Heat pumps are central to decarbonising heat in Europe. A look at where the supply chain depends on imports, how refrigerant rules are reshaping products, and the EU’s industrial policy response.
Heat pumps are at the centre of the EU’s plans to decarbonise heating. The REPowerEU plan of 2022, drawn up after Russia’s invasion of Ukraine, aimed to double the deployment rate of heat pumps and install around 10 million additional units over five years. The recast Energy Performance of Buildings Directive reinforces that direction: subsidies for stand-alone fossil fuel boilers ended in 2025, and new buildings must be zero-emission from 2030. That raises a practical question: can Europe build and supply the heat pumps it needs?
A strong but uneven manufacturing base
Europe has a substantial heat pump industry. Several large manufacturers produce air-to-water and ground-source heat pumps in the EU, and a majority of units sold in Europe have been made in Europe. The International Energy Agency has described Europe as the fastest-growing major heat pump market in 2022, when sales reached record levels.
The market has since been volatile. According to the European Heat Pump Association, sales in 14 European countries fell by about 21% in 2024, from around 2.8 million units in 2023 to about 2.2 million. The association attributed the fall to changes in national subsidy schemes, low gas prices and weak consumer confidence. Manufacturers that expanded capacity for a growing market found themselves with spare capacity instead.
Where the supply chain is exposed
A heat pump is built from components that are common across the heating, cooling and electronics industries, and several of them depend on imports.
- Compressors. The compressor is the heart of a heat pump. A large share of compressors used in Europe is made in Asia, although some are produced in Europe.
- Permanent magnets. Variable-speed compressors and fans often use motors with rare earth permanent magnets. China dominates this supply chain: according to the IEA, it accounts for more than 90% of refined magnet rare earths and a similar share of permanent magnet production. Chinese export controls on some rare earths in 2025 showed how quickly that dependence can matter.
- Electronics. Inverters, controllers and sensors depend on semiconductors and electronic components, which were in short supply during the disruptions of 2021 and 2022.
- Metals. Heat exchangers and pipework use copper and aluminium, whose prices are set on global markets.
Refrigerants: a regulatory shift
The refrigerant in a heat pump is another source of change. The EU’s revised F-gas Regulation, Regulation (EU) 2024/573, phases down hydrofluorocarbons and bans fluorinated gases in several categories of new equipment. For small self-contained heat pumps, such as monobloc units up to 12 kW, the ban on F-gases with a global warming potential of 150 or more starts in 2027, and all F-gases are banned in this category from 2032. Rules for split systems follow later.
The result is a shift towards natural refrigerants, especially propane (R290), which has a very low global warming potential. European manufacturers have invested heavily in propane heat pumps, which could become a competitive advantage. However, propane is flammable, so the shift also requires installers trained to handle it safely.
The EU’s industrial policy response
Two regulations adopted in 2024 address supply chain resilience directly.
- The Net-Zero Industry Act lists heat pumps among the net-zero technologies it supports, with faster permitting for manufacturing projects and a benchmark for EU manufacturing capacity to meet at least 40% of the EU’s annual deployment needs by 2030.
- The Critical Raw Materials Act sets benchmarks for 2030: domestic extraction of at least 10%, processing of at least 40% and recycling of at least 25% of the EU’s annual consumption of strategic raw materials, with no more than 65% of any strategic raw material coming from a single third country.
Rare earth processing is one of the hardest targets to meet, because building refining and magnet capacity outside China takes years.
Skills: the other bottleneck
Even with enough equipment, heat pumps have to be designed, installed and commissioned correctly. A heat pump that is badly sized or installed in a poorly insulated home will perform below expectations. This links supply chain resilience to building renovation: improving the envelope first reduces the size of heat pump needed and makes it more efficient. That is the logic behind the EPBD’s fossil boiler phase-out and the zero-emission building standard.
For the wider policy context, see the Renovation Wave overview and the EPBD Policy Tracker.