International concern about environmental effects of energy generation has increased the interest in commercialising renewable energy technologies. In Sweden, energy from combustion of biofuels has been produced on a commercial scale since 1980. One typical example of the state-of-the-art technology used in forest residue fuelled combined heat and power plants in Sweden is the Nassjo Circulating Fluidised Bed (CFB) process. In this paper, the environmental impacts of CFB processes for combustion of biomass are identified and quantified by using Life Cycle Assessment approach, with the data obtained from the Nassjo plant. The system boundaries are drawn to include the biofuel cycle from collection of forest residues, through the combustion process to the return of ashes to the forest. The most significant environmental impacts of the forest fuel cycle are fossil fuel depletion and greenhouse effect due to the use of fossil fuels in the collection, chipping and transport stages. Other impacts in the life cycle, are less significant and some of them can be counteracted by returning ashes to the forest as a fertiliser.