According to plans of the European Union (EU), Latvia needs to reduce its greenhouse gas emissions in the non-ETS sector by 6% until 2030 in comparison to 2005. Many policy instruments are evaluated to support GHG emissions reduction. A system dynamics modelling approach was used to analyze the impact of supporting mechanisms on CO2 emissions from the Latvian district heating system that is not covered by the European Union Emission Trading System (non-ETS). Three policy instruments were included in the system dynamics model: carbon tax, subsidies for solar technologies and energy efficiency measures with co-financing for building renovations with the aim to decrease energy consumption. Three development scenarios were examined, taking into account these supporting mechanisms. The existing natural gas technologies and three renewable energy technologies (biomass combustion equipment, heat pump and solar collectors with accumulation) were included in the model. Modelling results show substantial CO2 reduction potential by combining different supporting mechanisms. An 80% of CO2 emissions reduction could be reached by applying a policy mix, which includes all proposed policy instruments – carbon tax, subsidies for solar technologies and funding for energy efficient renovation. The findings of this article are relevant for all countries with district heating who strive towards CO2 emissions reduction.