Energy security and the mitigation of greenhouse gas emissions (GHG) are the driving forces behind the development of renewable fuel sources worldwide. In Sweden, a relatively rapid development in bioethanol usage in transportation has been driven by the implementation of national taxation regulations on carbon neutral transport fuels. The demand for bioethanol to fuel transportation is growing and cannot be met through current domestic production alone. Lignocellulosic ethanol derived from agricultural crop residues may be a feasible alternative source of ethanol to secure a consistent regional fuel supply in Swedish climatic conditions. This paper analyzes how the regional energy system can contribute to reducing CO2 emissions by realizing local small scale bioethanol production and substituting petrol fuel with high blend ethanol mixtures for private road transport. The results show that about 13 000 m3 of bioethanol can be produced from the straw available in the studied region and that this amount can meet the current regional ethanol fuel demand. Replacing the current demand for petrol fuel for passenger cars with ethanol fuel can potentially reduce CO2 emissions from transportation by 48%.