Commercial renewable energy projects are sensitive to policy instruments that shape the rate of deployment of renewables and affect their technological evolution. This study evaluates the economic performance of biogas projects under policy involving two novel instruments: (i) BFP (biomethane feed-in premium) and CMP (carbon mitigation premium) able to shape economic attractiveness and future technological evolution of biogas. The study reveals that only conventional biogas CHP plants are likely to be profitable under current policies. Biomethane plants require incentives e.g. from BFP, but interestingly the sufficient incentive can be more than 50% lower than the current incentive for electricity. The study also finds that innovative pressurised anaerobic digestion that can achieve direct carbon intensity of 13 tCO(2) per GWh(f) (compared with about 168 tCO(2) per GWh(f) for conventional biogas upgrading) can be very economically attractive, if policy combining BFP and CMP is implemented. The total support required from governments under the policy combining BFP and CMP instruments is similar or even lower than that currently available for bioelectricity. In addition, carbon mitigation benefits are achieved. Policy instruments and technological innovations are therefore critical for ensuring high energy outputs from biogas at a minimal economically justified carbon footprint. (C) 2015 Elsevier Ltd. All rights reserved.