Conversion of wastes to biofuels is a promising route to provide renewable low-carbon fuels, based on a low- or negative-cost feedstock whose use can avoid negative environmental impacts of conventional waste treatment. However, current policies that employ LCA as a quantitative measure are not adequate for assessing this type of fuel, given their cross-sector interactions and multiple potential product/service streams (energy, fuels, materials, waste treatment service). We employ a case study of butanol and ethanol production from mixed municipal solid waste to demonstrate the challenges in using life cycle assessment to appropriately inform decision-makers. Greenhouse gas emissions results vary from -566 gCO2eq./MJbiofuel (under US policies that employ system expansion approach), to +86 gCO2eq./MJbiofuel and +23 gCO2eq./MJbiofuel (under initial and current EU policies that employ energy-based allocation), relative to gasoline emissions of +94 gCO2eq. LCA methods used in existing policies thus provide contradictory information to decision-makers regarding the potential for waste-based biofuels. A key factor differentiating life cycle assessment methodologies is the inclusion of avoided impacts of conventional waste treatment in US policies, and their exclusion in EU policies. Present EU rules risk discouraging the valorisation of wastes to biofuels, and thus forcing waste towards lower-value treatment processes and products.