By Emily Rowan, Manager of Federal Government Relations, and Benjamin Dachis, Vice President, Research and Outreach

On October 8, 2026, Prime Minister Carney announced a $2 billion National Heat Pump Rebate that will help up to 820,000 households switch to electric air-source heat pumps. The Canada Infrastructure Bank and the Canada Mortgage and Housing Corporation will finance heat pumps for an additional 280,000 apartment units, bringing the total to a million retrofits. 

Ottawa says the package will cut emissions by more than 25 megatonnes. It fulfills a core commitment in the government’s national electricity strategy announced this past May, Powering Canada Strong.

The rebate gets a lot right. It’s built for the moment a home heating system fails, which drives about 80% of the roughly one million replacements each year. No energy audits will be required before or after installation, approvals will come within 24 hours, and it will be possible to combine the new rebate with provincial programs. HVAC installers will be equipped to act as champions for the program. It’s a welcome departure from audit-heavy programs like the Canada Greener Homes Initiative.

Three additional design choices will decide how much the program can do to reduce the most emissions at the least cost: who is eligible, how local grid expansion is financed, and how provincial grids are connected to each other. 

Include gas-heated homes in the rebate to maximize emissions reductions

In Canada the majority of home-heating emissions come from natural gas. But the public-facing message in Powering Canada Strong only targets the “transition from propane, oil, and electric baseboard heating to heat pumps.” 

Environment Canada’s announcement of the new National Heat Pump Rebate also mentions only propane, oil, and baseboard heating, and doesn’t say whether it will apply to homes that want to transition away from or simply reduce their use of natural gas heating and keep their existing furnace. It’s essential that the new rebate be offered to all gas-heated homes — particularly in Ontario, which is Canada’s largest source of housing emissions; and Western Canada, where the majority of homes are heated by natural gas. 

The National Heat Pump Rebate announcement also doesn’t say whether it will support the adoption of hybrid home heating systems that combine natural gas furnaces and electric heat pumps. Programs run by Quebec gas and electric utilities have shown how support for hybrid heating can help households with natural gas furnaces reduce their emissions by electrifying a large share of their heating demand, while also protecting affordability and reducing strain on the grid during periods of peak demand. Joint federal-Quebec funding for heat pump transitions has so far excluded hybrid systems. The new rebate program should correct this.

If the federal government extends support to hybrid heating in gas-heated homes, the new rebate can do more to directly reduce the largest total amount of emissions. Electrifying homes heated with propane and fuel oil is the easy win — these homes have the highest emissions intensity, and electric heating is already the more affordable option. But relatively few homes are heated this way compared to natural gas. With industry consultations on the rebate now underway, there is a narrow window to get these details right to ensure the program can achieve large-scale emissions reductions. The government needs to pull the right policy levers to help the national electrification strategy achieve its goals. 

Tax reform can incentivize investment in local distribution

The new heat pump rebate program is the right way to address household-level electrification. But electrifying home heating is naturally going to increase local demand for electricity. 

Across Canada, residential electrification is increasingly constrained by the capacity of local electricity distribution grids. In the Greater Toronto Area the local grid is running near capacity in the communities where demand is highest, where families are settling and businesses are expanding. 

Cities in Ontario are the sole owners of most of the local distribution systems. Full ownership paid dividends when systems weren’t growing rapidly, but now cities must finance the surge in electricity demand growth themselves. This leaves them with an impossible choice: risk power shortages, or raise electricity rates, taxes, or both to pay for new distribution infrastructure. 

The federal government has historically stayed away from local electricity distribution. Powering Canada Strong could change that — the strategy talks about “mechanisms to support investments” in distribution.

Before Ottawa intervenes directly, it should consider the implications of provincial tax policy changes that could give cities more choices in how they finance electricity infrastructure. Ontario has created an expert panel to advise the province on tax reforms that could incentivize investment. The federal government should encourage provincial and local action first, before imposing a heavy federal hand on local policy. 

Bridge the policy-design gap to build interprovincial interties

The distribution system delivers power from the transmission grid, and that system needs more interconnections to get more cheap, clean electricity to homes. When it announced Powering Canada Strong the federal government correctly diagnosed that Canada’s fragmented grids “cost billions in outages, duplicative infrastructure, and wasted power.” Yet its remedies, including the new Transmission InterConnect Investment Strategy, fall short of an implementation plan. 

At their July 2026 meeting the First Ministers committed to working together on connecting their electricity grids. They’re going to have to figure out how costs, benefits, and planning will be shared across jurisdictions. As outlined in Clean Prosperity’s Billions on the Line report, the primary barrier to an integrated national grid isn’t a lack of interest; it’s a structural policy design gap. Interprovincial interties cross boundaries, requiring complex cost-sharing agreements and multi-jurisdictional planning that no single province has the financial incentive to champion on its own. 

Bridging this gap requires a commitment to strategic policy design from the outset. Moving from ambition to execution means establishing a standing federal-provincial working group for regional planning. It means giving the Canada Energy Regulator a clearer mandate to identify intertie opportunities and exercise permitting authority where coordination stalls. It also means backing interprovincial projects with targeted financial tools – including a more generous Clean Electricity ITC and built-in Indigenous equity ownership from day one, to name a few solutions. 

Getting the details right will deliver big emissions reductions

Ottawa has committed the money and introduced a straightforward program to increase the adoption of lower-emitting home heating across Canada. The program can maximize its impact if gas-heated homes and hybrid heating are eligible for the National Heat Pump Rebate, if provincial tax policy reform helps cities finance the growth of their grids, and if provincial governments can agree on how to share the costs of interties. One million retrofits can put a big dent in building emissions, while providing Canadian households with affordable and resilient home heating systems.