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Italy is a large producer of biogas from anaerobic digestion, which is mainly used for power generation with limited use of cogenerated heat. Other utilization pathways, such as biomethane injection into the natural gas grid or biomethane used as a vehicle fuel, remain unexplored. Given the dense grid of natural gas pipelines and existing Compressed Natural Gas (CNG) refueling stations in northern Italy, significant market opportunities for biogas could also arise in the heating and transport sectors. The main objectives of this paper are to explore the potential role of agricultural biogas in different utilization pathways. Biogas combustion for simultaneous production of heat and power in small Combined Heat and Power (CHP) facilities is also assessed, as is upgrading to biomethane for transport or natural gas grid injection in the specific context of northern Italy. The spatially explicit optimization model BeWhere is used to identify optimal locations where greenfield biogas plants could be installed and to determine the most economic and environmentally beneficial mix of conversion technologies and plant capacities. Carbon price, for instance in the form of tradable emission permits, is assessed as a policy instrument and compared with other options such as price premiums on biomethane or electricity costs. Results show that starting from a carbon price of 15EUR/tCO<inf>2</inf>, the cogeneration option is preferable if plants are located in the proximity of existing district heating infrastructure. CNG plants are only competitive starting at a carbon price of 70EUR/tCO<inf>2</inf> in areas with high feedstock availability. The sensitivity analysis for energy prices reveals that a larger number of CNG facilities are included in the optimal mix at higher gas wholesale prices. This further indicates that specific premiums are needed to expand the biomethane market share, while greenhouse gas emission reductions would primarily be achieved by fostering cogeneration of electricity and heat supported by carbon price-based policy instruments.