On February 22, 2022, the provincial government in B.C. announced changes to its tax laws with direct effects on the heating and cooling industry.

Effective April 1, 2022, the provincial sales tax (“PST”) rate on the purchase or lease price of fossil fuel combustion systems will increase from 7% to 12%, while heat pumps will be exempt from PST (the “Initiative”)

The government’s intention in implementing the Initiative is to reduce the overall use of fossil fuels and reduce carbon emissions.

Although the Chamber supports green initiatives, this specific Initiative does not consider its drastic impact on businesses operating in the central and northern interior communities in British Columbia. Nor does this policy change consider customers that heat their homes and businesses with zero and low-carbon renewable gases, a key greenhouse gas emissions reduction pathway identified in the CleanBC emissions reduction strategy.

In particular, heat pumps are not always recommended by heating and cooling professionals as a home’s principal source of heat in central and northern communities in light of the extreme climate, not only from an operational standpoint, but taking into consideration the increased cost.

If the climate does not support the use of a heat pump, both individuals and businesses are then faced with this increased tax with no alternative. For instance, the increased cost of both the heat pump compared to an air conditioner and now the installation of a supplemental heat source does not overcome the tax exemption or current rebates on a heat pump.

As such, the tax exemption is only applicable to the lower mainland and island communities, which creates a lot of inequality between geographical areas.


The PST rate increase applies to fossil fuel combustion systems that heat or cool indoor spaces or water including:

  • boilers
  • central forced air furnaces
  • unit heaters
  • storage water heaters
  • instantaneous water heaters
  • air conditioners
  • fireplaces

A heat pump is a standalone or two-component appliance that uses refrigeration technology and electricity to provide heating and cooling for homes, businesses and other applications.

In essence, a heat pump uses electricity and refrigerant to move heat from one location to another.

To provide heat, a heat pump works by extracting heat from the air outside of your home and transferring it to refrigeration coolant – the coolant is then compressed, which increases the temperature significantly; the coolant is then moved to the indoor unit of the heat pump, which then passes air over the hot coolant, increasing its temperature to accommodate the thermostatic call for heat inside the home.

When there is a call for heat, the heat pump will extract heat from the air outside of the home. The refrigerant line carries this heat to the indoor unit, which then transfers the heat to the air inside of your home via a fan inside the wall unit. In cooling mode the process is reversed, transferring heat out of your home and returning cool air to the inside.

Because a heat pump only uses electricity for power rather than for the generation of heat, it offers a remarkably high efficiency rate if used in mild temperatures, however they are not recommended for extreme cold climates.

Heat pumps are rated for “output.” For example, if we consider some heat pump products, when it is -1 degree out, a heat pump will easily produce 100% of its output at the highest efficiency. However, as temperatures start dropping, output starts dropping as well – and when output starts dropping, the heat pump will “work harder” to keep your home at temperature.

The Federal Government has provided literature on the use and efficiency of heat pumps and confirm that, “Air-source heat pumps have a minimum outdoor operating temperature, and may lose some of their ability to heat at very cold temperatures. Because of this, most air-source installations require a supplementary heating source to maintain indoor temperatures during the coldest days.”

For instance, with certain heat pumps, the efficiency rating will start to drop as temperatures drop. For example, at -2 degrees, you will get around 87% of the heat pump unit’s output and the efficiency continues to decline from there. Some products suggest a complete stopping point of -18 degrees. There are heat pumps that offer higher efficiency in cooler temperatures, however these are difficult to source and carry a very high price tag.

With the interior of BC’s average low winter temperatures of -13 degrees, and record lows of -37 degrees, the use of a heat pump alone is not recommended. If used, they will require an additional source of heat for cold winter days or long periods of low temperatures, such as a furnace.

The cost of running a heat pump alone is almost double to a furnace in colder temperatures, however a dual-fuel system of using a heat pump and a furnace will increase the energy efficiency over the use of a furnace only.

Heat pumps are much more expensive to install than an air conditioner. This increased cost, coupled with the requirement of a supplementary heat source, reduces the motivation to the homeowner of installing a heat pump system. There are currently rebates on the use of heat pumps. If the government increases these rebates for dual-fuel systems and exempts the PST increase on furnaces as a supplementary heat source, then it is likely that more people would choose to install a heat pump system.

Many BC homes and businesses are already using renewable natural gas (RNG) to heat their homes. Notably, these customers do not pay carbon tax on the energy consumed in their home appliances as the province recognizes that RNG is a carbon neutral energy source.

Recent regulatory amendments have empowered British Columbia’s utilities to expand their investments in low and zero carbon gases. A recent study conducted for the BC Bioenergy Network, FortisBC and the Province of British Columbia examined the role of Renewable and low-carbon gases and their potential to “decarbonise many sectors that are difficult to electrify, create new economic opportunities, and serve as tools to enable the transition towards a resilient, affordable, and low-emission energy system.” The findings of the report show that the potential of renewable and low carbon gases could roughly double what currently flows through BC’s gas infrastructure to British Columbians.


That the Provincial Government:

  1. Pause the implementation of the Provincial Sales Tax on Fossil Fuel Combustion Systems and Heat Pumps Initiative (the “Initiative”); and
  2. Reconsider and re-assess the Initiative through consultation with local builder associations, HVAC companies, and Chambers within the Central and Interior BC, and consider revising the PST to include the following:
    1. Exempting central and northern communities from the increased PST on fossil fuel combustion systems;
    2. Increase utility-provided and CleanBC rebates on dual-fuel heating systems; and
    3. Remove air conditioners from the list of fossil fuel combustion systems as they use electricity and do not produce carbon emissions or consume fossil fuels; and
  3. Seek to align Provincial Sales Tax policy on heating systems with energy policy promoting the development of low and zero carbon gases and ensure customers who heat their homes and business are not unfairly penalized.


  1. Details on the Initiative can be found in the NOTICE issued by the Provincial Government https://www2.gov.bc.ca/assets/gov/taxes/sales-taxes/publications/notice-2022-003-provincial-sales-tax-on-fossil-fuel-combustion-systems-and-heat-pumps.pdf ;
  2. Yukon Air Source Heat Pump Pilot Project 2021: http://www.energy.gov.yk.ca/pdf/air_source_heat_pumps_final_may2013_v04.pd
  3. Federal Government of Canada “Heating and Cooling with a Heat Pump” https://www.nrcan.gc.ca/energy-efficiency/energy-star-canada/about/energy-star-announcements/publications/heating-and-cooling-heat-pump/6817#a2
  4. Province enables increased investments in renewable gas, hydrogen https://news.gov.bc.ca/releases/2021EMLI0046-001286
  5. New study by BCBN, FortisBC and the Government of British Columbia shows that B.C.’s renewable and low carbon gas supply could be double current gas use by 2050 https://bcbioenergy.ca/new-study-by-bcbn-fortisbc-and-the-government-of-british-columbia-shows-that-b-c-s-renewable-and-low-carbon-gas-supply-could-be-double-current-gas-use-by-2050/#:~:text=BC%20Bioenergy%20Network%20partnered%20with,renewable%20and%20low%20carbon%20sources