Overview

  • To support Powering Canada Strong, Ottawa is putting $2 billion into a National Heat Pump Rebate, maintaining existing Canada Mortgage Housing Corporation (CMHC) and Canada Infrastructure Bank (CIB) financing to support apartment retrofits, and investing $110 million to renew the Deep Retrofit Accelerator Initiative (DRAI).
  • The heat pump rebate design gets the hard parts right: 24-hour approval for new installations, no energy audits, a larger rebate of up to $10,000 for below-median-income households, and eligibility for landlords.
  • Missing from the discourse are the 200,000 central air conditioners installed each year that only cool, when they could be heat pumps that both heat and cool instead. While it’s not yet clear whether air conditioner replacements will qualify for the rebate, it would cover much of the additional cost of installing a cold climate heat pump instead.
  • There is a risk that the rebate’s success could exhaust the budget early. Avoiding another boom-and-bust cycle means planning now for off-ramps, including an equipment standard to move from air conditioners to heat pumps and a revamped Greener Homes Loan that brings in private lenders.
  • The DRAI renewal will let their funded Accelerators build on their work to date helping building owners develop retrofit projects. Expanding their mandate beyond deep energy retrofits can put smart electrification at their core, improving alignment with Powering Canada Strong.

What the Design Gets Right

As we noted in our response to the national electricity strategy Powering Canada Strong, buildings are not a problem to solve, but a resource to develop via smart electrification. Hundreds of thousands of times every year, heating and cooling systems across Canada reach their end of life and need replacement. Every one of those replacements represents a fork in the road: lock in another 15+ years of similar equipment or make the more modern electric technology choice. Yesterday’s announcement by Prime Minister Carney made that decision all the easier for many Canadian households. The new rebate design supports the transition to heat pumps by:

  • Targeting the more than three million homes currently heated with oil, propane or electric baseboards that our analysis has shown would immediately save on their heating bills by installing a heat pump. While not every Canadian home comes out ahead today, three million is more than enough to build much needed momentum;
  • Streamlining the rebate process (via 24-hour rebate approval, 5-day payment approval upon receipt submission, and no pre- or post-audit requirements), so that these households can quickly replace equipment that breaks down. Many of the roughly 300,000 homes that replace their furnaces every year will need these emergency replacements. The tests will be whether 24-hour approval holds at peak winter volume and rebate payments to homeowners quickly follow approvals;
  • Providing up to $10,000 to encourage below-median-income households to install heat pumps, a market segment that has been harder for incentive programs to reach;
  • Extending eligibility to landlords so that renters can also benefit, though the one-rebate-per-person cap will limit how far it reaches into rental housing for landlords with multiple rental units; and
  • Working with HVAC installers to equip them to act as rebate and heat pump champions.

The rebate will continue building Canada’s heat pump market, which at last count has only reached about 8% of homes. Getting the delivery right will determine how far and fast that number moves, and whether that momentum can be sustained.

Reach Air Conditioner Buyers, Not Just Broken Furnaces

Every year, Canadians install about 200,000 central air conditioners that only cool. It is unclear whether the rebate will cover homeowners who install a heat pump for that application, but these cooling-led installations are another significant trigger for heat pump adoption, and the easiest one to act on.

Because the equipment is so similar (same unit outside, same coils inside, similar electrical requirements), switching from an air conditioner to a heat pump adds little friction for homeowners or contractors. Heat pumps also reach a part of the market the rebate is not currently focused on: gas-heated homes. In these homes, the furnace stays as backup for the coldest days, and the heat pump carries the heating load through the spring, fall and much of the winter. That means:

  • Steadier year-round demand for heat pumps across the country, an incentive for distributors to keep them in stock and contractors to offer them in heating and cooling seasons,
  • More opportunity for energy bill savings in British Columbia, Ontario, Quebec, and Atlantic Canada, with the opportunity to future-proof in the Prairies with no increase in bills today, and
  • New electricity demand that falls mostly outside the winter peak, limiting the need for grid upgrades.

Preliminary results from our recently launched AC and HP costing survey indicate that the prescribed rebate amounts would, in many instances, be able to cover a significant portion of the incremental costs of moving from a central air conditioner to a central cold climate heat pump.

Eligibility for heat pumps sized to replace a central air conditioner, with the furnace kept as backup, is what unlocks this opportunity. Without it, the rebate misses the easiest path to heat pump adoption in gas-heated homes. With it, the months ahead of next summer are the window for marketing efforts to reach buyers, distributors and contractors before another unit that only cools goes in.

