This article analyses the regulation of biofuels’ tax incentives under three European Union (EU) legal frameworks; the 2003 energy taxation directive (ETD), the renewable energy directives (RED), and State aid law. These frameworks lack a common understanding of biofuels’ sustainability and climate performance. The ETD’s minimum tax rates do not differentiate fuels according to their climate performance and has no relevance for greenhouse gas emission reduction in the transport sector. At the same time, the RED instruct EU Member States to promote biofuels that meet its sustainability criteria. As shown by the case studies in this article, this comes with challenges for Member States’ tax incentives to biofuels in relation to State aid law. In principle, governments may freely structure incentives according to national (climate) policy objectives. Yet, that freedom is restricted by State aid law, and national objectives are typically overlooked when incentives are assessed in State aid procedures.