Beyond a low-energy and low-exergy building concept, the mechanical system that converts energy resources to useful mechanical power and HVAC functions need to be optimized for maximum efficiency with minimum energy waste and exergy destruction. This paper provides a new analytical algorithm, which optimizes the CHP, absorption chiller, heat pump, alternative energy and power systems like wind and solar, TES, PES, and HVAC terminal unit combinations and capacities for a given building. A case study is presented for several mechanical system scenarios. Results show that lower CO₂ impact buildings are possible even when fossil fuels are used.