A furnace and a heat pump both provide heating, but they operate differently. A furnace heats air by burning fuel or using electricity and then distributes the warm air through ducts. A heat pump, on the other hand, transfers heat from the outside air (even in cold temperatures) into the home. In the summer, a heat pump can reverse the process, acting as an air conditioner. Furnaces are typically more efficient in extremely cold climates, while heat pumps are better for moderate temperatures.