Cascading use of biomass is a recognized strategy contributing to an efficient development of the bioeconomy and for mitigating climate change. This study aims at assessing the potential of cascading use of woody biomass for reducing GHG (greenhouse gas) emissions and increasing the overall wood flow efficiency in the European Union’s forest and bioeconomy sectors. A life cycle approach was followed to quantify the potential benefits of cascading use of woody biomass. Different supply chain stages of production were analyzed: forgone fossil-fuels substitution, optimization at manufacturing level and forest regrowth. We started with the current waste wood and paper recycling practices (scenario S1). Then we compared this current scenario with two divergent options: a scenario in which all post-consumer wood and paper waste is fully re-utilized for energy (S0) and a scenario with optimized future product cascading (S2). Through maximized product recovery and zero waste strategy (optimized cascading), the wood use efficiency ratio (cascade factor) in the European wood sector would be increased by 9% (S2 vs S1). The optimal cascading leads to more GHG savings (-7 MtCO2-eq/year) in the wood production sector, less GHG emissions in the energy sector (-1 MtCO2-eq/year) and less GHG emissions in the waste sector (-6 MtCO2-eq/year), when compared with current practices. The wood use efficiency ratio in the European wood sector strongly decreases with direct energy use of all paper and wood waste (no product cascading), total by about 25% (S0 vs S1). The full energy scenario leads to additional GHG emissions in the waste sector (7 MtCO2-eq/year), in comparison with current practices. Although the GHG reduction effect is quite substantial for using all wood waste directly for energy in SO (-43 MtCO2-eq/year), that effect is largely counteracted by additional GHG emissions (28 MtCO2-eq/year) through the need of fresh fibers (instead of waste fibers) for the production of wood and paper products in SO. Overall, the optimal cascading S2 scores considerably better (-14 MtCO2-eq/year, equivalent with 8.3% GHG emission reduction) than the full energy scenario SO (-8 MtCO2eq/year or 4.7% GHG emission reduction), in comparison with current practices in the EU. This explorative study highlights the potential of cascading use of woody biomass in the wood production chains to contribute to a reduction of environmental impacts related to wood resource and energy use, relevant especially in meeting short-term (2020-2030) renewable energy targets.