comparison of Fig. 3 and Fig. 4 indicates a potential misalignment between marginal policy costs and the social cost of the externality due to the GHG and air pollutant emissions. Should the marginal policy cost affect technology choices – e.g. if a policymaker would put in place energy taxes or other incentives that would correspond to the marginal policy costs – there would be a strong incentive from the policy point of view to switch from oil heating to any of the biomass-based heating appliances. However, this switching would not necessarily reduce social costs from the externality of residential heating. The incentives for technology switching based on the marginal policy costs is nearly indifferent on which of the biomass-based appliances would substitute oil heating, even though the estimated social costs for the different biomass-based appliance categories are vastly different. Therefore the policy-based incentive does not necessarily steer toward socially optimal technology choices. Especially in urban environments the cost of externalities might be increased manyfold.