This study empirically analyzes the appropriateness of the current tariffs for district heating in Korea. For this purpose, we adopt the duality concept applied to the output distance function, and estimate the shadow price of heat produced from cogeneration. In addition, the analytical model takes account for the inputs of labor and capital as well as fuel as input outlays of cogeneration. The empirical results show that the current heat tariff determined by the public energy policy might be undervalued by about 15-53%. This implies that the retail price of district heating in Korea might be distorted at least in the sense of economics. (c) 2004 Elsevier Ltd. All rights reserved.