A2L Refrigerants, Tariffs & More: What HVAC Contractors Need to Know for 2026

Cindy Sheridan, CEO of Plumbing-Heating-Cooling Contractors — National Association (PHCC), forecasts improved residential opportunities for HVAC and plumbing businesses in 2026. “Demand has been subdued the last two years because of a weak housing market, and with mortgage rates likely to trend lower over the next 6-12 months, we’re expecting 2026 to be a good year for contractor businesses,” she says. “However, it’s necessary to stress that tariffs will bring higher price levels in the months ahead, and higher prices may affect consumer demand. While we expect the benefits of lower mortgage rates to outweigh higher costs from tariffs, price levels remain an important variable to watch.”

Julian Scadden, president and CEO of Nexstar Network, says that demand for HVAC has not slowed, but consumer confidence has softened.

“What that means is there's still a need,” he explains. “What this means is you have an opportunity in your business to learn a little bit less about lead generation and more about conversion. How can you establish trust with the homeowner? How can you provide a quality service and an experience that goes beyond what they're experiencing from other contractors? If you can answer those questions, you'll find that you'll continue to grow and thrive.”

HVAC Trends to Watch

The HVAC industry will be shaped by three key forces in 2026, according to Kevin Ruppelt, senior vice president and general manager, U.S. Air, Rheem North America. They are: the A2L refrigerant transition, accelerated adoption of heat pump and connected technologies, and continued workforce transformation.

“The A2L shift remains one of the most impactful changes, influencing everything from product design to technician training and safety standards,” Ruppelt says. “At the same time, manufacturers are leaning into electrification and connectivity, developing smarter, more efficient, and easier-to-service systems. And a new generation of digitally fluent technicians is entering the field, bringing a sustainability mindset and driving faster adoption of emerging technologies.”

Chris Forth, vice president, regulatory, codes and environmental affairs, Bosch Home Comfort, agrees that the transition to heat pumps will continue, especially in regional markets where state-level regulation and incentives are further driving adoption, particularly in the Northwest and even some colder climates in the Northeastern U.S.

Forth also predicts AI will continue expanding beyond technical support into inventory management and building automation.

Doug Widenmann, senior vice president of marketing, Daikin Comfort Technologies North America, says the most significant trend will be the final leg of transitioning away R-410A residential products. “Products with a global warming potential (GWP) above 700 will no longer be allowed to be sold or installed after Dec. 31. However, the EPA has proposed revisions to the Technology Transition Rules as of this writing that could extend this time period. The residential transition this year will be followed by a very similar transition currently underway for commercial products to be implemented the following year, Jan. 1, 2027.  In parallel with these large reengineering efforts, OEMs have and continue to be challenged with major global trade fluctuations affecting the cost of raw materials and components.”

Widenmann adds that the deregulation and elimination of federal tax credit incentives for electrification and decarbonization will also change how OEMs and contractors plan for 2026 and beyond. 

Economic Headwinds

Material price increases, tariffs, and supply chain disruptions are expected to pressure contractor margins in 2026. Rising costs for metals and imported equipment may drive higher bids, while longer lead times could challenge scheduling and inventory management.

ITR Economics Consulting Principal and Chief Economist Brian Beaulieu notes that the leading indicator signs are good — not great — for 2026.

“It’s been a very sluggish 2025, and we're not getting any sign that it’s going to miraculously improve for 2026, but there will be some improvement,” he says. “The great news is consumers are out there spending, they're just doing it cautiously. Uncertainty right now is still off the charts. People are just being very conservative in terms of buying new houses or buying existing homes, which means they're going to be repairing what they have. That's where the strength of the market is going to be for HVACR businesses in 2026.”

Beaulieu adds that the high copper and aluminum prices won’t be coming down any time soon, and that’s not just because of tariffs, either. HVAC contractors need to be able to pass those increasing costs on as best they can. “To succeed, you really need to have a sound pricing strategy, which isn't intuitive for a lot of people, but it's absolutely necessary. I'm not getting into any price fixing, but in general, people will accept two 4% price increases rather than one 8% price increase. 8% throws them into sticker shock. Spread them out, though, and they say, ‘OK, I understand that.’ Given everything that's going on, you can't continue to eat these costs. You're just eating into your margins.”

