In the light of declining of fossil¬based resources countries are addressing more attention on development strategies and applying the principles of green development and greening the environment. The article looks at a situation where it is possible to significantly increase the proportion of renewables in the energy balance, particularly wood fuel. An integrated modeling of system dynamics implemented with the use of the Life cycle assessment (LCA) is proposed as a good tool that enables to understand the structure and the dynamics of complex systems, and to analyze the impact of different policies and strategies in respect of sustainable criteria. The aim of the model analyzed proposed in this paper is to determine which are the main policy instruments that will strength and reinforce a renewable sound economy. The model evaluates the effects of combination of different policy instruments that majorly will increase the share of wood fuel use in the Latvian district heating system respecting sustainable criteria (avoiding depletion of forest resource). Four policy measures are evaluated: subsidies for the replacement of fossil fuel with biomass in the Latvian district heating systems, as support mechanism, information package at all heating supply levels, improving the efficiency of wood¬fuel technologies, implementation of the Emission Trading Scheme.