Electricity taxes, levies preventing heat pump market growing in Europe

Creating more balanced taxation levels between electricity and gas will be key to making heat pump technologies compete with gas for heat supply in the European energy market. This is the main conclusion of a new report published by the European Heat Pump Association (EHPA), in which its experts claim that taxes and levies on electricity in Europe are currently unjustifiably higher than those applied to gas and other fossil fuels which, in turn, makes operating costs of heat pumps, inevitably higher.

According to the figures released by the EHPA, which do not take account of the current gas and electricity price hike, this market distortion affecting heat pump operating costs is felt more in Belgium, Germany, Ireland and Spain. In Germany, for example, taxes and levies applied to the electricity bills represent around 40% of the final price, which compares to only 26% for gas, and 32% for heating oil. “Energy taxation is key to creating a level playing field for renewable technologies in the heating sector,” the paper reads.

The EHPA experts claim that only a carbon tax may create the conditions for fair competition between heat pumps and gas, as was shown by the example of countries such as Sweden, Switzerland, Finland, Norway, France, the Netherlands, Germany, Denmark, Ireland, Slovenia, Portugal, and Estonia, with the first three nations of that list those with higher carbon prices, at €120/tCO₂, €87/tCO₂, and €62/tCO₂, respectively.

“Since the introduction of [a carbon] tax, Sweden has seen a decrease in household energy use by 2.1%, and a phase-out of fuel oil, that was replaced, up to 75%, by district heating, and 25% by heat pumps,” the authors of the report stated. “These countries are faster in phasing out fossil fuels and decarbonizing their heating sector because it is possible to bridge the price gap between renewable and fossil fuel-based technologies via carbon pricing.”

The association has urged the European Commission to review the Energy Taxation Directive and to provide more consistent carbon price signals across energy sectors and EU member states. “Distorted energy prices are misleading consumers because the least sustainable heating technologies are perceived [to be] cheaper,” said the trade body's secretary-general, Thomas Nowak. “The actual cost of burning fossil energy is, however, not disappearing, it is instead covered by society at large.”

According to another recent study, the combined use of heat pumps and rooftop PV generation may be boosted in Europe by replacing current subsidies with a carbon tax policy. Their analysis showed that the profitability of this combination is strictly dependent on gas prices and that a slight increase in gas prices would be crucial to sustaining strong development.