Because hybrid heat pump hot water heaters do not emit dangerous fumes, they may be safely installed in places that conventional oil- or propane-fueled hot water heaters cannot. And since hybrid hot water heaters actually cool the air around them they may provide some climate control as a fringe benefit wherever they are installed. There are pros and cons to installing a hybrid hot water heater in various areas of your home:   Basement: A basement can be an ideal place to install a hybrid heat pump water heater. Locating the unit near a furnace will ensure the air around it stays warm enough for efficient operation – above 50 degrees Fahrenheit – even during the winter. It’s best if the basement is not climate controlled or air-conditioned: In an air-conditioned basement, the cool air produced by a hybrid water heater can lead to higher heating bills in winter.    Garage: In warmer climates, a garage is an option for installing a hybrid heat pump water heater, and the heater will help cool the garage in hotter months. However, this is not a good option in areas where the temperature will drop below 40 degrees or so since cold temperatures inhibit the efficient operation of the heat pump.   Closet: Because hybrid hot water heaters pull heat from the air around them – then discharge cool air – they need about 1,000 cubic feet of air around them, roughly the size of a 12-foot by 12-foot room. A small space like a closet, even with louvered doors, may cool down to the point where there isn’t enough ambient heat available.    Attic duct: If the surrounding space isn’t ideal for a hybrid heat pump hot water heater, an attic duct may be the solution: the heater draws warm air from the attic and vents cool air into the attic via a separate duct. The two ducts are located at least 5 feet apart to prevent recirculation of cooled exhaust air.    Outdoors: An outdoor installation is only an option in areas where the temperature remains above freezing year-round.  Hybrid hot water heaters do not operate in below-freezing temperatures.   Permits Required for Hybrid Heat Pump Hot Water Heater Installation Removing a conventional hot water heater and installing a hybrid can be a complex operation, potentially making changes to a home’s plumbing, gas, and electric systems simultaneously. It’s not surprising, then, that the process will often be subject to state and local building codes. The best way to navigate the codes – and the permits you may need – is to contact your local building inspector and hire a licensed contractor who knows your building codes and is used to working within them.