Heat pump water heaters, explained.

More energy efficient — Heat pump water heaters are much more efficient than tankless water heaters. Since the heat comes from the surrounding air for the heat pump water heater, any heat loss can just be pumped back into the water to maintain it at a given temperature. In fact, bigger tanks kept at higher temperatures are the most efficient.

Lower carbon footprint — Gas tankless water heaters emit a puff of methane when they turn on. While they claim to reduce emissions by 22 percent compared to gas tank water heaters, tankless water heaters actually only reduce emissions by 14 percent because of this methane puff, according to NRDC. Heat pump water heaters reduce emissions by about 85 percent compared to conventional water heaters.

More immediate capacity — Heat pump water heaters offer much more reliable hot water capacity than tankless water heaters. A 65-gallon heat pump water heater can easily handle a family of four showering in a row, especially with the addition of a mixing valve. A tankless water heater with low capacity (as measured by gallons per minute, or GPMs) will struggle to keep up with multiple showers while it will also take 1-3 minutes to heat up the water in the first place (unless you have a very expensive recirculation pump installed).

Better rebates and incentives — There aren't many tankless water heater rebates available anymore. Heat pump water heaters, on the other hand, are eligible for up to $1,750 in federal upfront rebates, depending on household income (in California this only applies to multi-family buildings under HEEHRA). For single family homes, many states, cities and utilities also provide rebates. Most provide rebates between $1,500-$3,000, but some homeowners can access rebates as high as $5,700.