Developing technology and increasing population makes energy consumption more important. Most of energy is used for space heating in Turkey, consequently, insulation of external walls is too important. In the present work, optimum insulation thickness considering condensed vapor in existing buildings for Kutahya which is one of coldest cities in Turkey has been studied. The optimization is based on the thermoeconomic analysis. Since Kutahya is the most polluted city in Turkey, and the source of this pollution is energy consumption, it has become an obligation to save energy and to reduce its effects. In this study, exergy method with the different reference states which are normally available in a building has been used. The effect of condensed vapor on exergy also has been taken into account. The optimum insulation thickness determined as 0.060, 0.065, 0.075 m with a rate of 74.9%, 76.3% and 78.8% in the energy saving for indoor temperature of 18, 20 and 22 degrees C, respectively. Therefore, a decreasing in the air pollutants about at same rates has been obtained. (C) 2006 Elsevier B.V. All rights reserved.