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Pricing carbon emissions would change the relative price of heat from different fuels. At current fuel prices, heat pumps become cost- competitive with coal (boiler) and natural gas (cogen) at CO2 prices of ~$35/tonne and ~$45/tonne respectively.

*Assumptions:

Heat pump input is 120˚F waste heat with a Coefficient of Performance (COP) of 3.

Cogen has 30% electrical efficiency and 70% thermal efficiency.

All generation has ~10% losses in power/thermal distribution.

A $2.10/MMBtu premium was added to natural gas prices to reflect their volatility (2 May 2011 market value from 5-year straddle). A corresponding volatility premium should be added to coal prices but cannot be validly computed because the derivative markets for spot coal are too thin and fragmented. The heat-pump calculation includes no fuel-price volatility premium.

Sources

RMI analysis using data from:

U.S. Energy Information Administration. 2010. “Annual Energy Outlook 2010 Macroeconomic Indicators Reference Case.” link

U.S. Energy Information Administration. 2011. “Voluntary Reporting of Greenhouse Gases Program - Electricity Factors”. January 31. link

CME Group. “Daily Bulletin | Build a Report | CME Group.”

The "future and options prices of Henry Hub Natural Gas” were used in calculating a $2.15/MMBTU price for 5-year natural-gas volatility. link