A common criticism of heat pumps is that they do not work in cold weather.
However, the Nordic region – particularly Sweden, Finland and Norway – offers a rebuttal to this assessment, as our research at the Regulatory Assistance Project (RAP) shows.
These three European countries have the highest heat pump sales per 1,000 households in the continent.
At RAP, we have analysed the driving factors that led to this Nordic success story, as part of the development of our heat pump policy toolkit, which we launched at the COP27 climate summit in Sharm el-Sheikh last year.
Heat pump market growth
Installations of heat pumps in the Nordics rose quickly after 2000 and, despite a slowdown in 2012, again continued to surge after 2015.
Heat pumps work like an air conditioning unit (or a fridge) in reverse, to concentrate heat energy from the outside air – or a water or ground source – into building interiors.
The most common are “air-to-air” units, meaning they take heat from the outside air to blow warm air inside, whereas air-to-water units make hot water. Heat pumps are the “central technology” for low-carbon heat, the International Energy Agency (IEA) says.
Norway has the highest penetration of heat pumps worldwide, most of which are air-to-air systems. By 2020, there were 60 heat pumps installed per 100 households in Norway. Most of this happened after 2001 when the heat pump market grew significantly from a low base of around 2,000 units per year to more than 155,000 units sold in 2022.
Similarly, in Finland, before 2000 only a few hundred units of heat pumps were installed per year. From the mid-2000s onwards, the country saw a rapid growth with cumulative installations now exceeding 1m units.
This can be seen in the chart below, which shows annual heat pump sales in Finland, Norway and Sweden from 1990 to 2021.
Because heat pumps use electricity that increasingly comes from low-carbon sources they lead to carbon emission reductions overall. Cumulatively, the heat pumps sold over the past 30 years contributed to a -72% drop in carbon dioxide (CO2) emissions from heating in Finland, -83% in Norway and -95% in Sweden.
In addition, recent RAP analysis shows that heat pumps, even at temperatures sub-zero, are two- to three times more efficient than fossil-fuel heating systems.
This rapid reduction in carbon emissions from heating cannot be attributed to heat pumps alone — district heating, also known as heat networks, has become less carbon intensive and buildings have been built and retrofitted to a higher fabric efficiency standard over time. However, heat pumps played a key part.
Achieving heat pump leadership
The Nordic countries were previously heavily reliant on heating oil to keep warm, a result of the absence of a widespread gas grid.
They – Finland, Norway and Sweden (Denmark uses district heating as its main source of heating, with two-thirds of homes relying on it) – made an early decision to move away from heating oil following the energy crisis in the 1970s. This had seen the oil price rocket by almost 300% due to an oil embargo by the Organisation of Arab Petroleum Exporting Countries (OAPEC).
This crisis led to a widely supported goal to become independent from fossil-fuel imports, perhaps most starkly evident with the creation of a Commission for Oil Independence in Sweden in 2005.
Despite changes in political parties over time, this has remained a constant focus in national energy policy across these countries – and explains why fossil fuels make up a low share of heating fuels in Finland (22%), Norway (less than 1%) and Sweden (3%).
The decision to move away from oil heating provided an important stimulus for research and development of heat pump technology, followed by various promotional government programmes, including information campaigns and grant payments.
For Norway, specifically, it also had a large share of homes using electric heating. Converting electrically heated homes to heat pumps provides significant reductions in electricity demand and running costs because heat pumps are, typically,about three times more efficient than direct resistance heating.
More recently, regulations, such as the complete ban of using heating oil in buildings for heating, have come into effect in Norway. In June 2018, the government adopted a regulation banning the use of mineral oil (fossil oil) for the heating of buildings from 2020. The ban covers the use of mineral oil for heating in residential buildings, public buildings and commercial buildings.
Historic household electricity prices in all three countries were also relatively low compared to many other European countries with about €0.17 per kilowatt hour (KWh) in Finland and Norway and €0.20/kWh in Sweden before the price crisis.
Carbon taxation has played a key role in making heat pumps economically competitive in all three countries. In 1990, Finland was the first country in the world to introduce a carbon tax, which currently stands at €53 per tonne of CO2 (tCO2) for heating fuels.
Shortly after Finland, Sweden adopted a CO2 tax in 1991. Since its introduction, it has increased from €21/tCO2 to €102/tCO2 in 2022.
Norway also introduced a carbon tax in 1991, which reached €76/tCO2 in 2023. The government’s white paper on energy policy announced that the tax would rise to €196/tCO2 in 2030, which would be one of the highest levels in the Organisation for Economic Co-operation and Development (OECD).
Many other countries across Europe have addressed imbalances in taxation of heating fuels to encourage heat pump uptake, including the Netherlands, Denmark and Germany, according to RAP analysis.
In Denmark, electricity used for heat pumps in homes is exempt from energy taxes to the minimum amount allowed under EU law. In Germany, levies have been shifted from bills to the public budget.
Air-to-air heat pumps
It is notable from the RAP data presented above that two-thirds of the heat pumps sold in the three countries are air-to-air heat pumps. This differs from other major European heat pump markets, such as Germany and Poland, where the majority of heat pumps are air-to-water.
The reason for this is that, in many cases, heat pumps replaced electric resistive heating with no hot water running through radiators.
Furthermore, the architecture in the Nordic countries tends to be more open plan compared to other European countries. This makes the application of air-to-air a more attractive proposition, without the need for extensive ducting or multiple individual fans.
In addition, air-to-air heat pumps are lower cost compared to air-to-water heat pumps, according to the IEA.
Air-to-air heat pumps can also be used for cooling. However, the Finnish Heat Pump Association estimates that air-to-air heat pumps used for cooling account for only 10%-15% of the market, with the majority being used for heating only.
In some cases (although, according to the Finnish heat pump association, this is a small minority) more than one heat pump is installed in a single building and heat pumps are also often operating with a second heat source being present.
Many homes continue to use wood stoves after having installed a heat pump as a study from the Oslo Centre for Research on Environmentally Friendly Energy (CREE) on heat pumps shows, albeit less frequently. This resulted in about a quarter less wood being used for heating in 2021 compared to 2010. The continued use of wood is at least in part a result of aesthetic and cultural preferences.
In Finland, heat pumps are often installed as an additional heating system complementing mainly electric heating.
Nordic clean heating lessons
RAP’s analysis has found that the success of heat pumps in the Nordics is not accidental.
Instead, it is the result of a mix of policy instruments working in concert, such as carbon taxation, government incentives, regulations, quality standards, consumer protection for example through the creation of bodies to deal with complaints and offer redress, and information campaigns.
The natural efficiency of heat pumps has also helped their deployment.
The key takeaway is that there is no single policy that can deliver a mass market for heat pumps. A well-designed policy mix of economic instruments, financial support and regulation, underpinned by coordination and engagement, turns out to be the most effective recipe for scaling up heat-pump deployment, according to RAP’s research.
The experience in the Nordic countries illustrates not only what can be achieved in just two decades, but how to do it.
Policymakers in countries where heat pumps are still in their infancy do not have to start from scratch, but can learn from – and build on – the heat-pump success story in Norway, Finland and Sweden.
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