Heating is a significant driver of global energy demand, both in buildings and in industry, and is an important component of energy expenditure for households, especially in colder climates. Many households use natural gas to warm their homes, provide hot water and to cook. However, high gas prices during the energy crisis - and significant policy action in response – have made the business case for electrification of heat more attractive, which is reflected in the sharp increase of residential heat pump sales in 2022. Several countries have implemented or announced plans for phaseouts of fossil fuel boilers, although these have sometimes proven controversial. Governments also introduced minimum energy performance standards requiring heat pumps to be installed. Given all these developments, the energy crisis may have accelerated the shift away from gas for residential space heating.

Based on the most recent data, countries representing 50% of global residential gas consumption have seen their demand peak, stabilize or fall, while countries representing the other half are still experiencing demand growth. The IEA’s Outlooks for gas markets and investment report estimates that gas demand in buildings is expected to decline by 65 bcm in advanced economies from 2021 to 2030 thanks to a swift acceleration of efficiency improvements and widespread adoption of heat pumps.

In 2021, the United States (22%), the European Union (17%), Russia (13%) and China (10%) accounted for almost two-thirds of global residential natural gas consumption. From early 2000 until the energy crisis in 2022, residential natural gas consumption remained stable – and high – in the United States, increased and then plateaued in the European Union, and rapidly rose in China and the rest of the world. In particular, a large expansion of housing stock combined with reduced use of coal and fuel switching to gas caused an eighteen-fold increase in residential natural gas demand in China since 2000.

In parallel, electricity demand in the residential sector more than doubled globally – with an eightfold increase in China – between 2000 and 2022. Part of this is driven by increasing consumption through more access to electricity in EMDEs, and growth in the number of appliances such as ACs in both advanced economies and emerging and developing countries, but another part is from a higher level of electrification of heating installations. 

It is likely that the energy crisis has marked a turning point for residential gas demand in Europe. Residential and commercial gas demand dropped by more than 15% in 2022 compared to the year before. While 40% of the decline in residential and commercial demand in Europe can be attributed to weather-related factors (reduced space heating needs due to a mild winter), a substantial part was achieved through various gas-saving measures. These included households switching to alternative fuels, behaviour changes and efficiency improvements such as building retrofits and heat pump installations. Due to the high energy prices, some households and businesses also had to involuntarily reduce their energy consumption.

In 2023, this trend is continuing in the region, with an estimated 9% decrease in Q1-Q3 overall gas demand in OECD Europe, compared to a year before. This suggests natural gas demand in Europe in the residential and commercial sectors is set for a moderate, sustained reduction in the coming years.

Lower natural gas heating demand is also expected in the United States, with the Inflation Reduction Act providing financial support for energy efficiency measures and heat pumps. Residential and commercial gas demand in the United States is forecast to decline at around 1% per year between 2022 and 2026 due to efficiency gains and deployment of heat pumps.

Gas use in the residential sector in China has grown strongly, boosted by policy incentives to replace coal-powered boilers with gas-fired ones. However, residential and commercial gas demand growth is forecast to slow to 5% on average between 2022 and 2026. In emerging markets and developing economies in Asia, residential and commercial gas demand is expected to increase marginally in the medium term. 

Heat pumps are a central technology in reducing emissions from space and water heating in the buildings sector. Globally, over 100 million households use heat pumps as a main heating source, meaning that one in ten homes that require substantial heating are served by heat pumps. As a result, heat pumps are providing around 10% of the global heating needs in buildings. In the IEA’s Net Zero Emissions by 2050 Scenario (NZE Scenario), this increases to 25% in 2030 and 55% in 2050.

The heat pump market has seen a remarkable development during the last years. Global sales rose by 11% in 2022, driven by policy support and incentives amid high natural gas prices and efforts to reduce emissions. Europe experienced a record year, with sales increasing by nearly 40%, particularly for air-to-water models, which saw a 50% rise. In the United States, heat pump purchases surpassed gas furnaces in 2022, while sales in China, the largest heat pump market, remained stable, maintaining the largest overall sales worldwide.

