It is argued that in the Polish climate (typical also for many regions in Europe), the best energy use of the existing biomass potential is to provide heating for agricultural holdings based on the locally available biomass feedstock. The cost of heating then becomes significantly lower compared to heating by fossil fuels, especially when biomass is self-produced. This paper analyzes economic and environmental impacts of substituting coal with biomass in agricultural holdings in Poland. The results show that a reduction of CO₂ emissions could be achieved at much lower cost: up to about 8% of public subsidies paid for using the equivalent amount of biomass for power generation.