But keep in mind, you’ll get the best incentives if you opt for the most energy efficient model. Many of the government and utility rebates require that you buy a model with a minimum energy factor of 2.

But if you don’t know anything about water heaters we’d recommend starting with the guide. You can think of it as your hot water heater 101 article.

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Residential energy usage is one of the biggest causes of global warming. And hot water heaters are the second most energy intensive appliance in your home, consuming roughly 20% of your home’s energy. That’s why it’s important to consider the hot water heater with the lowest carbon footprint.

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The next thing to consider is how much your hot water heater will cost upfront. This can be broken down into two different categories:

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In fact, the average homeowner can save $300 per year by switching to a heat pump water heater. And those savings add up. Over 15 years (the typical lifespan of a water heater) the average homeowner can save $4,500. And while that’s not as much as you can save switching to a heat pump (for heating and cooling your home) it is more than you can save switching to LED lights.

Costs will vary depending on what type of hot water heater you choose to go with, but here are some general rules of thumb that can be helpful in thinking of the value (i.e. cost vs. what you get) for your hot water heater:

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The average American family spends $600 per year and emits about a ton of CO2 pollution to heat up water that for the most part they won’t use. That’s because conventional electric water heaters and tankless water heaters aren’t very energy efficient.

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In this guide we’ll go over everything you need to know in order to pick the best water heater for your home and take advantage of those savings opportunities. We’ve also written comprehensive guides and reviews for each type of water heater:

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As a general rule of thumb, heat pump water heaters are the best option unless you don’t have the space for a tank. In that case tankless water heaters are best. We reviewed both the best heat pump (aka hybrid) water heater and the best tankless water heater.

Depending on where you live you may or may not be limited by what type of hot water heaters you can buy. The two most frequent constraints are:

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And whether you think climate change is a hoax (we certainly hope this isn’t true) or whether you’re an avid environmentalist, many cities and states already regulate hot water heaters due to their energy usage. In fact, cities across the country are banning natural gas hot water heaters in new homes.

If you are buying a storage or heat pump (also called a hybrid hot water heater) the size will be in gallons. Whereas if you are buying a tankless hot water heater the size and capacity will be measured in gallons per minute (GPM).

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Below is a chart that shows the annual emissions based on different types of hot water heaters. As you can see storage tanks are the worst for the environment, followed by electric resistance. The numbers in parentheses represent the energy factor (i.e. the energy efficiency of the unit). So as energy efficiency rises, emissions fall.

Depending on where you live this could result in $300-1,000 in savings. That’s a lot of money considering that the average hot water heater is about $1,500 to install.

Due to the high energy usage of hot water heaters, there are many incentives and rebates to encourage consumers to buy the most efficient models. There are five different possible incentives you can receive:

If you live somewhere that energy costs more than the average it will be more. If you live somewhere that energy costs less than the average it will be less.

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Assuming the energy efficiency upgrade is cheaper than the monthly payments, it’s essentially a free way to finance home improvements and cut your emissions dramatically.

In addition to the upfront cost, you’ll want to consider how much it will cost to operate your hot water heater over time. There are generally two factors that influence the operating cost:

If you want to understand the exact equation to determine a water heater’s energy factor, this is a good guide by the Department of Energy. But if math and acronyms like BTUs scare you, don’t worry. Every hot water heater sold must include an estimate of how much it costs to operate each year. This information is usually listed on the label in yellow like the image below.

The difference between traditional loans is that it comes with little to no interest. If your hot water heater goes out, this is a good way to get some financial help to make the fix. But even if your hot water heater still works you may be able to save money each month by replacing your unit.

The way on-bill financing works is pretty simple. You tell your utility you want to buy a new (and more energy efficient) hot water heater and they give you the money to pay for it. Then they increase your utility bill to make their money back.

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Hot water heaters use a lot of energy. In fact, they are the second biggest users of energy in your home (behind your space heating and cooling system).

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The last thing to consider when buying a hot water heater is the financing options available. Of course, this part is optional. But there is one type of financing that all homeowners should at least research before making a decision. And that’s on-bill financing.

Below is a map of electricity prices by state in America. If your state is dark purple you should expect to pay more than what is listed on the Energy Star label. If it is yellow, you should expect to pay less.