Heat pump sales have been boosted by financial incentives that are currently available in over 30 countries around the world. Collectively, these countries make up more than 70% of global heating demand for buildings. Many countries are also further strengthening existing incentives for heat pumps. In Canada, for example, a new programme announced in October 2023 will make the average heat pump free by providing a grant up to almost USD 11 000 in Atlantic provinces for households at or below median income. 

Several countries showed strong growth in the first half of 2023, with heat pump sales up 75% in Germany, the Netherlands and Sweden combined. However, heat pump sales are set to decrease in 2023 in several other countries, such as Italy, Finland and Poland. As a result of the expected decline in sales in 2023 in some countries, the European Heat Pump Association has called for strong and consistent policies to provide certainty for investors and consumers and accelerate the residential energy transition.

The United Kingdom has directly linked efficiency and heating system performance through the Boiler Upgrade Scheme, a government financial incentive programme designed to promote the replacement of fossil fuel heating systems with a heat pump or biomass boiler. Countries can also enact requirements for improving the efficiency of existing buildings and thus prepare them for adopting high-performance heating and cooling systems. For example, France prohibits buildings with very low energy efficiency levels (above 450 kWh/m²) to be rented full-time. Requirements will become more stringent with a prohibition to be rented long-term for buildings with EPC class G from 2025, class F from 2028 and class E from 2034.

In 2022, the United Kingdom, Norway and seven countries across the European Union – together accounting for 80% of residential gas use in the region – had implemented or announced plans to ban new gas boilers in new or existing buildings. In 2023, some governments made these plans more concrete and laid out specific dates on fossil fuel boiler phaseouts or minimum energy performance standards for heating installations. However, other countries have delayed the announced phaseout plans amid acceptance and implementation concerns.

Since 2018, there has been a ban for gas boiler installations in new buildings in the Netherlands. In 2022, the Dutch government announced a new standard from 2026 requiring a (hybrid) heat pump to be installed in buildings when an existing gas boiler needs to be replaced. The updated energy savings obligation mandates hybrid heat pumps for space heating for businesses under certain conditions from 1 July 2023.

The Danish government has had a ban on gas and oil boilers in new buildings in place since 2013 and plans to replace all fossil fuel boilers by 2029 through district heating and heat pumps. Luxembourg announced a phaseout of fossil heating when replacing an existing boiler as well, but initially on a voluntary basis. In Australia, a recent ban on gas boilers installations for new residences in Victoria starting on 1 January 2024 sparked other jurisdictions such as the city of Sydney to announce similar intentions. After the state of California removed incentives to use natural gas in new buildings, the Air Resources Board approved the 2022 State Strategy for the State Implementation Plan, which includes a ban of all fossil fuel-fired boilers by 2030.

The German government proposed to require new heating systems in new and existing buildings to run on at least 65% renewables from 2024 onwards. After months of negotiations, the German parliament passed an amendment to this Buildings Energy Act, which sets the 2024 requirement only for buildings in new development areas, while for installations in all other new and existing buildings the deadline has been extended to 2026 in larger cities and 2028 elsewhere.

The United Kingdom initially planned to ban new oil, LPG and gas boilers in new-built homes from 2026, and new gas boilers in existing buildings from 2035. However, these plans have been pushed back to 2035 and the ban on new gas boilers in existing properties will have 20% of households exempted.

In France, gas boiler installations have been banned in new buildings since 2022 and the government has considered to phase out gas boilers in existing buildings from 2026 onwards. However, in September 2023 the French president ruled out a ban on gas boilers in existing buildings.

The REPowerEU plan also proposed setting stricter limits for heating systems, which were specified in an Ecodesign and Energy Labelling Consultation Forum in April 2023, where the European Commission proposed energy efficiency requirements of space heating by 2029, which would effectively ban stand-alone fossil fuel boilers and mandate (hybrid) heat pumps. However, given the different viewpoints, no decision has yet been made, and the Commission is consulting on possible exemptions.

The energy crisis has led to higher prices for residential gas heating and accelerated the uptake of heat pumps, strengthened by the rollout of government support policies. However, countries are still reluctant to ban gas boiler installations completely given the risk of high upfront investment costs of heat pumps, the lock-in effect of the existing gas infrastructure and current cost of living pressures for households. Recent announcements in several countries to delay such boiler bans show the end of natural gas in residential space heating is not yet in sight, but the transition away from gas is gaining speed.