Abstract Energy decisions play an essential role in reducing greenhouse gas (GHG) emissions in the transportation sector. Biogas is a renewable energy source and can be used as an energy source for gas-operated cars or for electric cars. This paper compares different ways to use biogas, which is produced on a medium scale anaerobic digestion plants, as an energy source for transportation. The research is conducted from an economic and environmental point of view, and the option to deliver upgraded biogas via a natural gas grid is taken into account. Different processes for the use of biogas for transportation purposes are compared using life cycle assessment (LCA) methods in the Finnish operational environment. It seems that the most economical way is to use biogas in gas-operated cars due to the high price of methane for vehicle fuel use. A new feed-in tariff for electricity produced with biogas will, however, have highly positive economic effects on electricity production from biogas. From the environmental point of view, the highest CO2 reductions are gained when biogas is used in gas-operated cars or in CHP plants for power and heat production. During the transition stage, it might be reasonable to use biogas in gas-operated cars and most importantly in heavy vehicles to reduce GHG and local pollutants rapidly. If biogas production is located near a natural gas grid, the biogas can be delivered effectively via the natural gas grid. The use of biogas in gas-operated cars is an effective way to reduce carbon dioxide significantly in the transportation sector.