Net-zero buildings have a variety of definitions according to their boundary selection. Because these definitions are based only on the quantity of the electrical power exchange with the grid in a given period of time, those boundaries do not make much difference, because exergy and energy of electricity are close to each other. When thermal energy is exchanged between buildings and the district, the second law of thermodynamics becomes a key issue. This study discusses the importance of exergy in evaluating and rating district energy (DE) systems towards a greener status and proposes a circular exergy model that may carry the net-zero concept to net-zero energy and net-zero exergy cities. This paper presents an optimum DE system design tool based on compound CO2 emissions metrication algorithm. Sample results indicate that net-zero energy building concepts may indeed be elevated to a city level if both energy and exergy are simultaneously taken into account in a circular exergy format. Copyright (c) 2011 John Wiley & Sons, Ltd.