Draw the product line around the house, not the tax credit

For three years, much of the American heat pump market has been organised around a line on a tax form. The federal homeowner credit, capped at US$2,000 a year for qualifying heat pumps, applied to equipment meeting a top efficiency tier, and manufacturers, distributors and contractors built product lines and sales conversations around that tier. Following the 2025 federal tax legislation, the credit will not be available for equipment installed after this month. My argument is that the industry should treat this as an opportunity to correct a planning habit rather than as a crisis: product tiers should be drawn around climates and houses, and priced against what a household would otherwise buy, with incentives treated as a benefit to the customer rather than an assumption in the plan.

I write as someone who followed the habit. At Ambersley our 2023 product plan included a variable-speed model engineered to clear the credit's efficiency tier across as many matched combinations as possible. It sold well. It was also the wrong product for a large share of the homes that bought it.

A tier designed for a tax form

The credit rewarded seasonal efficiency ratings. Efficiency matters, and the federal move to the SEER2 and HSPF2 test procedures in 2023 made the ratings more representative of installed performance. But the attribute that most separates a good heat pump from a poor one depends on where it is installed. In a humid southern home replacing an air conditioner, the important qualities are quiet operation, dehumidification and an installed price close to the air conditioner it replaces. In a northern home replacing a propane furnace, the important quality is capacity at 5°F and below. A top seasonal rating helps a little in both places and decides the matter in neither.

When a product tier is drawn around an incentive threshold, engineering money follows the threshold. Our credit-tier model carried a more expensive coil and inverter than a southern replacement needed, and its cold-weather capacity was no better than our standard unit. About 60% of its 2024 sales went to the South, where the extra efficiency paid back over many years even with the credit. Contractors liked it because it simplified the sales conversation. Homeowners liked the credit. Few people asked whether a different product would have served the house better.

The tier also concentrated risk. When the credit's future became uncertain in 2025, distributors holding inventory priced around it faced markdowns, and contractors whose quotes had subtracted US$2,000 at the kitchen table had to rebuild their pitch.

Pricing for the homeowner who claims nothing

From 2024 we began rebuilding our line around three questions: what climate, what house and what is being replaced? The result is a two-stage heat pump for the southern replacement market, priced within a few hundred dollars of a comparable air conditioner; a variable-speed unit for mixed climates; and a cold-climate model sized and rated for low temperatures, with dual-fuel controls for homes that keep a furnace. Each is priced against the alternative a household would otherwise install, usually a furnace and an air conditioner, with no credit assumed.

That discipline was uncomfortable. Our sales organisation pointed out, correctly, that competitors were advertising prices after the credit, and that our quotes would look higher on the same kitchen table. We accepted some lost sales in 2024 and 2025. In return, our 2026 price adjustments are confined to the one tier that still carries a credit-era cost structure, rather than spread across the line, and our distributors are not holding inventory whose value depended on a statute.

The cold-climate model shows how the comparison changes the engineering. A northern household replacing a propane furnace is not comparing our heat pump with a competitor's; it is comparing a year of heating bills and the cost of a new furnace with the cost of a heat pump that keeps the house warm in a cold snap. That pushed our engineers toward low-temperature capacity, defrost behaviour and backup-heat control, and away from a few more points of seasonal rating that the credit would have rewarded. We published capacity at 5°F for every matched combination, and contractors in Minnesota told us it was the figure their customers asked about first.

There is a second reason to price without the credit. A household's decision to replace heating rarely happens on the household's schedule. It happens when the old system fails, often in the coldest week of the year, and the homeowner has a day to choose. A product whose value depends on paperwork that the homeowner will file months later is harder to explain at that moment than a product whose value is visible in the quote.

Where incentives still belong

I do not argue that public incentives are wrong, or that manufacturers should ignore them. Several states are administering rebate programmes funded under federal law, and many are aimed at lower-income households for whom the upfront cost of a heat pump is the decisive barrier. Utilities run programmes tied to their own system needs, such as winter peaks. These programmes can do a great deal of good, and I want our products to qualify wherever they genuinely meet the criteria.

The manufacturer's role is to make qualification easy and honest: certify matched-system ratings carefully, publish which combinations meet which programme, and give contractors the documents they need. Our laboratories certify combinations that we would sell without any incentive. We do not engineer a model to cross a threshold it would otherwise miss.

I would also ask policymakers for something modest. Incentives that change with each budget cycle encourage manufacturers to chase thresholds and contractors to sell paperwork. Incentives tied to outcomes that matter for a house, such as low-temperature capacity in cold regions or installation quality verified by commissioning data, would reward products for what they do rather than for the tier they occupy.

The end of the federal credit will be painful for parts of our industry in 2026. Some households will delay replacements, and some contractors will find their sales scripts out of date. But the products that make sense without a credit are the ones that will still be sold when the next incentive arrives and leaves. I would rather plan for the house than for the form.