The Quiet Engine of Building Decarbonization

Buildings' contribution to emissions

Buildings account for one of the largest shares of global greenhouse gas emissions. The International Energy Agency estimates that the building sector represents around 30 percent of global final energy consumption, with a similarly large share of energy-related carbon emissions. In the European Union, the European Commission's Renovation Wave Strategy puts buildings at roughly 40 percent of the region's energy consumption and 36 percent of its energy-related greenhouse gas emissions, much of it from heating and cooling. In dense urban centers the share is higher. New York City's own data shows that buildings are responsible for over two-thirds of the city's greenhouse gas emissions.

For ESG strategists and corporate sustainability leaders, this is a material concern. Decarbonization plans focused on cleaner electricity grids and the retirement of fossil-fuel power plants will not deliver net zero alone. Demand-side electrification is equally important, particularly in how the world heats its buildings.

Historically, buildings have received less investment and policy attention than the power and transport sectors. That is changing, with heat pumps emerging as the central technology in the shift.

Heat pump adoption

Heat pumps use electricity to move heat from one place to another, providing space and water heating. The technology is decades old, but recent gains in efficiency and the introduction of refrigerants with lower global-warming potential have made heat pumps viable across most building types and climates, including cold ones.

A modern air-source heat pump typically delivers around three to four units of heat for every unit of electricity it consumes, an efficiency that combustion-based systems cannot match. According to the IEA, heat pumps reduce greenhouse gas emissions by at least 20 percent compared with gas boilers when powered by emissions-intensive electricity, rising to up to 80 percent in countries with cleaner power grids. The advantage grows as electricity systems decarbonize.

Adoption is advancing across several major European markets:

• France: Heat pumps overtook fossil-fuel boilers in 2022, the same year a national ban on gas boilers in new buildings came into effect.

• Germany: Heat pumps outsold gas boilers for the first time in the first half of 2025, with around 139,000 heat pumps sold against 132,500 gas boilers, according to industry trade body BWP.

• Norway: Around 60 percent of buildings are equipped with heat pumps, according to the IEA's Future of Heat Pumps report.

• Finland and Sweden: Each above 40 percent of buildings equipped with heat pumps.

These adoption rates demonstrate that heat pumps function effectively in cold climates. Globally, the IEA estimates that accelerated heat pump deployment could reduce global carbon dioxide emissions by at least 500 million tonnes by 2030, broadly equivalent to the annual emissions of all cars in Europe today.

"Heat pumps are an indispensable part of any plan to cut emissions and natural gas use, and an urgent priority in the European Union today," said Dr Fatih Birol, Executive Director of the International Energy Agency, in remarks accompanying the IEA's Future of Heat Pumps report. "All the pieces are in place for the heat pump market to take off, reminiscent of the trajectory we have seen in other key climate technologies like solar PV and electric vehicles."

The earlier transitions Birol references required policy support and financing access alongside technology improvements before adoption could scale. The IEA's Energy Technology Perspectives 2026, published in March, concludes that policy design is now the primary limiting factor for further heat pump deployment, not the technology itself.

💡Under the IEA's Stated Policies Scenario, heat pump manufacturing capacity is projected to grow by around 80 percent in China, more than double in the United States, and rise by about 40 percent in the European Union by 2035. Together, those three markets are forecast to account for roughly 85 percent of global manufacturing capacity and 80 percent of demand. In the IEA's more ambitious Net Zero Emissions Scenario, global heat pump sales would need to more than quadruple by 2035.

How manufacturers are integrating heat pumps

For manufacturers building heat pumps at scale, the question is no longer whether the technology works but how quickly it can be deployed at the scale climate targets require. Manufacturers are increasingly integrating heat pumps with smart energy controls and lower-global-warming refrigerants, alongside circular-economy practices across the product lifecycle.

Daikin, one of the world's largest heat pump manufacturers, reported a 27 percent reduction in net greenhouse gas emissions in fiscal year 2024 against a 2019 business-as-usual baseline, with intermediate 2030 targets validated by the Science Based Targets initiative in March 2024. The company has set a long-term goal of net-zero operations by 2050.

"Air conditioning is an important aspect of our daily lives, and its demand is expected to increase for reasons such as health and economic development," said Masanori Togawa, Chairman of the Board and CEO of Daikin Industries, in the company's 2024 Sustainability Report. "However, air conditioning has a significant impact on the environment due to its high electricity consumption. That is why we believe that addressing society's needs for air solutions while also contributing to the decarbonization of society is our most important social mission."

Heat pumps are increasingly positioned not as a stand-alone product but as a platform that addresses both heating and cooling demand alongside emissions reduction. According to the IEA's Future of Cooling analysis, air conditioning and electric fans together already account for around 10 percent of global electricity consumption, with energy demand for space cooling projected to more than triple by 2050. Heat pumps address heating and cooling within a single system, an advantage few other building-sector technologies offer.

Barriers to deployment

Despite supportive policy conditions in many markets, deployment is not yet on track to meet climate scenarios. The European Heat Pump Association recorded a 5 percent decline in heat pump sales across 16 European countries in 2023, the first such drop in a decade, followed by a further fall in 2024 driven by weaker subsidies and political uncertainty before sales began recovering in 2025. Persistent barriers include:

• High upfront costs

• Retrofit complexity in older buildings

• Fragmented installer markets

• Split incentives between landlords and tenants

At a Daikin Europe panel in Ghent in November 2025, Peter Anderberg, founder and CEO of HEATNET Global, described the next phase of heat pump deployment as a delivery challenge rather than a technology one.

"Innovation shouldn't just be about the product, but about the process," Anderberg said. "How can we make it simpler, cheaper and less dependent on consultants? I believe more 'copy and paste' and less complexity is the key to really accelerating development."

Building decarbonization at this stage is largely an operational problem. Deployment depends on training enough installers and standardizing retrofit packages, with reliable customer experience essential to maintaining public confidence in the technology. Several governments are addressing these issues directly. The Netherlands has gradually been raising taxes on natural gas while lowering them on electricity to make heat pumps more economically competitive. Ireland has piloted one-stop-shop services to support homeowners through the heat pump installation process.

💡The IEA reports that financial incentives for heat pumps are now in place in over 30 countries, which together represent more than 70 percent of global heating demand. The European Union's revised Renewable Energy Directive (RED III), agreed in 2023, sets an indicative target of a 49 percent renewable energy share in buildings by 2030, alongside binding annual increases of 0.8 percentage points in renewable heating and cooling until 2026, and 1.1 percentage points from 2026 to 2030.

Why heat pumps matter for Sustainability

For investors and corporate sustainability leaders, building decarbonization is among the more credible emissions-reduction options because the technology is established and the deployment requirements are well understood. Reporting requirements under the EU's Corporate Sustainability Reporting Directive, which began applying to the largest companies from the 2024 financial year, are now surfacing the embodied and operational emissions of corporate real estate portfolios in detail. The EU's 2025 "Stop-the-Clock" Directive delayed reporting obligations for second and third-wave companies by two years, although disclosure requirements for the largest companies remain in force.

What was once treated as a niche HVAC procurement question is now a board-level matter linked to climate risk, asset value, energy security, and tenant expectations. For companies that have moved early, operational savings have aligned with regulatory direction, while reputational benefits have followed.

Different regions will adopt different solutions depending on local conditions. Policy missteps in some markets illustrate that implementation matters as much as the underlying technology. Heat pumps are a proven technology, already installed in millions of buildings worldwide, where they transfer heat efficiently and help reduce emissions.