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District heating and cooling is affected by numerous laws and policies, at EU, national and local levels. The legislative framework covers a wide range of areas, such as market regulation and customer protection, energy and environment, emissions and building standards. As EU member states offer a contrasted picture with different regulatory and policy environments, this article does not go into detail on specific national laws but rather focuses on the most important parts of EU legislation relevant for the district heating and cooling sector.

District heating will have a key role in the decarbonisation ambition for the EU. At the same time, the DHC systems are governed by numerous laws and policies, affecting developments in the field. This article helps you navigate the regulations, to assist you in contributing to the net-zero emission goal.

The EU Strategy on Heating and Cooling

With the publication of the European Commission Heating and Cooling Strategy in February 2016 as part of the Energy Security package, the vital role of heating and cooling for the energy transition and decarbonisation of societies has been underlined.

The strategy clearly recognises and quantifies the importance of thermal energy applications in general and the potential contribution of DHC in particular. District heating is presented as a supporting measure for decarbonising buildings and as a potential provider of energy system flexibility due to its ability to store thermal energy. The strategy also highlights the potential of waste heat/cold recovery and its synergies with district heating/cooling as an alternative to fossil fuels.

It is considered as a political milestone for the district heating and cooling sector, paving the way for the publication of the Clean Energy for all Europeans package in November 2016. The most relevant texts of the package are the Energy Efficiency Directive, the Energy Performance of Buildings Directive and the Renewable Energy Directive. They amend existing EU directives in line with the EU 2030 targets.

The Energy Efficiency Directive

The Energy Efficiency Directive (EED) (2012/27/EU) establishes a set of binding measures to help the EU reach its 20 percent energy efficiency target by 2020. As part of the Clean Energy for all Europeans Package in 2018, the new amending Directive on Energy Efficiency (2018/2002) extended the policy framework to 2030 and beyond. In Article 14 of the Directive, Member States are required to conduct a comprehensive assessment of the potential for combined heat and power and district heating and cooling every five years. In the framework of these assessments, the potential for the recovery of waste heat must be mapped and a cost-benefit analysis carried out. Based on the results of the assessment, Member States are expected to develop “adequate measures” to realise the identified potential. The first cycle of national assessments took place in 2015 and the second cycle of assessments are required by 31 December 2020. The revised version of the EED, compared to the first one, provides clearer instructions for Member States on how to report the relevant information required, providing them with a voluntary reporting template.

Renewable Energy Sources Directive

The Renewable Energy Directive (Directive (EU) 2018/2001 which amended directive 2009/28/EC) states that 32 percent of EU’s energy mix should come from renewable energy sources by 2030. It also sets a specific goal for the heating and cooling sector where each member state shall endeavour to increase the share of renewable energy by 1.3 percentage points per year, starting from the share in 2020. When calculating the increase of renewable energy, up to 40 percent can come from waste heat and cold. Article 24 in the amended directive deals specifically with district heating and cooling. The article includes provisions on customer rights to terminate contracts with providers under certain conditions, and to be given information about the performance and share of renewable energy in their local district heating and cooling system.

It is also stated that district heating and cooling should contribute to the sector goal of 1.3 percentage points increase in the share of energy from renewable sources. To achieve this, Member States are given two options:

1. Striving to increase the share of energy from renewable sources and from waste heat and cold in district heating and cooling, by at least one percent per year.
2. Obliging district heating and cooling operators to, when in need of additional renewable heating or cooling sources, connect suppliers of energy from renewable sources and/or from waste heat and cold.

Energy Performance of Buildings and Building Codes

The Energy Performance of Buildings Directive (2010/31/EU, amended in Directive 2018/844/EU) has an important indirect effect on district heating and cooling as it aims at reducing the energy consumption of buildings. The directive has allowed Member States to exclude on-site produced energy from the performance calculations. This focus has led to a bias towards onsite solutions, such as individual gas boilers and electricity-driven heat pumps. It has also led to a negative bias against larger neighbourhood or city-level energy systems, even though in urban areas with high heat demand densities they tend to be more resource efficient.

The EU Emission Trading System and CO2 Taxes

The EU Emission Trading System (ETS) is based on the “cap and trade” principle. This means that every factory, power plant or other installation above 20 MW of thermal output is covered by the system, receiving or buying a quota of greenhouse gases that it is permitted to emit per year. In the EU, most district heating and cooling systems are subject to the EU ETS, as plants are normally larger than 20 MW. Therefore, district heating and cooling operators have to pay their CO2 emissions when using fossil fuels.

The size limit of 20 MW means that individual and block boilers using fossil fuels, which still represent the dominant heating solution in Europe, do not have to pay for their CO2 emissions. The size limit of the trading system can, therefore, disadvantage system solutions such as district heating and cooling in favour of small-scale fossil fuel use.

However, some EU Member States have implemented a separate CO2 tax where also small-scale actors are taxed for their emissions. One example of this is the Swedish CO2 tax which was introduced in 1991 and proved to have a positive impact on the development and operation of district heating and cooling. The tax has curbed the Swedish district heating cooling systems’ CO2 emissions, and has reduced oil dependency by encouraging the use of renewable energy sources and waste incineration.


The decarbonisation of heating and cooling will continue to be a major issue in the EU. This becomes clear in the context of the decarbonisation ambition for the EU, with a net-zero CO2 emission goal by 2050 and the release of the EU Green Deal Communication, announcing the publication of a number of initiatives to achieve this target.

It is expected that the above-mentioned legislation will continue to evolve, to take up the challenge of higher climate and energy ambitions.

District heating should have a key role in delivering, particularly in urban areas. It will become increasingly instrumental in unlocking decarbonisation by providing the necessary flexibility in a future energy system where fluctuating renewables play an ever-greater role.


Text by: Sofia Lettenbichler (Euroheat & Power)

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Toolbox Policy & Planning Barriers and solutions Framing the possibilities: EU legislative framework for District Heating