||The main contribution of this project is construction of a dynamic partial equilibrium model for the whole Czech energy sector, which will be used as a tool for emission projections and for predictions of impacts of environmental regulation on emissions, fuel consumption and production costs. Additional values of this project are:(i) including of the sector real constrains (brown coal mining limits or regional constrains of heat demand);(ii) incorporation of external costs into the objective function and the minimizing of the total social costs;(iii) inclusion of effects of substitution between district heating and local heating in the regions where these heating forms compete;(iv) sensitive analysis of critic parameters of the model. The time horizon of the optimization problem will be 2050. We significantly extend the model constructed during the bachelor thesis „Optimisation of the Czech energy system“ by heating sector and we complete renewable technologies. We will evaluate the impacts of environmental regulation on emissions, fuel consumption, structure of energy sector and on prospective local substitution between district and local heating and its impact on environment. We will focus on renewable technologies and their utilization possibility in the Czech Republic with regard on negative externalities related to their installation and operation.