The paper after a short discussion of the several dimensions that characterize the sustainability of biofuel production, provides a classification and discussion of main policy instruments adopted worldwide for enhancing biofuel production and consumption. Next some policy measures – tariffs, tax exemption and mandates – are analyzed in terms of distributive effects and efficiency with special regard to policies adopted by the European Union. Results show that these effects are strongly related to the adopted policy mix and to the structure of supply and demand in terms of price elasticity. These factors need then to be carefully evaluated in order to enhance effectiveness of the adopted policies.