In an effort to reduce CO2 emissions from fossil fuel burning, renewable energy policies incentivize using biomass as an energy source. Co-firing biomass and coal in retrofitted power plants is viewed as an efficient means to reduce carbon dioxide emissions in the energy sector. Under IPCC reporting rules, the impacts of energy produced from biomass would not be reported in the energy sector, thereby effectively lowering the emissions intensity of a power plant. In this study, a carbon tax is compared to a feed-in tariff for incentivizing conversion of coal plants to co-fire with biomass. In the application, a model of an electrical grid is linked to a fibre transportation model. Prelimiary results indicate that there is an upper threshold on a carbon tax after which retrofitting of coal plants is less efficient than increasing natural gas generating capacity. This is not the case with a feed-in tariff as it specifically targets biomass energy. Although the optimal generating mix achieved with a carbon tax leads to lower aggregate emissions than the mix achieved using a feed-in tariff, it will result in higher average generating costs.