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Low CO2 prices have prompted discussion about political measures aimed atincreasing the cost of carbon dioxide emissions. These costs affect, interalia, integrated district heating system operators (DHSO), often owned bymunicipalities with some political influence, that use a variety of (CO2 emis-sion intense) heat generation technologies. We examine whether DHSOs have anincentive to support measures that increase CO2 emission prices in the shortterm. Therefore, we (i) develop a simplified analytical framework to analyseoptimal decisions of a district heating operator, and (ii) investigate themarket-wide effects of increasing emission prices, in particular the pass-through from emission costs to electricity prices. Using a numerical model ofthe common Austrian and German power system, we estimate a pass-through fromCO2 emission prices to power prices between 0.69 and 0.53 as of 2017, dependingon the absolute emission price level. We find the CO2 emission costpass-through to be sufficiently high so that low-emission district heatingsystems operating at least moderately efficient generation units benefit fromrising CO2 emission prices in the short term.

District heating systems under high CO2 emission prices: the role of the pass-through from emission cost to electricity prices