Plan What Comes Next to Avoid Another Boom and Bust Cycle

We have seen this before. The Canada Greener Homes Grant launched in 2021 with $2.6B was expected to last seven years, supporting up to 700,000 homeowners with grants of up to $5,000 each. Demand was so strong that the program closed in February 2024, four years early. Nevertheless, it still supported over 400,000 households, with 6 out of 10 homeowners choosing to install a heat pump.

The new rebate commits $2 billion over eight years to support up to 820,000 households, a target that assumes nearly all of them receive the $2,000 base rebate. If uptake is strong among the below-median-income households eligible for up to $10,000, the same budget risks reaching far fewer homes and running dry early. Demand would decrease for contractors who were hired and trained for the program, and households would put off purchases while they wait for the next rebate.

Meeting Powering Canada Strong’s goals means building a durable heat pump market that outlasts any single program. That takes a planned exit from the rebate and tools that don’t depend on rebate dollars.

A predictable wind-down. Households, contractors, and HVAC distributors cannot plan around a rebate that ends suddenly and without warning. They can plan around one that offers clarity around how and when it will close. A public budget tracker, reporting rebates by tier, would show how quickly funds are being drawn down and how they are reaching the homes the program targets. Paired with a potential step-down schedule announced in advance, it would turn the program’s end into a transition rather than a cliff.

An equipment standard. Rebates and standards serve distinct roles. The cold climate heat pumps supported by the rebate cost more and are early in their adoption curve, so incentives help. But standard heat pumps that can replace central air conditioners have been around for decades, and their cost premium continues to shrink. Nonetheless, 200,000 households each year still install a unit that only cools. A standard would change that, costs taxpayers almost nothing, drive remaining heat pump premiums down as volumes rise, and keep limited rebate dollars for the homes that need them most. The Energy Efficiency Act could establish reversible heating and cooling as the minimum requirement in its next amendment cycle, requiring new central air conditioners be heat pumps instead. Industry has told us it can comply with as little as 18 months’ notice, providing ample time to align a standard’s coming into force with the wind-down of the rebate offer.

A financing offer. The first Greener Homes Loan proved demand, with $2.9 billion provided across 120,000 loans, but at 0% interest it crowded out private lenders. A new offer could put federal capital behind the banks, credit unions, incentive program administrators, and fintechs exploring lending for retrofits, helping homeowners pay for upgrades when they need it most. Building a financial ecosystem enables lenders to build a permanent business that keeps the heat pump market from going bust as rebates wind down. Alongside it, the government could signal support for capital requirements that reflect the lower risk of lending on high-performance buildings. That would lower borrowing costs for homeowners and landlords at almost no public cost.

Each of these takes time, so planning should start now, while the rebate is still building momentum.

Point MURBs Towards Electrification

While the rebate took the headline, the package also supports multi-unit residential buildings (MURBs) with:

  • CMHC Multi-Unit Mortgage Loan Insurance supporting up to 250,000-unit retrofits, funded through premiums and fees rather than new taxpayer funds,
  • The CIB Building Retrofits Initiative drawing from existing allocations to support 30,000-unit retrofits, and
  • The DRAI being renewed with nearly $110 million over three years, starting in 2027-28.

The DRAI’s renewal is particularly welcome. The Accelerators guide building owners from planning to implementation, develop tools and processes that support retrofits (as we’ve noted), and helps build project pipelines for CMHC, CIB and other financing offers. But they are still ramping up, and their first three years has been a short runway to take projects from planning to completion. A longer funding horizon will let them deliver on the work they have started.

Their mandate matters as much as the timeline. The Accelerators have focused on deep energy retrofits, which reflects an old debate over whether to make buildings more efficient or electrify them. That is a false choice. A heat pump is an efficiency upgrade, delivering heat with a fraction of the energy of a furnace. And the most cost-effective time to electrify is when existing equipment reaches end of life, a moment that rarely lines up with a deep retrofit’s planning requirements. The renewed mandate should make smart electrification a core retrofit measure, one that serves end-of-life replacement and that does not have to wait for, or be bundled with, a deeper retrofit.

The Right Conditions for Success

This announcement rightfully treats home heating as part of the electricity strategy, and its core design reflects some of what past programs taught us. What remains is execution: a realistic target, a 24-hour promise kept in January, and a budget that lasts until the market can stand on its own.

That last point is the real test. While a rebate can start a market, standards and financing can sustain it. Reaching air conditioner buyers, setting an effective date for an equipment standard, building a financing offer with private lenders, and pointing the Accelerators toward electrification would let this rebate do what the last one didn’t: end without disappointing the market that leaned into it.