Cogeneration in district heating systems is the most energy-efficient way to convert biomass into heat and electricity with current or nearly commercial technologies. Methanol produced from biomass and used in vehicles instead of petrol or diesel could reduce carbon dioxide emissions nearly as mcuh per unit of biomass as if the biomass were used to replace natural gas for cogeneration, but at some higher cost per unit of carbon dioxide reduction. The most energy-efficient way to use biomass for cogeneration appears to be combined cycle technology, and the world＇s first demonstration plant is now being built. Potentially, this technology can be used for electricity production in Swedish district heating systems to provide nearly 20% of current Swedish electricity production, while simultaneously reducing carbon dioxide emissions from the district heating systems by some 55%. The heat costs from cogeneration with biomass are higher than the heat costs from fossil fuel plants at current fuel prices. Biomass can only compete with fossil fuels if other advantages, for example a lower environmental impact, are considered.