According to Tim Botten, heating and cooling category manager at GF Building Flow Solutions, material costs for both residential and commercial markets are expected to increase by 4% to 5% in 2026. “These cost increases reflect shipping and logistics bottlenecks as well as labor shortages. Steel and copper prices rose by about 40% in the past year, and fluctuating tariffs further complicate cost estimating. Simultaneously, the shortage of skilled labor continues to be a major issue. As technology advances, the required skill set increases and so does labor cost.”

Repair vs. Replacement

Ruppelt agrees that increased costs will continue, but while these cost pressures are a reality, they have not impacted demand.

“Demand for HVAC replacements and upgrades is expected to remain stable as homeowners and building owners look to improve efficiency and meet evolving regulatory standards,” he says. “Contractors who can clearly communicate long-term value, such as reduced operating costs, improved comfort, and environmental benefits, will be best positioned to maintain steady business, even in tighter economic conditions.”

According to Sheridan, an improving housing market should, in theory, lead to higher replacement rates.

“Homebuyers tend to spend more on their homes in the first year after purchasing than non-movers, and we see this in historical P-H-C business demand patterns,” she says. “However, we’ll stress again here that the current tariff policies are unique in recent U.S. history, and there’s a chance that the economic patterns we’re familiar with (e.g. improving housing market creating more replacement opportunities) may not hold up.”

However, current economic uncertainty may result in customers pushing to repair existing units rather than replacing with new systems, Forth explains.

“Repairing legacy R-410A systems may seem more cost-efficient in theory, but in practice, the mandated phasedown has the supply of R-410A service refrigerant dwindling and key system replacement components such as compressors and TXVs being relegated for service-only — two factors that will continue to spell higher repair costs throughout 2026,” Forth says. “Contractors should encourage their customers to look beyond the upfront costs and consider how system replacements will offer benefits like improved efficiency, potential incentive qualification, lower maintenance and operational costs as well as faster repairs, all of which can lower initial investment cost and provide benefits for the long haul.”

Ruppelt agrees that the phaseout of older refrigerants will continue to make replacement more attractive, in many cases. “Contractors should be prepared to assist homeowners in understanding the financial and operational benefits of upgrading to new, efficient systems. Those who offer both repair and replacement expertise will be able to meet customers where they are and build long-term loyalty.”

Botten notes there has been a downward trend in new HVAC equipment sales in recent years, while demand for unitary equipment repair and servicing has grown. There is a bright side as contractors shift focus toward repair and service work, though. “This shift offers higher margins, recurring revenue, differentiation from competitors, and the chance to build a loyal customer base for future service. It also creates opportunities for annual service plans and preventative maintenance programs.”

Widenmann agrees that cautious consumers may continue to choose to repair their HVAC systems rather than replace them, making the service and repair portion of a contractor’s business more important in 2026.  “New HVAC system installations and upgrading systems could remain a headwind until consumer confidence begins to turn around. New HVAC systems are a large expense, and offering flexible payment options is therefore becoming common practice, and it is important for contractors to include as a sales option.”

The Latest on A2Ls

The A2L transition will remain a top priority in 2026, according to Ruppelt. “Contractors will need to continue investing in training, tools, and certification to safely handle these refrigerants. Education will be critical for compliance and ensuring installations meet new code requirements without compromising performance. Manufacturers like Rheem are equipping contractors with resources, training, and products designed specifically for A2L compatibility, helping them navigate this industry-wide shift with confidence.”

Though most OEMs have shifted to using Low-GWP A2L refrigerants in production for both residential and light commercial offerings, contractors may still see a few applications remaining for legacy R-410A systems, Forth explains.

“While current regulation mandates that split system components, such as indoor coils and outdoor condensers, can only be installed as service components beginning Jan. 1, 2026, a pending EPA proposal would allow indefinite installation or new R-410A split systems with components manufactured or imported before 2025. We’ll have a clearer idea of how contractors should operate when it comes to R-410A around the onset of the new year.”

