A greenhouse gas (GHG) emission reduction obligation system has been implemented in the Swedish road transport sector to promote the use of biofuels. For transportation fuel suppliers to fulfil this obligation, the volume of biofuel required decreases with decreasing life cycle GHG emission for the biofuel, linking lower GHG emission to higher economic value. The aim of this study was to investigate how the economic competitiveness of a Swedish emerging lignocellulosic-based ethanol production system would be influenced by the reduction obligation. The life cycle GHG emission for sawdust-based ethanol was calculated by applying the method advocated in the EU Renewable Energy Directive (RED II). The saving in GHG emissions, compared with fossil liquid transportation fuels, was 93% for a potential commercial production system in southern Sweden. This, in turn, will increase the competitiveness of sawdust-based ethanol compared to the mainly crop-based ethanol currently used in the Swedish biofuel system, which has an average GHG emission saving of 68%, and will allow for an almost 40% higher price of sawdust-based ethanol, compared to the current price of ethanol at point of import. In a future developed, large-scale market of advanced ethanol, today’s GHG emission reduction obligation system in Sweden seems to afford sufficient economic advantage to make lignocellulosic ethanol economically viable. However, in a short-term perspective, emerging lignocellulosic-based ethanol production systems are burdened with economic risks and therefore need additional economic incentives to make a market introduction possible.