AbstractThis study compared the economic and environmental impacts of torrefaction on bioenergy supply chains against conventional pellets for scenarios where biomass is produced in Mozambique, and undergoes pre‐processing before shipment to Rotterdam for conversion to power and Fischer‐Tropsch (FT) fuels. We also compared the impacts of using different land quality (productive and marginal) for feedstock production, feedstocks (eucalyptus and switchgrass), final conversion technologies (XtY and CXtY) and markets (the Netherlands and Mozambique). At current conditions, the torrefied pellets (TOPs) are delivered in Rotterdam at higher cost (7.3–7.5 $/GJ) than pellets (5.1–5.3 $/GJ). In the long term, TOPs costs could decline (4.7–5.8 $/GJ) and converge with pellets. TOPs supply chains also incur 20% lower greenhouse gas (GHG) emissions than pellets. Due to improved logistics and lower conversion investment, fuel production costs from TOPs are lower (12.8–16.9 $/GJFT) than from pellets (12.9–18.7 $/GJFT). Co‐firing scenarios (CXtY) result in lower cost fuel (but a higher environmental penalty) than 100% biomass fired scenarios (XtY). In most cases, switchgrass and the productive region of Nampula provide the lowest fuel production cost compared to eucalyptus and the marginally productive Gaza region. Both FT and ion in Mozambique are more costly than in Rotterdam. For the Netherlands, both FT and power production are competitive against average energy costs in Western Europe. The analysis shows that large‐scale bioenergy production can become competitive against fossil fuels. While the benefits of TOPs are apparent in logistics and conversion, the current higher torrefaction costs contribute to higher biofuel costs. Improvements in torrefaction technology can result in significant performance improvements over the future chain. © 2013 Society of Chemical Industry and John Wiley & Sons, Ltd