The good news is that contractors have already navigated the most challenging parts of this refrigerant transition, including managing handling, storage, transportation, and installation of mildly flammable A2Ls and dealing with supply chain shortages of R-454B and increased costs, Widenmann says. “Daikin’s decision to use R-32 provided contractors with a reliable supply at a low cost. From the beginning, Daikin’s commitment to R-32 in North America was to provide a refrigerant that is proven, easy to use, efficient, and widely available — a commitment reinforced by the fact that R-32 has been globally available and used in Daikin products since 2012. This approach has delivered numerous advantages for contractors offering R-32 products.”

Sheridan notes that HVAC contractors will be able to take a break from immediate changes in 2026, unless they also work in the refrigeration space.

“For contractors, 2026 will be a great year for focusing on best practices, which help them comply with upcoming regulations, such as refrigerant management,” she says. “The HFC phasedown is ongoing, reducing the supply of HFCs used in refrigerant production. This means recovery and reclamation are more critical than ever to mitigate refrigerant shortages in the coming years. In the supermarket refrigeration sector, servicing will transition to 100% reclaim only, meaning the industry requires more recovered refrigerant today to meet future demand. Another important point to address is the consistent rumor that a second HVAC transition is planned in 2030 to move to below 500 GWP. No EPA regulation requires a second transition in HVAC to below 500 GWP in 2030.”

The most significant threat to contractors from the HFC transition comes from the states, where PHCC expects additional activity in the coming years that could lead to further transitions, Sheridan adds.

Advice for a Successful Year

Scadden cautions HVAC contractors against rolling last year’s business plan into 2026 without a detailed review. He notes that many businesses overlook hidden expenses and recurring services that quietly inflate overhead — one Nexstar member cut 46% of overhead simply by auditing vendors and unnecessary subscriptions. Scadden emphasizes that annual planning must include a line-by-line examination of costs and renegotiation of everything from cell phone plans to fleet services to keep budgets aligned with current realities.

“You need to focus on the basics,” he says. “And make sure you're priced correctly with the changing dynamic of materials and everything that's associated with the supply chain. It feels basic and it feels small, but if you’re off there, that compounds over time in a way that will put you out of business faster than any competitor.”

Overall, Scadden says contractors should focus on weathering the storm and approach 2026 with steady, disciplined planning rather than reacting to fluctuating economic conditions.

He cites Jim Collins’ “20 Mile March” principle — based on an Antarctic expedition with two groups of people. The group that marched a consistent 20 miles every day no matter the conditions survived, while the group that marched as far as they could on good days and hunkered down on bad ones did not. The lesson, he says, is that long-term success comes from consistency, not spurts of effort driven by external factors.

For HVACR businesses, Scadden advises defining their own “20 Mile March:” clear, sustainable targets that keep teams on schedule without burning out employees or causing confusion for customers and vendors. By maintaining a steady pace — regardless of market highs or lows — contractors can stay aligned with their long-term plan and remain resilient in a shifting 2026 landscape.

According to Forth, long-term inventory and business strategy planning is crucial to conduct at least annually, if not more frequently.

“The fundamentals still apply: Know your market, know your customers, know what you are good at and, more importantly, what you are not good at,” he says. “Plan your inventory as accurately as you can, providing a forecast of product needs to your distribution partner as far in advance as possible so they can, in turn, work with the OEM to ensure the supply chain operates smoothly.”

Botten notes that the contractors who will succeed are those who prepare early, adapt their business models, train their teams, and offer value beyond merely installing a unit.

Ruppelt agrees, saying, “Contractors who stay proactive, continually learn, adopt connected tools, and align with manufacturer partners who prioritize training will navigate change successfully and turn it into a competitive advantage.”

Widenmann also recommends being an early adopter of new technology as well as continuously educating sales teams and technicians.

“Embrace smart home automation and energy-efficient solutions,” he advises. “Position your company as a trusted partner providing innovative alternatives — not just as a contractor offering HVAC systems at a price. Don’t rely solely on traditional sales and installation methods. Grow your business by training your sales team to present choices, incentives, and financing, and highlight comfort, efficiency, and technology. Provide ongoing technical training for your technicians so they become early adopters of the latest solutions homeowners seek — solutions that integrate with home automation systems while delivering comfort, efficiency, and affordability.”