There are several types of home heating systems -- forced air and hydronic being the most common -- but all need a heat source to operate. Hot air systems, the most common type in the United States, use a furnace as that heat source. Hydronic systems (hot water) use a boiler, and those are covered in our discussion of boilers and heat pumps elsewhere in this report.
Regardless of whether your heating system uses a furnace or a boiler, the two most common fuel sources are gas and oil. Electricity is also an option, but results in very high energy costs if used to power whole house systems.
While gas-powered furnaces are far more popular than oil furnaces, many people still use oil-fired furnaces simply because they have no other choice -- natural gas is not an option for parts of the U.S. Oil is also preferred for people who prefer to live more "off the grid." Oil can be quite a bit more expensive than gas and the price of oil fluctuates quite a bit, unlike the price of natural gas, which is relatively stable.
If you do have a gas furnace, most experts recommend upgrading to at least a 90 percent AFUE Gas Condensing Furnace (Est. $3,000 and up, installed). Federal regulations that went into effect on May 1, 2013 make this the minimum AFUE for upgrades and new installations in 30 northern states in the U.S.
However, government regulations aside, an upgrade of this sort can be a very good investment. Even upgrading from an 80 percent AFUE furnace to a 90 percent AFUE furnace is estimated to save you about $8 or so for every $100 you spend on heating. If you're upgrading from a very old furnace with an AFUE of 70 percent or less, your savings will be even more significant.
Gas furnaces with an AFUE of 90 percent or better are called condensing furnaces because they condense the water vapor in exhaust gases to extract additional heat. A condensing gas furnace will cost about $1,000 more than a typical gas furnace with an AFUE of 80 percent, and that does not include the cost of installation, which may require changes to the ductwork in your home. You will need to rely on the estimates you get from contractors to see how much more a high-efficiency furnace will cost upfront. However, most experts agree that in colder climates you will see cost-savings over time with an upgrade.
If you live in one of the 20 states that don't require an AFUE of 90 percent, and your winters are typically mild, an 80 percent AFUE Gas Furnace (Est. $1,500 and up, installed) may be more cost effective. The initial purchase and installation costs are less than with a condensing furnace, and even though, theoretically, you can save even more money over time if you put in a system with a higher AFUE, it may still be overkill for homes in warmer climates, especially in homes that are very energy efficient to begin with.
People who own older oil furnaces can benefit just as much from replacing them as those who own gas furnaces. A 90 Percent AFUE Oil Furnace (Est. $2,000 and up, installed) will result in significant fuel savings over an older, less efficient oil-burning furnace. Oil-fired furnaces have lower annual fuel utilization efficiency (AFUE) ratings than gas furnaces on average, although some models can achieve an AFUE of 95 percent. Replacing an older oil furnace helps the environment as well, resulting in a reduction of CO2 emissions by 2.5 tons per year.