Since January 2005, there is a system with tradable emission permits/allowances in the European Union. Currently, power producers and district heating plants are included in the system, but not the residential sector. In this analytical study, it is discussed how a separation between a trading sector, in which power producers are participating and a non-trading residential sector affect carbon dioxide emissions consequences from heat pumps in households. It is concluded that a replacement of heat pumps in the residential sector results in a leakage of emissions. The emission target in the trading sector is partly achieved at the expense of increased emissions in the residential sector. (c) 2006 Elsevier Ltd. All rights reserved.