower+ program is a great example of what this looks like in practice.

3. Providing Easy, Low-Cost Financing

For middle-income households, providing easy and low-cost financing for home efficiency and electrification projects can be a great way to leverage state or non-profit funding to channel private capital toward home upgrades.

Many states already have programs for Tariffed On Bill Financing (TOBF) for energy efficiency and other home upgrades. Also called Inclusive Utility Investment (IUI) financing, these programs allow the states, utilities, or green banks to provide upfront capital for home upgrades and receive loan payments directly on utility bills, at a net savings for customers. California has recently implemented an IUI financing program that will unlock funding for millions of households in need of building upgrades.

States should be proactive and include strong consumer protections in any financing program to avoid some of the predatory practices that plagued some similar programs in the past. To protect consumers, anyone offering financing should first direct customers to low-income incentive programs, verify that projected bill savings are accurate, and ensure the customer has the clear ability to repay the loan.

Despite GOP Efforts, the Future Is Electric

While the Republicans’ OBBBA attempted to quash clean energy and electrification efforts, the heat pump revolution is not something that can be stopped. Sales of heat pumps are now consistently higher than gas furnaces, and it’s just a matter of time until the market is fully transformed. The key, now, is for states and cities to set up the right programs to equitably accelerate that transformation, so we can avert the worst of climate change and reap the benefits of cleaner air and lower utility bills.

Author - Tony Sirna

Tony is the deputy policy director for Evergreen. Prior to Evergreen, Tony worked with Citizens’ Climate Lobby as their Vice President of Organizational Strategy.

Editor - Medhini Kumar

Medhini is the writing/editing digital lead for Evergreen. Through powerful storytelling, she hopes to help move the needle on climate policy and contribute to our collective fight for a livable planet.