We examined the co-evolution of the transportation, and electricity and heat generation sectors in the Netherlands until 2040 using a MARKAL bottom-up cost optimisation model. All scenario variants investigated indicate a switch away from crude oil-based diesel and petrol for transportation. Lowest overall CO2 abatement cost is achieved by accommodating transportation first and using relatively expensive options for emissions reduction in electricity generation if needed. Biomass and carbon capture and storage (CCS) are used to full potential. Transportation CO2 emissions are reduced by switching to ethanol or bio-based synthetic fuels combined with CCS, and series hybrid cars if needed. Depending on the availability of biomass and carbon storage capacity, electricity is produced from biomass, coal with CCS, or wind complemented with natural gas. Indirect greenhouse gas emissions rise to 34-54% of national emissions in 2040. The difference in annual investment required between the scenario variants with and without CO2 emissions reductions of 68% by 2040 is 4-7 billion euro/year, or 0.5-1.2% of projected GDP. Investment costs are mostly determined by the cost of cars and electricity generation capacity. We observe competition for limited biomass supply and CO2 storage capacity between the transportation and power sectors. (C) 2010 Elsevier Ltd. All rights reserved.