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 scenario and life cycle approach was followed to quantify the potential benefits of cascading use of woody biomass. We started from a reference scenario in which (post-consumer) waste wood and paper are re-utilized for energy only (S0). Then we compared the reference scenario with two alternative scenarios, the current waste wood and paper recycling practices (S1) and the maximum technical potential to increase recycling of waste wood and paper flows (S2). Following a supply chain perspective, different stages of production were analysed, including forgone fossil-fuels substitution, optimization at manufacturing level and forest regrowth. Through cascading use, the wood use efficiency ratio (cascade factor) in the European wood sector would be increased by 23% (S0 vs S1) and 31% (S0 vs S2) and GHG emissions (cradle-to-gate energy use) would be reduced by 42% (28 MtCO2-eq/year) and 52% (35 MtCO2-eq/year) in scenarios S1 and S2. However, increased wood product cascading is counter effected in the short term by reduced savings in the energy sector by 49% and 48% (−43 and −42 MtCO2-eq/year) in scenarios S1 and S2 due to delayed availability of waste wood and waste paper fibers. 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, but it also reveals trade-offs in terms of GHG emissions reduction, relevant especially in meeting short-term (2020–2030) renewable energy targets.