OriginalInternalizing the external costs of biogas supply chains in the Italian energy sector In Italy biogas support schemes are being revised to allocate subsidies also to the production of biomethane. Energy policies should foster environmentally optimal solutions, especially because social acceptance issues often arise in the case of biogas. In this paper the external cost methodology is adopted to quantify the environmental impact of airborne emissions associated with biogas based energy vectors and their corresponding fossil alternatives. These are evaluated at supply chain level and incorporated in a spatially explicit optimization model. The study is applied to Northern Italy to compare the potential impact of alternative policy options. It is found that, while external costs of biogas based pathways are always lower than corresponding fossil fuel based pathways, differences are generally so small that policies based on internalization of external costs alone would not lead to further development of biogas based technologies. For all utilization pathways consideration of local externalities leads to a less favourable evaluation of biogas based technologies, which even results in external costs higher than fossil natural gas if biogas is allocated to local heating.