Forests make up large ecosystems and by the uptake of carbon dioxide can play an important role in mitigating the greenhouse effect. In this study, mitigation of carbon emissions through carbon uptake and storage in forest biomass and the use of forest biofuel for fossil fuel substitution were considered. The analysis was performed for a 3.2 million hectare region in northern Sweden. The objective was to maximize net present value for harvested timber, biofuel production and carbon sequestration. A carbon price for build-up of carbon storage and for emissions from harvested forest products was introduced to achieve an economic value for carbon sequestration. Forest development was simulated using an optimizing stand-level planning model, and the solution for the whole region was found using linear programming. A range of carbon prices was used to study the effect on harvest levels and carbon sequestration. At a zero carbon price, the mean annual harvest level was 5.4 million m3, the mean annual carbon sequestration in forest biomass was 1.48 million tonnes and the mean annual replacement of carbon from fossil fuel with forest biofuel was 61 000 tonnes. Increasing the carbon price led to decreasing harvest levels of timber and decreasing harvest levels of forest biofuel. Also, thinning activities decreased more than clear-cut activities when the carbon prices increased. The level of carbon sequestration was governed by the harvest level and the site productivity. This led to varying results for different parts of the region.