This paper presents a regionalized LCA-based multi-objective optimization model of building energy demand and supply for the case of a Swiss municipality for the minimization of greenhouse gas emissions and particulate matter formation. The results show that the environmental improvement potential is very large: in the optimal case, greenhouse gas emissions from energy supply could be reduced by more than 75% and particulate emissions by over 50% in the municipality. This scenario supposes a drastic shift of heat supply systems from a fossil fuel dominated portfolio to a portfolio consisting of mainly heat pump and wood-chip incineration systems. In addition to a change in heat supply technologies, roofs, windows and walls would need to be refurbished in more than 65% of the municipality's buildings. The full potential of the environmental impact reductions will hardly be achieved in reality, particularly in the short term, for example, because of financial constraints and social acceptance, which were not taken into account in this study. Nevertheless, the results of the optimization model can help policy makers to identify the most effective measures for improvement at the decision making level, for example, at the building level for refurbishment and selection of heating systems or at the municipal level for designing district heating networks. Therefore, this work represents a starting point for designing effective incentives to reduce the environmental impact of buildings. While the results of the optimization model are specific to the municipality studied, the model could readily be adapted to other regions.