The 2022 energy crisis and the current crisis in the Strait of Hormuz further emphasise the role that heat pumps already play in supplying reliable heating services. In 2024, heat pump installations avoided an estimated 50 billion cubic metres (bcm) of natural gas use for building heating across Europe, Japan and China. This increased further in 2025, reaching around 53 bcm. Without heat pumps, natural gas consumption for building heating would have been more than 10% higher in Europe and roughly 35% higher in both Japan and China. Further scale-up offers potential to reduce exposure to international gas price volatility and potential supply disruption, with the greatest advantages in regions with both high heating demand and structural reliance on imported natural gas.

Although greater heat pump adoption increases electricity demand, the impacts on system peaks remain manageable, and heat pumps create new opportunities for flexibility. In 2024, heat pumps represented 2‑16% of annual peak electricity demand across major markets, varying by climate and adoption levels. While they add winter-sensitive load, summer peaks due to air conditioning still exceed winter peaks in large economies such as China, Japan and the United States. At the same time, heat pumps increasingly represent a source of system flexibility: through thermal storage, coupling with other heating systems and digital controls, they can shift consumption away from peak periods, supporting integration of renewables and reducing the need for additional generation and grid capacity.

Heat pumps support a diversified manufacturing base and rising employment but require stable demand at scale. Unlike other key clean energy technologies, heat pumps are largely supplied domestically: in 2024, more than 70% of sales for the buildings sector in all major markets were sourced domestically, due to differing local requirements, climates and preferences. Global manufacturing capacity stood at roughly 145 GW per year in 2024, led by China (around 35%), followed by the United States (25%) and the European Union (20%). However, key upstream components – notably rotary compressors – are mostly produced in China, rendering the entire supply chain vulnerable to the economic risks of potential disruption. Sustained demand at scale is essential to justify investment in manufacturing, automation and supply-chain integration. Employment in the sector has risen by around 50% globally since 2015, yet shortages of qualified technicians for installation and maintenance remain a bottleneck.

Heat pumps supplied around 5% of global heating needs in 2024, but deployment differs sharply between the buildings, industry and district heating sectors. The buildings sector represents the vast majority of total installations, with heat pumps covering around 12% of space heating needs globally. By contrast, deployment in industry and district heating remains more limited. This is a result of heat pumps for buildings being more standardised, compared with the more complex installations and longer asset lifetimes in industry and heat networks.

The buildings sector is the near-term engine of heat pump scale-up. Deployment is concentrated in four major markets – the United States (largest installed stock), China (highest annual sales), Europe (significant market for hydronic systems), and Japan (high penetration through reversible air conditioning). After rapid global growth, heat pump sales for buildings peaked in 2022 and then slowed down in 2023-24. Sales stabilised in 2025, a trend that continued into the first quarter of 2026. In several countries, including France, Germany and the United States, annual heat pump sales now exceed those of natural gas boilers and furnaces. Replacement cycles provide a scalable pathway for continued growth – particularly for reversible systems in regions with widespread air conditioning – although retrofit complexity and the heterogeneity of building stock limit the direct transferability of technical solutions and policy designs across regions.

Industrial heat pump deployment remains low but represents a key market opportunity for low- and medium-temperature process heat. Commercially available heat pump systems could technically already supply up to around 20% of industrial heat demand globally, mainly in low- and medium-temperature processes. However, their deployment requires integration into existing production systems for which the economics are not always favourable, often requiring policy support. Japan is currently among the global leaders, with installed industrial heat pump capacity reaching nearly 650 MW in 2024 – enough to cover around 1% of light industrial heat demand, which is more than twice the level a decade earlier. This illustrates that adoption in industry is growing but remains niche.

District heating represents an opportunity for scaling large heat pumps. Deployment remains concentrated in a limited number of projects, mostly in Europe, China and North America. These are providing evidence of technical viability and improving economics over time, but have also demonstrated long planning cycles and complex regulatory requirements in some cases. Large-scale heat pumps in energy networks enable the use of low-temperature resources and improve overall system efficiency. Beyond heat production, they can provide operational flexibility by absorbing surplus renewable electricity and shifting output over time, strengthening the link between heat and power systems.

