Considering the high demand for domestic hot water in China, the air source heat pump water heater is being popular due to higher energy efficiency. However, the heat pump is mainly studied from the energy perspective in the previous literature, and the influence of the frosting is also neglected. In this paper, with the presented domestic hot water load in a typical Chinese city, the carbon dioxide heat pump was tested at the varied ambient temperatures considering the different defrosting methods. With the proposed hot gas bypass defrosting method, a techno-economic analysis is required. To show the benefits of the proposed system, the unit is analyzed with the energy, economic and environmental analysis. The comparison with two traditional heating solutions is also presented. Results show that the seasonal performance factor is improved by 2.85%, and the annual fuel cost is decreased by 758.26 Chinese yuan in the proposed system compared with the baseline system. For the additional cost required by the proposed defrosting method, the proportion declines rapidly from 1.53% to 0.46% in the first 5 years. Compared with the direct electric heater, the life cycle cost is reduced by 2313.23 thousand Chinese yuan, and the carbon dioxide emission is declined by 266.46 tons in the proposed system. With the negligible direct emissions of 36.98 kg, the total equivalent warming impact is mainly determined by the indirect emissions. The primary energy consumption and CO₂ pollutant emission is related with the domestic hot water load. The payback period is sensitive to the domestic hot water load, compressor cost and electricity price.