The European Heat Pump Association (EHPA) has released a
new report indicating that nearly all European countries could do more to financially support the adoption of heat pumps, which are crucial for decarbonizing the heating and cooling sector.
The study found that only six out of 30 countries examined have implemented a lower Value Added Tax (VAT) rate for heat pumps compared to fossil fuel boilers. These countries are Belgium, France, Ireland, Portugal, Romania, and the UK*. As a result, heat pumps often have no economic advantage over traditional boilers regarding upfront costs.
Operating costs present a similar challenge. For heat pumps to be cost-competitive with boilers, the price of electricity should not exceed twice that of gas. This disparity arises because heat pumps require significantly less electricity than the gas needed by boilers to generate the same heat output.
Despite this, VAT on gas and electricity is uniform across Europe, save for Latvia and Spain, where electricity VAT is lower. In only seven of the 25 European countries with available gas and electricity pricing data is the cost of electricity less than twice that of gas.
Paul Kenny, Director General of EHPA, emphasized the urgency of the situation, stating, “In parts of Europe, winter is already starting to bite. Consumers should be able to warm their homes affordably and sustainably. Every heat pump installed in Europe supports Europe’s energy security and energy sovereignty. Member States must use all the fiscal tools at their disposal to ensure this happens, with support from the EU.”
The report suggests that the European Commission can catalyze this change through initiatives like the upcoming Electrification Action Plan, the Action Plan for Affordable Energy Prices, revisions of the Energy Taxation Directive, and the Citizens’ Energy Package. These actions would make the cleanest heating and cooling solutions also the most financially attractive for end-users, including industrial consumers.
*It's worth noting that since 2022, EU law has allowed the reduction of VAT on heat pumps to a minimum of 5%. EHPA advocates for further reductions down to zero and encourages Member States to consider this option.
