Energy efficient buildings largely based on renewable materials and energy will contribute to a sustainable built environment. We conduct environmental and economic analysis of construction and operation of traditional buildings and low energy buildings, and with different energy supply systems. We analyze primary energy use and greenhouse gas emission in a life‐cycle perspective considering the production, operation, demolition and disposal of buildings. We include the entire material chain from natural resource extraction, material processing and assembly, building operation, and various post‐use material‐handling options. A focus of our work is the implications of using wood as a structural material in building construction. We analyse the potential environmental benefits coming from integrating and optimising the biomass and energy flows within the forestry, manufacturing, construction, energy, and waste management sectors.