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