Abstract The Portuguese government's new strategy is based on the predicted increase in the country's installed electricity capacity through the use of biomass residues, including forest biomass residues. However, this strategy implies that the use of forest biomass residues in electricity production will most likely be at the expense of alternative uses, such as heat and biofuel production. Therefore, what is the best use of forest biomass residues available in the country from an environmental perspective? To answer this question, in this study, a consequential life cycle assessment was applied to assess three different scenarios: 1) the production of electricity in dedicated power plants; 2) the cogeneration of electricity and heat in combined heat and power plants; and 3) the production of bioethanol by biochemical conversion. The results showed that the strategy of using forest biomass residues for electricity production would be advantageous in relation to the baseline (i.e. leaving forest residues in forest soil and using fossil fuel sources to produce energy) only in some environmental impact categories. The results showed that the cogeneration of electricity and heat production was the best alternative among the three scenarios. However, regarding the effects related to particulate matter and marine eutrophication, the results showed that this alternative would perform better than baseline if the displaced fuels were coal in electricity production and at least 12% fuel oil (and the rest natural gas) in heat production. The conversion of forest biomass residues to bioethanol was the least beneficial regarding all categories under study.