The role of the Emission Trading Scheme in the decarbonization of existing district heating systems

The FitFor55 legislative package sets ambitious targets to make Europe the first climate-neutral continent by 2050. Within it, the EU Emission Trading Scheme is mandatory for energy operators with an installed capacity higher than 20 MW, calculated by considering units with a rated thermal input under 3 MW. The paper highlights the impact of the Emission Trading Scheme on the investment choices made by district heating systems operators, considering both current regulations and the potential extension of the Emission Trading Scheme to encompass lower energy capacities. The analysis concerns the simulation of four revamping scenarios (two fueled by natural gas and two partially by renewables) within an existing district heating system located in Italy. The economic analysis shows that an extension of the Emission Trading Scheme alone is not effective in hindering scenarios based on natural gas production. A reform of the power exchange market is necessary to drive decarbonization and encourage investment in renewable generation plants.