Technological progress is reinforcing deployment. Although heat pump technology has been around for over a century, advances in system integration, digitalisation and product optimisation are broadening applications and improving performance. The global transition to refrigerants with low global warming potential is reshaping product standards and manufacturing processes, while electrification trends in transport are stimulating further innovation in heat pump components. Japan and Korea remain leaders in high-efficiency systems and compressors, while China has emerged as a major innovation hub. Together, these innovation trends are enhancing competitiveness and enabling new market segments for heat pump technology.

In many applications, heat pumps are already cost-competitive over their lifetime, yet high upfront costs and misaligned price signals can slow adoption. Operational costs – and therefore energy prices – determine to a large extent the lifetime cost-competitiveness of heat pumps: where electricity bears higher taxes and levies than fossil fuels, the incentive to invest in heat pumps is weakened, even when their energy performance is superior to boilers. However, where electricity prices are moderate relative to fossil fuels, and where heat pumps can operate at high load factors or provide both heating and cooling, lifetime costs are often favourable. This is already the case for buildings applications in certain places within the United States, China and Europe, and for certain industrial applications in China, Brazil and Indonesia. However, high upfront costs continue to limit adoption. In buildings, heat pump equipment cost is often 2-3 or more times higher than for alternatives, and installation cost may match or even exceed equipment costs, further raising upfront capital requirements. In industry and district heating, projects involve larger capital commitments and longer planning horizons, increasing exposure to volatile financing conditions and policy uncertainty.

Despite viable economics in many contexts, deployment faces structural constraints. In buildings, market fragmentation, limited consumer awareness and installer shortages slow uptake, while frequent policy changes create uncertainty for households and supply chains. In industry, heat pump projects often require customised engineering, co-ordination across production sites and secure grid connection, increasing the perceived investment risk and financing complexity, and limiting heat pump integration. Adoption in district heating faces similar constraints and is also affected by long planning cycles, permitting difficulties for waste heat recovery, and legacy system design, all of which slow decision-making.

In buildings, heat pump demand rises in all IEA scenarios, though the pace depends on policy ambition. Under the Current Policies Scenario (CPS) – in which existing legislation remains unaltered – global deployment continues to expand at a similar pace to the past decade, increasing by about 80% in 2035 compared to the 2025 sales levels of 108 GW. In the Stated Policies Scenario (STEPS) – which is based on policies that have already been adopted, are announced, or are in the advanced planning stage – global heat pump sales in 2035 are over 25% higher than in the CPS and more than double today’s levels, covering around 20% of global space heating needs. Stronger, more co-ordinated global action in the Net Zero Emissions by 2050 Scenario (NZE Scenario) accelerates growth further, with sales roughly twice as high as in the STEPS by 2035.

In industry, policy ambition shapes structural change. In the CPS, industrial heat pump uptake remains broadly stagnant to 2035, with only marginal gains in market share. In the STEPS, stronger electrification measures and industrial decarbonisation incentives raise deployment to around 8% of heat demand in light industry by 2035, relative to below 1% in 2025. In the NZE Scenario, accelerated innovation, supportive electricity pricing and targeted industrial policy drive deployment to around 20% of light industry heat demand by 2035.

In the United States, end-of-life air conditioner replacement offers major growth potential for heat pumps. Despite a decline in sales in 2025, the US market continued to show stable uptake as heat pumps outsold gas boilers for the fourth year in a row, with early signs of a slight recovery in the first quarter of 2026. Over 20% of households now rely on a heat pump for space heating, and around 90% of households use air conditioning units. While many of them are non-reversible cooling-only air conditioners, this provides favourable conditions for further heat pump deployment; by the end of their lifetime these cooling-only air conditioners could be replaced with reversible heat pumps. Around two-thirds of US homes already have the enabling conditions for such a shift, showing that replacement offers a scalable pathway with big potential that is not dependent on large-scale retrofits.

