California aims to install six million heat pumps by 2030 as part of an ambitious climate strategy, but the state’s soaring residential electricity prices—among the nation’s highest and rising faster than inflation—threaten to undermine that goal. A Harvard University study finds that while heat pumps would save typical households money in the southern United States and Pacific Northwest, California presents a mixed picture where many homeowners would face higher monthly bills by switching from gas furnaces.
The barrier highlights a central tension in California’s climate plan: electrifying buildings is essential for meeting emissions goals, yet the state’s electricity costs price many homeowners out of the transition.
Heat pumps are gaining traction as California pursues one of the nation’s most aggressive strategies to reduce greenhouse gas emissions. The state aims to install six million of the all-electric devices in homes by 2030. Lawmakers are moving to streamline permitting and create incentives for electrification. But a fundamental tension persists: California’s residential electricity rates, among the highest in the nation, can make the economics work against the climate goal for many homeowners.
“On the one hand, California has hyperambitious goals to reduce greenhouse gas emissions,” said Roxana Shafiee, an environmental science policy researcher at Harvard University. “But then you scratch the surface a bit more and you look at things like electricity prices.”
Heat pumps work by extracting heat from outdoor air, compressing it, and piping it indoors—a thermal process that delivers several units of heat for every unit of electricity consumed. They can serve double duty as both heaters and air conditioning units, maintaining constant temperatures without the blast-then-cool-off cycle of traditional furnaces. For buildings responsible for 13% of the nation’s greenhouse gas emissions in 2022, according to the U.S. Environmental Protection Agency, switching from gas furnaces and water heaters to electric alternatives running on California’s increasingly renewable grid represents a necessary step toward meeting climate targets.
Yet California faces a distinct problem: residential electricity costs are nearly double the national average, and they have risen much faster than inflation. Between 2001 and 2024, average retail gas prices in California increased 80%, according to federal data. Electricity rates, padded with wildfire prevention costs and state-mandated social programs, increased 160% in the same period.
Regional variation in heat pump economics
A Harvard University study by Daniel Schrag and Roxana Shafiee examined residential energy costs, usage, and winter temperatures across every U.S. county to understand where heat pumps make economic sense. The study found that typical households in the American South and Pacific Northwest would likely see lower utility bills by switching from gas to heat pumps. Northern Midwestern homes, by contrast, would see bills increase—partly because heat pumps work less efficiently in subzero winters and partly because natural gas is cheap in the region.
California presents a more complicated picture. The state’s temperate coast appears ideal for heat pump adoption, yet high electricity prices can make the switch costly. Some counties, especially those with larger homes, colder winters, or the highest electricity rates, would see homeowners pay more per month rather than less.
“If I’m a consumer, I’m going to be thinking about—not just, ‘is this good for the environment?’ That’s certainly one consideration, but also, ‘is this something I can afford?’” said Helen Kerstein, analyst at California’s Legislative Analyst’s Office. “Unless folks are saving money on the operating cost, it often doesn’t pencil out.”
Where the economics work
Quentin Gee, a manager at the California Energy Commission, pointed to the thermodynamic advantage of heat pumps: unlike a gas furnace that burns fuel to create heat, a heat pump compresses and expands a refrigerant to move heat from outside into a home. That efficiency, he said, can allow heat pumps to compete with gas on operating costs even in PG&E territory, where electricity rates may be among the nation’s highest—depending on local rates and home characteristics.
“In lower-cost municipal utility regions such as Sacramento’s SMUD, heat pumps can be a clear financial win,” Gee said.
Homes that currently use old electrical baseboard or space heaters—what researchers describe as heating homes “basically like heating your home with a toaster”—are guaranteed to save money by switching. Heat pumps can use up to 60% less energy than baseboard heating for the same warmth output. For homeowners with solar panels, the calculus shifts further. Doug King, a green building consultant in San Jose, installed his first heat pump in 2021 alongside a rooftop solar system that more or less covered the monthly running cost. “I was willing to pay a bit of a premium for using electricity over gas anyway,” he said of a second unit installed last year that raised his bills slightly.
The barrier of upfront cost
Heat pumps have outsold gas furnaces every year since 2021, according to the Rocky Mountain Institute, a clean-energy research nonprofit. Demand spiked particularly sharply after 2022 following the Inflation Reduction Act, which offered federal rebates and tax credits to homeowners.
But installation costs often reach into the tens of thousands of dollars. Many homes require new electrical wiring, larger breakers, full panel replacements, or upgrades to the service connection to the grid—unexpected expenses that can derail electrification plans. Matthew Freedman of The Utility Reform Network cautioned that customers often underestimate how complex and costly electrical work can be, adding another layer of uncertainty to the question of long-term rate savings.
California has layered multiple programs to defray upfront costs: the California Energy Commission tightens building codes steering new construction toward all-electric homes; the Public Utilities Commission sets rate rules and oversees rebate programs; utilities offer rebates and special rate plans; and state and federal dollars have targeted lower-income households. This year, state lawmakers are considering bills to speed local permitting and to require gas utilities to offer homeowners cash to electrify their homes in lieu of replacing old gas lines.
Installation costs have become “pretty competitively priced with traditional units, especially since in most cases, you are installing two appliances for the price of one,” said Madison Vander Klay, a California policy advocate for the Building Decarbonization Coalition. This holds true even as federal supports subsided with the Trump administration’s return to the White House.
The California heating landscape
Despite California’s reputation as a climate champion, nearly two-thirds of the state’s homes rely on natural gas for heating—well above the 51% national average. Lucas Davis, a UC Berkeley energy economist, has found across 70 years of heating data that the best predictor of whether a household uses electricity is the price of energy. “To this day, where do we see that electric heating is the most common? Throughout the southeast,” he said. “What do we know about the southeast? Cheap electricity.”
The consequences of California’s expensive electricity extend well beyond individual household decisions. Using fossil fuels to heat water, warm indoor air, and cook food in homes and businesses was responsible for 13% of the country’s greenhouse gas emissions in 2022. Gas-powered private vehicles accounted for another 16%. For California to reach its climate goals, the state will need to electrify much of that heating—and find a way to make the economics work despite the cost of the power that would run it.