[en] The effect of national energy policies on a local Swedish district heating (DH) system has been studied, regarding the profitability of new investments and the potential for climate change mitigation. The DH system has been optimised regarding three investments: biomass-fuelled CHP (bio CHP), natural gas-fuelled combined cycle CHP (NGCC CHP) and biomass-fuelled heat-only boiler (bio HOB) in two scenarios (with or without national taxes and policy instruments). In both scenarios EU's tradable CO₂ emission permits are included. Results from the study show that when national policies are included, the most cost-effective investment option is the bio CHP technology. However, when national taxes and policy instruments are excluded, the DH system containing the NGCC CHP plant has 30% lower system cost than the bio CHP system. Regardless of the scenario and when coal condensing is considered as marginal electricity production, the NGCC CHP has the largest global CO₂ reduction potential, about 300 ktonne CO₂. However, the CO₂ reduction potential is highly dependent on the marginal electricity production. Demonstrated here is that national policies such as tradable green certificates can, when applied to DH systems, contribute to investments that will not fully utilise the DH systems' potential for global CO₂ emissions reductions. - Research highlights: →Swedish energy policies are promoting biomass fuelled electricity generating technologies over efficient fossil fuel electricity generating technologies. →An efficient fossil fuel technology like the natural gas combine cycle CHP technology with high power-to-heat ratio has potential to reduce the global CO₂ emissions more than a biomass fuelled electricity generating technology. →Swedish energy policies such as tradable green certificates for renewable electricity can, when applied to district heating systems, contribute to investments that will not fully utilise the district heating systems potential for global CO₂ emissions reductions.