This study strives to clarify to what extent the improved insulation of new buildings affects the economically rational choice of heating supply. In the Danish context, natural gas furnaces show to be economically rational for the society only in few cases. District heating should be advocated only for areas with a high concentration of heat demand, primarily areas with apartment buildings. An increased use of heat pumps (HP) should be advocated as the ambient air HP show to be the cheapest of the individual heating systems-and in most cases cheaper than the collective heating systems. The taxation of energy products in relation to space heating should be revised as the economics from the consumer's point of view do not comply with those from the society's point of view. (c) 2006 Published by Elsevier Ltd.