Lucas Davis “Do Tax Credits Increase Heat Pump Adoption?” (July 2026) | WP-364 | Blog Post
Abstract:
Economists have long argued that many recipients of clean energy subsidies are likely non-additional, but there are relatively few empirical studies. This paper uses U.S. monthly shipment data to test whether income tax credits increase heat pump adoption. When the tax credit increased from $300 to $2000 in January 2023, there was no increase in shipments. Then, when the tax credit expired in January 2026, there was no decrease in shipments. This lack of a discernible relationship persists after controlling for seasonal patterns, energy prices, and housing starts. The evidence suggests that most recipients of the $2000 tax credit were non-additional, and would have installed a heat pump even without the subsidy. The paper discusses implications for policy design, economic efficiency, and cost-effectiveness. Finally, the paper points out that heat pump shipments continue at a strong pace thus far in 2026 even without the tax credit, with large benefits for the environment.