Senate embraces heat pumps; corporates must follow

There is no magic wand to solve the current inflation crisis — but there is a medium-term partial fix. Prices are up because of supply chain glitches, but these problems will reverse. We have already seen sharp falls in the oil price, cotton, wheat, and lumber. Maybe prices will shoot up again, but right now, there is one particular problem vexing economists, the media and especially the public — the cost of energy. The heatwave that has created such havoc across the northern hemisphere has made fears about surging heating bills seem remote. But within a few months, as winter bites into our comfort, the heating costs will dominate headlines again.

Alas, only a limited amount can be done between now and then, but measures can be taken to ensure that the cost-of-heating crisis is as short-lived as possible. In particular, homes and businesses need greater energy efficiency and heat pumps.

Frankly, the markets will do the rest. The cost of renewables is now so attractive that all they need to continue growing is a nudge, and that nudge takes the form of investment in infrastructure and efficiency.

This means investment in transmission lines, electric vehicle charging points, heat pumps and energy efficiency.

The US Inflation Reduction Act goes a long way to supporting the above requirements in the US. No, it will not solve inflation this year, but then that might be mission impossible. But it can ensure US households are less reliant on gas and other fossil fuels in the future. 

We are about to see a massive shift in how the US uses energy; this is good news for the planet and for US households in the medium term.

In Europe, governments must take similar action.

But business must play a role too.

The shift towards heat pumps is one area where business can play a leadership role. I would go further; a company that embraces investment into heat pumps should get bonus ESG marks; heat pumps really do need to be in the front line in the battle for net zero.

There is more than one reason why businesses should take a lead role; it is not just about setting an example and doing one’s bit.

For one thing, there is the issue of demand. Gas prices are up because at the old price; gas demand exceeded supply. The more companies switch to heat pumps (and invest in efficiency), the lower the total demand for gas.

The second thing relates to economies of scale and a learning rate. For the heat pump business to offer cost-effective solutions to households, it needs scale. Furthermore, heat pumps, like wind, solar power, and lithium-ion batteries, will see a learning rate — the more heat pumps are installed, the faster the heat pump industry can perfect its service and invest in training — it is similar to economies of scale but not identical.

A company which is true to its ESG credentials must follow the example set by US Senate,

2023 and 2024 can be the years when households across the world embark on a great switch to heat pumps. The result will be greater electricity demand— which will increasingly be met by renewables and less demand for gas.