A Free-Market Energy Blog

Giving (tax) Credit Where Credit Isn’t Due: “Geothermal” Heat Pumps (and beyond)

By -- March 18, 2015

To begin, let’s review some basic HVAC (heating, ventilation, and air conditioning) principals. Heat pumps are basically just air-cooled electric air conditioners that, in addition to taking heat out of a home (in the cooling season) can also be made to run backwards to provide heat to homes (in the heating season).   This dual heating and cooling ability is accomplished by the relatively simple reversal of refrigerant flow through an additional control valve.

So-called “geothermal” heat pump are basically just heat pumps that, instead of exchanging heat in the refrigerant with outside air, exchange heat with pipes buried a few feet deep in the yard.   In order to minimize the extra amount of refrigerant that would be needed for the vast amount of buried pipe necessary with “geothermal” heat pump systems, intermediate heat exchangers and common “antifreeze solutions” are employed instead. Despite this additional heat exchanger, “geothermal” heat pump system efficiencies are improved overall relative to air source heat pumps because the ground temperature is more constant than air temperatures.

Other terms for geothermal heat pumps include GeoExchange® and ground-source.  Whatever the term, these systems have officially been deemed as renewable energy and have subsequently been subsidized as such. According to the Tax Incentives Assistance Project (TIAP) website:

What are the tax incentives for geothermal heat pumps?

As part of the Emergency Economic Stabilization Act of 2008, an incentive was added for geothermal heat pump property. The incentive for businesses is available from Oct. 3, 2008 through December 31, 2016, and for residential installations the incentive is available for units placed in service starting January 1, 2008 until December 31, 2016. Qualified geothermal heat pump property refers to any equipment which uses the ground or ground water as a thermal energy source to heat the taxpayer’s residence, or as a thermal energy sink to cool the residence. The unit must meet the requirements of the Energy Star program* which are in effect when the heat pump is purchased.

The residential incentive covers 30% of the expenditures in the year the incentive is taken, up to a cap of $2,000 if the property was installed prior to January 1, 2009. Qualifying geothermal heat pump property installed after December 31, 2008 is eligible for 30% of the installed cost without a cap, as provided under the American Recovery and Reinvestment Tax Act of 2009 (ARRA) . The incentive is available for taxpayers installing qualifying equipment at their primary residence or a second home, but not for a rental property. 

Two options exist for the commercial incentive. An investment tax credit of 10% of the installed cost is available through 2016. The ARRA legislation also provides the option of taking a grant in lieu of the credit, worth 10% of the installed costs for equipment placed in service during 2009 and 2010.

Manufacturers of geothermal energy equipment may qualify for a separate investment tax credit. 

More recently, these systems have begun being promoted for qualification as renewable energy under state “renewable energy portfolio standards.” According to the Geothermal Exchange Organization (GEO) website:

I wish we could have a cookie-cutter approach for each state and every statute, but all are unique so we have to tailor our approach accordingly,” says GEO President and CEO Doug Dougherty. “In some states our focus is on their Renewable Energy Standards (MA, NH, MD, NM). In others, we are concerned with Energy Efficiency Standards (IL, MI, NY), and in one state both (VT). The goal, however, is the same for all: utility support for GHPs.

Illinois   After two years of legislative and regulatory work by GEO on getting GHPs into the Illinois electric utility Energy Efficiency Program (EEP), Illinois electric utilities can now promote GHPs. GEO expects EEP inclusion of GHPs to start this summer.

In the (limited for the time being) cases of MA and VT, such renewable greenwash treatment is also being extended to air-source heat pumps. Publically available references for the latter (air-source heat pumps) include:

So what’s next, calling toaster ovens and electric resistance water heaters renewable?  Probably so, or at least partially, if you live somewhere that has significant amounts of hydroelectricity or other forms of renewable electric generation.  But who benefits and at what cost? Primarily the affluent who want to lower their electric bills through subsidies borne by everyone else it seems.

The purpose of this article is not to challenge the obvious rent seeking of “geothermal” heat pump promoters; but to challenge the junk science that such appliances are somehow powered by renewable energy. To start, true geothermal energy is typically several miles deep; unless you happen to live next to a hot spring or some other form of geologic oddity.  So quite simply, while “geothermal” heat pumps can be very efficient, that does not necessarily equate to being powered renewably.

Are some of the electrons consumed by heat pumps renewable?  Undoubtedly, the answer is yes; some but certainly not all of them (even in the hydroelectric-dominated Pacific Northwest). Perhaps, someday, a genius somewhere will perfect an electron filter so only the “green” ones get by.  Until that happens, grid-based electric energy is a mix of generation resources, renewables being the least represented; at least for the time-being and foreseeable future.  Assuming that renewables come to dominate electric generation in the United States without destroying our economy, I will gladly accept that eventuality; when and if that occurs.  But I would advise against anyone holding their breath.


Mark Krebs, an engineer by training, has been involved with energy efficiency design and program evaluation for more than thirty years. He has served as an expert witness in dozens of energy-efficiency filings, which he summarized in a Public Utilities Fortnightly article, “It’s a War Out There: A Gas Man Questions Electric Efficiency” (December 1996).


  1. Mark Krebs  

    Headlong’ charge into renewables making Vermont ‘uncompetitive,’ technology exec says

    3/18/2015 4:55 PM CT — An energy technology executive challenged Vermont’s goal to reach 90% renewables by 2050 at an open ISO-NE meeting, saying the ambitious plan will harm the state’s economy.



  2. Ray  

    I lived in Florida for years and most of the air conditioners used water cooled condensers instead of air cooled condensers. It’s easier to transfer heat to water than to air because water has a much higher specific heat. The condensers are a lot smaller and since the well water is cooler than the ambient air this also increases the AC efficiency. . Nobody considered this renewable energy.


  3. carrier air conditioner  

    john’s air conditioning & heating service llc


  4. jon  

    I have geothermal heat pumps in two houses, installed during the great rebates of 10 years ago, and to anyone thinking about installing geothermal, I say: DON’T DO IT. The technology is junk — these things break down a LOT and while I can fix almost anything HVAC I can’t fix refrigeration so the repairs are EXPENSIVE, even under warranty. And don’t be fooled by talk of ecological responsibility: they heat your house with electricity, which is expensive and a source of pollution if your electric company burns coal, which most do. WORSE, they are expensive to run — they are only cheap if you install a SECOND FURNACE and allow the electric company to control the heat pump with a separate meter they can turn off during peak demands. They then give you electricity to that meter at half price, bringing the cost down to a level with natural gas.

    And they are NOISY. the geothermal companies will try to tell you “they are about as loud as a refrigerator” but they must mean an industrial refrigerator for a meat packing plant.

    And they don’t heat water in your water heater – they warm it up a few degrees, maybe.


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