Pathways to 2030

Emissions declined by 1% from a pre-Covid peak in 2019, but have risen 9% since 2005.

Reaching Net Zero will require retrofitting half of Canada’s existing 16.7 million homes.

The Year In Climate Policy

The federal government exempted its carbon tax on home heating oil for three years.

Ottawa released its first National Adaptation Strategy, focused on climate adaptation and resilience and changes to the National Building Code.

Canada and the UAE launched the Cement and Concrete Breakthrough initiative at COP28 to boost global production and use of low-carbon cement by 2030.

Prince Edward Island led other provinces in the development of energy efficient homes: 1 in 5 new PEI homes is certified as Energy Star.

Shipments of heat pumps surpassed shipments of conventional furnaces in Canada.

Canada Lags Peers In Building Retrofit Policies

Retrofit Index Score (/100)

Source: 3 Keel, Global Retrofit Index Report, RBC Climate Action Institute

Three Things To Watch In 2024

Provincial compliance with Canada’s 2020 National Model Codes, including those for building and construction, starts in March 2024.

The Buildings and Climate Global Forum in Paris, featuring first ministers and CEOs, will gather to establish a global framework for decarbonizing the building sector.

Almost all the 35 Paris Olympics venues are upcycled, and new construction uses timber as its primary building material.


The Net Zero Community Playbook

Land Ark Homes
Westport, ON

Deep Dive

Heat Pumps

  1. Heat pumps penetration hit a new high. Around 7% of Canadian homes had heat pumps in 2023.
  2. Subsidies and early adopters have driven demand. The challenge now is to scale heat pump installation through market forces.
  3. Home-building spree could exacerbate emissions challenge. But home builders have been slow to adopt new playbooks and technologies.
  4. Market barriers are limiting growth. High upfront costs, limited consumer awareness and value chain complexity pose challenges to adoption.
  5. The Netherlands may have an answer. The Dutch concept of lower costs, higher customer awareness and alleviating supply chain challenges, or Energiesprong, is coming to Canada.

Canada is in the early stages of a historic building boom, which by the end of the decade may transform the way we live and organize our communities. It’s not just about the current squeeze of affordable housing. Canada is the only G7 country with an ambitious immigration plan that is projected to add 500,000 new permanent residents per year—more than 1% of the population—through the rest of the 2020s, requiring 260,000 new homes a year, on average, to be built.

It’s no surprise, then, that governments are pouring money and other policy supports into home-building, which is only adding to tensions between affordability and sustainability. Our national building stock already accounts for 13% of Canada’s emissions, which could rise both with population growth and extreme weather as roughly 75 to 85% of building emissions are generated from heating and cooling.

How we build homes and develop communities may need a rethink if we’re to add millions of new units and reduce our overall emissions. Yet home builders have been slow to adopt new playbooks, relying instead on the 20th century model of speed, quantity and price. Single detached homes, for instance, which account for 52% of Canada's housing stock, are much larger than condos. They are 1.7 times bigger typically, and require more energy to heat and cool. In most communities, heating continues to rely on oil and gas.

Homeowners Are Embracing Heat Pumps

Source: Statistics Canada
NB: Figures do not add up to 100% due to exclusion of several types of heating systems; 2030 figure is an estimate by the RBC Climate Action Institute

Cooling On Conventional Furnaces

Increasingly, builders and owners are looking to heat pumps as a solution. Nationally, such devices could cut annual residential operating emissions by up to 24 million tonnes or 26% of the buildings sector’s footprint—the equivalent to removing six million gas powered vehicles from the road each year or all cars in Quebec1.

Heat pumps work like air conditioners, but in reverse using electricity to gather heat from the outside and moving it inside, even in cooler months. For cost as well as climate-minded homeowners, heat pumps have become a compelling option to oil and gas furnaces2. In 2023, the penetration of home heat pumps reached a new high of 7%.

The growth curve for heat pumps, though, needs to be steep, and not just for new builds. Oil- and gas-powered furnaces can be found in almost half of Canada’s 16.7 million homes. But there are signs that Canadians may be cooling on fossil-fuel powered furnaces with sales declining at an annual rate of 1% starting in 2017. Moreover, 2021 saw another historical first—shipments of heat pumps surpassed shipments of conventional furnaces3.

Heat pump adoption is on course to reach 10% by 20304. That kind of adoption rate is critical for technology adoption because it’s the point when growth typically starts becoming exponential, moving beyond market traction to market maturity, and finally market saturation. Although still at an early stage, there are signs that the shift in homeowner preferences has staying power. But it may take more than market forces to narrow the green premium gap.