China leads on sales and cost-competitive manufacturing of heat pumps, supported by industrial capacity and integrated domestic supply chains. Deployment spans buildings, district heating and industry, facilitated by public support programmes for coal-to-electricity switching, incentives and updates to building codes. Although deployment of heat pumps in buildings slightly decreased in 2025 and stagnated in the first quarter of 2026, sales are expected to increase, particularly in growing urban areas and through rural electrification initiatives. A highly competitive and vertically integrated manufacturing base, that can produce heat pumps at a levelised cost 35‑50% lower than in other regions, enables rapid scale-up domestically while also supporting export capacity.

Heat pumps are important elements for Europe’s energy security, with stable policies enabling long-term demand and manufacturing growth. Heat pumps have an important role to play in reducing gas demand in Europe. The region accounts for over 20% of global heat pump sales, and 2025 showed double-digit growth which has continued into the first quarter of 2026. However, the historical sales trend highlights sensitivity to short-term incentives – stable, long-term frameworks are critical to sustain growth and scale domestic manufacturing. Although in many cases heat pumps are already cost-competitive as heating solutions, uptake is still hindered by electricity prices, equipment and installation costs that tend to be higher than in other regions, creating a dependence on policy support for increased uptake. Europe is also advancing large-scale applications in district heating and industry through initiatives such as the German Federal Funding for Efficient Heating Networks (BEW) and the EU Clean Industrial Deal, positioning heat pumps as a strategic component of long-term system transformation.

Japan leads in technology innovation and CO2-based water heaters, setting global heat pump efficiency benchmarks. Japan’s market is mature, with sales that have been mostly stable over time, including in 2025 and the first quarter of 2026. Reversible air conditioners are the most popular technology for space heating, and highly efficient CO₂-based “Eco-cute” heat pump water heaters, a product largely unique to Japan, capture close to 15% of the residential water heating market. The Eco-cute, which was developed to respond to Japan’s high demand for water heating, illustrates how the country’s strong industrial base, long-term policy support and stringent energy standards have put it at the forefront of innovation, particularly in high-efficiency segments. Deployment of the Eco-cute still varies by region and further growth could be unlocked through harmonised technical standards and targeted incentives.

The Heat Pump Monitor 2026 underscores the crucial role of policy measures in accelerating heat pump deployment across all sectors. But it also recognises that every country faces different circumstances, including climate conditions, building stock characteristics and industrial structure, which shape the strategic potential for heat pumps. Nevertheless, we have identified four key strategic considerations in the current context:

1. Use heat pumps for energy security and resilience.

   Much of global heat demand is supplied through internationally traded natural gas, susceptible to price and supply shocks that can impact households and industries. Increased deployment of heat pumps makes it possible to reduce reliance on natural gas. However, this requires adequate policy, support and investment in electric grids, and this would become even more crucial during heating seasons.

2. Mitigate overall uncertainty with stable policies.

   Clear long-term regulatory signals are critical to create the confidence needed to sustain demand and investment in manufacturing. For the buildings sector, this means consistent policy within building energy codes, minimum energy performance standards and training of licensed installers. In the industry and district heating sectors, policies relating to industrial energy efficiency plans, district heating strategies, incentives for waste heat utilisation and streamlining processes for grid connections are more effective for supporting deployment and manufacturing.

3. Improve the cost-competitiveness of heat pumps.

   There is still potential to strengthen heat pump cost-competitiveness through policy action. Governments can rebalance energy taxes and levies and introduce dynamic electricity pricing to address operational costs. Upfront costs can be tackled through targeted rebates, concessional loans, on-bill financing and innovative business models. Increased market transparency in equipment purchases and installations also plays an important role in increasing competition and helping households make informed long-term investment decisions.

4. Support international harmonisation of heat pump data reporting.

   Reporting standards and classifications of heat pumps differ greatly between regions, which hinders like-for-like market comparisons and tracking. By supporting an international harmonisation of heat pump data reporting, businesses would gain a clearer understanding of market dynamics and investment opportunities, while enabling cross-market policy learnings and comparisons for governments. IEA stands ready to keep supporting this area of international collaboration, building on the Agency’s proposed Heat Pump Taxonomy developed in consultation with leading experts and governments.