Heating and cooling account for 50–70% of the average American household’s utility bills each year. But due to heating systems that use energy inefficiently, much of the money we spend goes to waste.

Furnaces

One of the first major upgrades to consider in the home is the furnace. The colder the winters in your region, the greater the benefits of replacing your heating system. Getting a new furnace is much more efficient than repairing an old one. With the amount that you’ll save on heating bills, the unit will pay for itself in just a few years.

Most furnaces and accompanying components are designed to last about 20 years. If your furnace is close to that age or older, it’s probably running at 70% efficiency or less. New furnaces run at a minimum of 80% efficiency, and ENERGY STAR models have efficiency rates of 90% or higher. That much of an increase can really make a dent in your heating bills. In a typical home of about 1,700 square feet, switching from an old, natural-gas furnace to a new furnace cuts bills by about one-third, and the savings mean the furnace will pay for itself in about four years. After that, the extra money goes back in your pocket.

Types of Heat

Besides the sun, home heat comes from several sources:

• Natural gas: This is the most efficient (and least polluting) of the major heating fuels.
• Oil: This is the second most efficient heating source, right behind natural gas.
• Electric: In terms of efficiency, this comes after natural gas and oil heat. Electric heat costs almost twice as much as natural gas does.
• Wood: Wood can save you more money than other sources of heat, depending on the type of stove you have (though one caveat is that wood stoves produce more particulate pollution than most other sources).

Water Heaters

Water heaters, which heat your home’s water supply, use up to 25% of the home’s energy budget. Heaters that are more than 10 years old may be running at efficiencies of 50% or less and would be worth replacing with ENERGY STAR–rated devices. One energy-saving technique that doesn’t involve replacing your water heater is to make sure your existing one is set at an energy-saving level. A setting of 120° is sufficient for most homes, even though many water heaters are automatically set higher. You can bring the setting down even lower if your hot-water use is minimal.

Keeping water warm when you’re not using it (when you’re away from home or sleeping, for instance) is wasteful. Water has to be heated and reheated as it cools down, which uses tremendous amounts of energy that cost you money. Depending on the size of your water tank, you may run out of hot water if you’re using more than one hot-water-demanding appliance at once. Look for special timers that turn water heaters off at night—the Department of Energy reports that a timer will pay for itself in less than a year.

Tankless Water Heaters

Tankless water heaters heat water only as needed. They supply hot water continuously, so there’s no need to wait for a tank to refill and reheat. Gas-powered tankless water systems are generally cheaper to run and have a higher flow rate than electric ones. However, a tankless water heating system is limited by its flow rate—it can heat only a certain amount of water at one time. So make sure that you consider the size of your home and the frequency of showers, dishwasher loads, and other hot-water uses when figuring how high of a flow rate to choose for your home.

Tank Water Heaters

Newer tank water heaters are more efficient than older models. When buying a new model, look for ENERGY STAR ratings, which will show you how much the device will cost to run throughout a year (based on national averages) and how it compares to other, similar water heaters.

An inexpensive and easy way to save money if you have a tank water heater is to wrap it up with an insulating blanket to reduce heat loss. You can also wrap your hot water pipes. Kits to insulate your water heater and pipes are available at home improvement stores and may also be available at a discount from your local utility provider.

Radiant Floor Heating

Radiant floor heating is probably one of the most efficient means of heating a home. Many people report that it generates more comfortable and evenly distributed heat than traditional forced-air heaters. Installing it in a preexisting home might be cost-prohibitive, but if you’re replacing your floor, building a new home, or adding a new room onto your house, this kind of heating is worth considering.

Tile, marble, and slate floors are most compatible with radiant floor heating, as they conduct heat best. Make sure that whichever rooms receive radiant floor heat are well-insulated both above and below ground (heat can be lost beneath the floor) and in the walls and roof.

Stoves and Fireplaces

Heating with wood or pellets can be a way to supplement (or replace) heat from your furnace, but depending on the type of wood-heating unit you choose, you could end up spending more money in the long run if you rely too heavily on it. High-efficiency units not only look great and give the ambience of a fireplace, but they’re cost-efficient, mainly because you have to feed the fire less often.

Wood-Burning Stoves

A wood-burning stove that meets EPA certification standards still emits about 150 times more particulate matter than a gas furnace and 100 times more than an oil furnace. About 50% of the particles emitted from chimneys find their way indoors. But a high-efficiency wood stove is much less polluting and—depending on how you get your wood—much less expensive than other kinds of heat. Cutting and seasoning wood yourself is the cheapest method, but buying bulk quantities of ready-to-burn wood is still less expensive than using other types of fuel. Older stoves can be retrofitted to be even more efficient, and you can even install ductwork so that the wood stove heats the entire house more evenly.

Pellet Stoves

Pellet stoves burn pellets of combustible material (usu­ally recycled sawdust) instead of wood. And though they may look like wood-burning stoves, they actually need electricity to run their combustion motors and other moving parts. So if you live in a place where electricity service is unreliable, a pellet stove might not be a good option for you (though some models have a battery backup). Pellet stoves are usually cheaper to install than wood stoves, as they don’t require a full-size chimney and flue (because they produce less smoke) and clean up more easily (because the pellets burn completely).

Fireplaces

Open fireplaces are not as efficient as furnaces or wood-burning stoves due to their open design and large flue. If you do use a fireplace, make sure to get your chimney cleaned every year to minimize particulate pollution (and avoid chimney fires). Also, make sure that the flue is closed when the fireplace is not in use, as heated air from inside the house will rise up through the chimney, wasting heat and creating drafts.