This study examines the integration of biochar and bio-oil co-production within an existing biomass-fired district heating system.Through scenario-based modeling, three operational strategies were assessed: (i) biochar production aligned with actual heat demand, (ii) full-capacity operation to maximize biochar output, and (iii) combined production of biochar, heat, and bio-oil via pyrolysis gas condensation. The analysis, based on real operational data, included energy and mass balances, financial performance metrics (payback period and return on investment), and carbon sequestration potential. Results demonstrate short payback times (<4 years) across scenarios. Annual CO2 sequestration ranged from 3,650 to 8,400 tonnes, highlighting the system’s climate mitigation potential. Sensitivity analysis identified investment cost and heat price as key economic drivers. The findings support retrofitting existing biomass DH systems with pyrolysis technology as a viable strategy for carbon-negative energy production and resource valorization.