Fossil fuels make up 80% of the primary energy consumed in the world, from which 58% alone is consumed by the transportation sector. They have a major contribution in greenhouse gas (GHG) emissions by their combustion and consumption which leads to many negative effects including climate change and global warming. In order to tackle these problems in the transportation sector, the biofuels industry has been growing in the previous years. This study analyzes the most relevant environmental impacts that are measured with the life cycle assessment (LCA) methodology and the interaction of LCA with the set of policy instruments that hinder or encourage the production of biofuels in the transportation sector in Germany. The systematic approach used in the methodological design of this research incorporates the LCA methodology, qualitative and quantitative techniques (SWOT matrix) to describe the current situation of biofuels production and consumption in Germany. Although the country has been producing biofuels for more than two decades for the transportation sector and it is the worldwide leader of biodiesel production and consumption, the results indicate that a route towards a sustainable production of biofuels is quite far from a simple way in which only benefits can be addressed. Biofuels production, trade and usage are accompanied by complex processes. There are several contradictions regarding its environmental benefits, discrepancy in the impacts measurements and uncertainty regarding the energy share that they could reach in the future in the transportation sector. The evidence shows that the solution to tackle climate change in the transportation sector is not going to fall solely on the incorporation of biofuels in this sector. Different renewable sources and technologies will have to be introduced. An initial assessment of the current situation of Germany´s biofuels production and consumption and a state of the art of the LCA´s used in policy instruments as a tool to measure environmental impacts are some of the particular contributions provided in this research study. Further conclusions and significant recommendations concerning the existing biofuels industry in Germany, implications about its future development and trends as well as the methodological design have also been drawn.