AbstractNatural gas (NG) is expected to be used broadly in China to replace coal in district heating sector in order to reduce air pollution due to coal burning. However, it is difficult for natural gas to penetrate district heating market due to its relatively high cost. In the present study, a market simulation method is proposed to find the marginal conditions and policy to promote natural gas utilization for district heating. In the proposed method, technology improvement, pricing mechanism, carbon tax and user's pricing response are considered. The prerequisite of the market simulation is that the heating expenses of end-users won’t increase and the benefit of heat producers won’t decrease when using NG to replace coal. Based on the obtained analysis results, gas pricing revolution, heating pricing revolution and carbon tax mechanism are discussed in order to promote the gas-fired heating through market mechanism.