Bioenergy has several advantages over fossil fuels. For example, it delivers energy at low net CO2 emission levels and contributes to sustaining future energy supplies. The concern, however, is that an increase in biomass plantations will reduce the land available for agricultural production. The aim of this study is to investigate the effect of taxing conventional electricity production or carbon use in combination with subsidizing biomass or bioelectricity production on the production of biomass and agricultural commodities and on the share of bioelectricity in total electricity production. We develop a partial equilibrium model to illustrate some of the potential impacts of these policies on greenhouse gas emissions, land reallocation and food and electricity prices. As a case study, we use data for Poland, which has a large potential for biomass production. Results show that combining a conventional electricity tax of 10% with a 25% subsidy on bioelectricity production increases the share of bioelectricity to 7.5%. Under this policy regime, biomass as well as agricultural production increase. A carbon tax that gives equal net tax yields, has better environmental results, however, at higher welfare costs and resulting in 1% to 4% reduction of agricultural production. (c) 2004 Elsevier Ltd. All rights reserved.