Heat pumps and furnaces heat your home – but in different ways

The most significant difference between furnaces and heat pumps is that furnaces create their own heat, generally through fuel combustion, to raise the temperature in your home, while heat pumps generate heat (and also function as an air conditioner in the summer) by using electricity to pump a refrigerant compound through condensing and evaporative cycles that move heat from one place to another.

Because furnaces don’t depend on external temperatures, they can function in any kind of extreme climate or weather. While furnaces have traditionally had the upper hand in cold climates, today, every major manufacturer offers “extended capacity,” or cold-climate, heat pumps. In fact, cold-climate systems are able to provide at least 85% of their heating “oomph” at temperatures as cold as 5° F., and some work at temperatures as low as negative 15° F.

Furnaces differ based on their fuel type: oil, electricity, or gas. Let’s compare them with heat pumps one by one.

Gas furnaces vs. heat pumps

Like other furnaces, gas furnaces burn natural gas or propane to heat air that’s distributed through ducts to various parts of a building.

In general, the economic case for gas furnaces and heat pumps on a lifecycle basis is similar. A gas furnace has a lower initial cost compared with a comparable heat pump system. However a heat pump doubles as an air conditioner, and this initial cost difference tends to equalize when comparing a gas furnace + air conditioning combination with a heat pump. Running costs of both systems are similar, with heat pumps having an advantage. This is because heat pumps are 3x more efficient than gas furnaces, while the price of natural gas in the U.S. is low.

The key advantage of gas furnaces over heat pumps has traditionally been in cold climates. However, advances in heat pump technology mean that this is no longer true. Given the long time horizon of at least 15 years when installing a gas furnace, it is important to consider a few other factors.

1. Natural Gas Price Volatility: Most recently, we saw natural gas prices skyrocket in the fall of 2021, before dipping in the winter on the back of milder than expected winter weather forecasts. While future prices are uncertain, price volatility seems virtually assured.

2. Regulatory Uncertainty: More states and municipalities are taxing or regulating natural gas, with some cities banning new gas lines for new construction.

3. Safety: Natural gas is explosive, and the infrastructure needed to keep it flowing safely is old and aging fast. While rare, incomplete combustion poses the risk of carbon monoxide poisoning as well.

4. Environment: Natural gas is a potent source of greenhouse gases, not just when it burns, but especially when it leaks. Heat pumps have the environmental advantage of running carbon neutral.

Electric furnaces vs. heat pumps

An electric furnace basically works like a big hair dryer, producing heat with electric heating elements. The furnace then uses forced air to blow the heated air through the house.

While the initial equipment cost of an electric furnace will be lower, electric heating tends to be the most expensive type of heating on a running cost basis. While 100% of the electricity that an electric furnace draws is converted to heat, heat pumps run at greater than 300% efficiency, making heat pumps the economic winner in virtually all cases. Coupled with the ability of heat pumps to double as air conditioners, the only case where an electric furnace makes sense would be if your home experiences virtually no heating needs in winter.

Oil furnaces vs. heat pumps

Most common in the Northeast of the U.S., an oil furnace simply burns heating oil to produce heat. The furnace then uses forced air to blow the heated air through the house.

Although suited to extremely cold climates due to the high energy density of the fuel, oil heating has several drawbacks including 1) the high cost of heating oil (typical oil heaters cost about $1,700 per year in the Seattle are), 2) effect on indoor and outdoor air quality (heating oil is similar to diesel fuel), and 3) ground contamination by older leaking oil tanks.

Among the different types of furnaces, oil furnaces tend to be the least efficient, with new models ranging between 80 ~ 90% efficiency, and 60% for older systems. This compares with 80~98% for gas furnaces, 100% for electric furnaces, and 300%+ for heat pumps.

From a purely economic standpoint, heat pumps outperform oil furnaces on running costs come out ahead on a lifecycle basis, while doubling as an air conditioning unit. In addition, heat pumps have the environmental advantage of running carbon neutral.