Abstract In this study, the performance of a two-stage compression transcritical cycle with an expander (TCE) and a conventional single-stage compression transcritical cycle with a throttling valve (SCT) using pure CO2 and CO2/ethane (0.78/0.22, mass fraction) azeotropy mixture as a refrigerant in an air-source heat pump water heater (ASHPWH) system is investigated. From the point of the first and second laws of thermodynamics, the theoretical analysis of cycle characteristics based on the two systems with both refrigerants are carried out and compared in detail. The results show that the COP of TCE cycle with CO2 and CO2/ ethane are at least 57.4% and 81.6% higher than those of the SCT cycle under the studied conditions. The main attractiveness of the CO2/ethane azeotropy refrigerant is connected with its lower discharge temperature compared with the pure CO2, which can prolong the compressor lifetime. In addition, the CO2/ethane azeotropy refrigerant can obviously reduce the evaporation temperature, which is conducive to the ASHPWH system in cold region.