To date, half of all homeowners who received the federal government’s Canada Greener Homes Grant chose to buy a heat pump5. Nova Scotia and New Brunswick both introduced heat pump subsidies programs in 2017, and their impact on heat pump adoption was evident by 2019. The Nova Scotia program, administered by the province’s energy efficiency agency, EfficiencyOne, led to a four-percentage-point increase in the share of homes with a heat pump from 14% to 18%6. The impact in New Brunswick was even more profound. The share of homes with a heat pump jumped from 17% to 28%7.

For these homeowners, government subsidies tilted the economics of heat pumps in their favour, especially for standard ducted heat pumps. The “green premium” for a base model standard ducted heat pump disappears with a maximum grant of $5,000. For more expensive cold-climate ducted heat pumps, where average cost is between $10,000 to $19,000, a $5,000 subsidy can cut upfront costs from between 26% and 50%. (Energy advisers are also driving demand through their recommendation of heat pump retrofits over other types of building envelop and insulation upgrades, and the federal government is funding the training of 2,000 additional people for such jobs.)

Keeping The Cheques Coming

The success of the Canada Greener Homes Grant puts the federal government in a precarious position of closing the program to new applicants starting in March 2024, just as broader public interest in heat pumps reached its highest point in late October 20238. The grant will have directed an estimated $1.3 billion towards heat pump adoption by the time the last cheque is cut9. This figure is roughly equivalent to the amount of capital spending required to electrify homes with heat pumps10.

Supply chain challenges remain another concern as demand for heat pumps from Munich to Minneapolis grows. Around 40% of the world’s heat pumps are manufactured in China, which is both a leading exporter and domestic user of the technology. Limited data makes it difficult to assess the role of supply chain constraints, but our market assessment suggests that there’s no mismatch between supply and demand for heat pumps, technicians and energy advisers currently11. That said, the market could be strained soon. Globally, the world bought more heat pumps than fossil fuel-based heating systems in 2022, according to the International Energy Agency, crossing that divide for the first time.

Greener Home Grant's Popularity Has Led To A Backlog

Source: RBC Climate Action Institute analysis of NRCan and CMHC data

Googling of Heat Pump by Canadians

Search interest, 100 = peak popularity for the term

Source: Google Trends, RBC Climate Action Institute

An Energy Leap

For the past two decades, European governments have been developing and experimenting with different market-based solutions that address the eventual need to end government subsidies and subsidized demand for building retrofits including for heat pumps. The Dutch government, in particular, is noted for its Energiesprong concept. Created in 2010, Energiesprong, which loosely translates into “energy leap,” is the Netherland’s approach to lowering upfront costs, raising consumer awareness, and alleviating supply chain coordination challenges that are holding back the country’s home retrofit and climate ambitions.

Energiesprong is a concept of mass retrofits at a neighbourhood level. These retrofits are led by market development teams (MDT), whose role is to convene and coordinate supply and demand side actors to broker retrofit projects. The concierge like services provided by MDTs address the known informational and supply chain challenges that homeowners face, and which are material barriers to adoption. The bundling of retrofits across groups of similar dwellings enables bulk buying and greater power to negotiate on prices, leading to lower equipment, materials, and labour costs. Cost savings are passed down to homeowners. Energiesprong is most effective when the groups of buildings are similar in design and build. Similarity creates less variance in the type of work and building materials required, resulting in lower costs.

Given the uniformity of Canada’s housing stock, much of which was built after World War II with a limited number of designs, it’s not surprising the concept has been studied for its viability for almost a decade. Pockets of Energiesprong exist across Canada including a 59-unit retrofit of a 1970s townhouse complex in Edmonton by ReNü Engineering.

But the concept has yet to gain traction. The federal government is aiming to change that through its Greener Neighbourhoods Pilot Program. The $35.5 million program announced in 2023 will provide six communities with funding to assess whether the aggregation of regional demand and a “concierge” approach can help accelerate the greening of Canada’s building stock. The success of this program could very well shape the trajectory of heat pump adoption through the 2020s.

European Demand in Heat Pumps Driven by Generous Subsidies

European Demand in Heat Pumps Driven by Generous Subsidies
Countries Maximum Subsidy
Canada $5,000 CAD
France € 15,000
Germany € 18,000
Italy 50 to 110% of heat pump costs
United States $8,000 USD

Source: RBC Climate Action Institute analysis of publicly available program data, for each listed jurisdiction

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