Replacing fossil fuels with sustainably-produced biomass will reduce the net flow of CO2 to the atmosphere. We express the efficiency of this substitution in reduced emissions per unit of used land or biomass and in costs of the substitution per tonne of C. The substitution costs are calculated as the cost difference between continued use of fossil fuels at current prices and the use of biomass, assuming that the biomass technologies are implemented when reinvestments in existing technologies are required. Energy inputs into biomass production and conversion are biomass-based, resulting in a CO2-neutral fuel cycle, while CO2 emissions from fossil fuels are estimated for the complete fuel cycles. Substituting biomass for fossil fuels in electricity and heat production is, in general, less costly and provides larger CO2 reduction per unit of biomass than substituting biomass for gasoline or diesel used in vehicles. For transportation, methanol or ethanol produced from short-rotation forests or logging residues provide larger CO2-emission reductions than rape methyl ester from rape seed, biogas from lucerne (alfalfa), or ethanol from wheat. Of these, methanol has the lowest emission-reduction costs. Increasing biomass used by 125 TWh/yr, the estimated potential for increased utilization of logging residues, straw and energy crops, would eliminate more than one-half of the Swedish CO2 emissions from fossil fuels of 15 Mtonnes C in 1992.