One Year Without the Carbon Charge: How Heat Pump Economics Changed in Ontario

On 1 April 2025, the federal consumer carbon charge on natural gas was removed. It had been adding about 17.6¢ per cubic metre (plus HST), the rate in effect since April 2024, to Ontario gas bills. For a household using a typical 2,000–2,600 m³ a year, that was a few hundred dollars annually.

Lower gas bills were welcome news for most households. They also changed the arithmetic behind one of the most common questions we hear: will a heat pump save me money compared with my gas furnace? A year on, here is how the numbers look.

Comparing the cost of heat

The fairest comparison is the cost of one kilowatt-hour of heat actually delivered into your home.

• Gas: 1 m³ of natural gas contains about 10.35 kWh. A modern condensing furnace (95% AFUE, the minimum for new furnaces in Canada) delivers about 9.8 kWh of heat per m³.
• Heat pump: a cold-climate air-source heat pump in southern Ontario typically achieves a seasonal coefficient of performance (COP) of roughly 2.5–3.0. Each kWh of electricity delivers 2.5–3 kWh of heat on average over a season.

Using an all-in variable gas cost of 35–50¢/m³ and electricity prices that cover the range from off-peak commodity plus delivery up to a typical all-in average, here are estimated costs per kWh of heat:

Heating option	Assumption	Estimated cost per kWh of heat
Gas furnace, 95%	35¢/m³	~3.6¢
Gas furnace, 95%	45¢/m³	~4.6¢
Gas furnace, 95%	50¢/m³	~5.1¢
Heat pump, COP 3.0	12¢/kWh	~4.0¢
Heat pump, COP 2.5	15¢/kWh	~6.0¢
Heat pump, COP 3.0	15¢/kWh	~5.0¢
Heat pump, COP 2.5	18¢/kWh	~7.2¢

These are estimates. Your gas price depends on your Enbridge rate zone and the quarter, and your electricity cost depends on your LDC, rate plan and when the heat pump runs.

A worked example

Take a southern Ontario home that uses about 2,300 m³ of gas a year for space heating, at 45¢/m³:

• Gas furnace: about $1,035 a year in variable gas costs.
• Same home with the carbon charge still in place: about $405 more, or roughly $1,440.
• Heat pump at COP 2.75: about 8,200 kWh of electricity. At 15¢/kWh that is roughly $1,230; at 12¢/kWh roughly $990.

Before April 2025, a heat pump in this home was often a few hundred dollars a year cheaper to run. Today it is close to even, and may cost slightly more, depending on electricity prices. If you keep gas for a water heater or stove, you also keep paying Enbridge's fixed monthly customer charge, so removing that cost is only possible if you leave gas entirely.

Try your own numbers in our heat pump versus furnace calculator.

When a heat pump still makes clear financial sense

• Your air conditioner is due for replacement. A heat pump is an air conditioner that also heats. If you are spending $5,000–$9,000 on a new central AC anyway, the extra cost of a heat pump can be modest, and the HRS rebate (up to $2,000 for gas-heated homes, as published in mid-2026) helps further.
• You heat with electric baseboard, oil or propane. These are generally more expensive per unit of heat than a heat pump. HRS rebates for these homes are larger: up to $7,500 for a cold-climate air-source unit. See saveonenergy.ca (opens in a new tab) for current terms.
• You value cooling and comfort. Ductless heat pumps can fix hot upstairs rooms or a cold addition without touching the main system.

When it may not be worth it

If your gas furnace and AC are both relatively new and working well, replacing them purely to save on operating costs is hard to justify on today's numbers. You are often better off putting that money into air sealing and attic insulation, which lowers bills whichever fuel you use.

Hybrid systems: a middle path

A hybrid or dual-fuel system pairs a heat pump with your gas furnace. The heat pump carries the load in mild and moderate weather, when its efficiency is highest, and the furnace takes over below a changeover point, often somewhere around −5 °C to −10 °C depending on prices. Because most heating hours in southern Ontario are above that range, a hybrid can displace a large share of gas use while avoiding the coldest, least efficient hours. Read more in our guide to hybrid dual-fuel heating.

The bottom line

Removing the carbon charge did not make heat pumps a poor choice. It made the decision more situational. The financial case is now strongest at replacement time, in non-gas homes and in hybrid setups. For a gas-heated home with modern equipment, the case rests more on comfort, cooling and long-term flexibility than on immediate savings.