In this paper a method is presented for comparison of the cost effectiveness of mitigation of net emissions of greenhouse gases, mainly carbon dioxide (CO2), by measures carried out in different parts of the carbon cycle. The method is applied on forest production and wood fuels. Two roles are distinguished for forests in the carbon cycle: the role of biomass build-up, e.g. the process to fix carbon into biomass from CO2 in the atmosphere, and the role of a carbon store in wood and other biomass to be used asa sink or asa source for wood fuels. The two roles are interdependent and are related to the age of trees and other conditions of the forest stands, and can be influenced by forestry activities. The costs of reducing CO2 emissions by using wood fuels substituting fossil fuels are analysed and presented for a situation represented by the Swedish district heating system. It was found that the costs of replacing fossil fuels by biofuels generally are considerably lower than the corresponding level of the Swedish taxes on fossil fuels. In some cases wood fuels were found to be cheaper than fossil fuels irrespective of taxes. Comparisons between the costs of mitigation measures to reduce CO2 net emissions by wood fuel combustion and those aiming at increased storage of carbon in the forests strongly indicate that combustion measures are more cost effective, especially in a long perspective.