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Decentralized multi-energy systems (MESs) are a key element of a future low-carbon energy supply. Here, we address the crucial role of grid-connected and off-grid MESs in achieving a low-carbon future, particularly relevant for regions like the Mediterranean with high renewable energy potential and carbon-intensive grid networks, using a mixed integer linear program for optimal economic and environmental MES design considering location-specific regulations. The results reveal that substantial cost (up to 30%, potentially saving 1.6 million) and greenhouse gas (GHG) emission reductions can be reached in Mediterranean regions with sufficient solar and wind energy resources currently relying on fossil fuel-based generators. However, our case study shows that the actual cost and emission reductions are most likely limited due to location-specific regulations (limiting cost savings to 0.8 million), especially those that constrain solar photovoltaic and onshore wind. Off-grid energy systems might be suitable decarbonization options in Mediterranean regions, to avoid absorbing current GHG-intensive power from the local power grid, under marginal cost increase (15%) compared to grid-connected cost optimization. However, off-grid MESs require substantial upfront investments and exhibit some environmental trade-offs, especially on material utilization, which could be overcome by balanced autonomy. Overall, truly sustainable and secure decentralized energy systems can only be reached by considering life cycle environmental impacts, social acceptance, and regulations during the design phase. Applied Energy, 377 ISSN:0306-2619 ISSN:1872-9118