The extension of forest area is a globally accepted tool to offset CO2 emissions from deforestation and the combustion of fossil fuels. The common assumption is that in addition to the perceived climate benefits increasing forest area will also support biodiversity, thus making afforestation a “win-win scenario”. Based on the existing scientific evidences, we show that joined climate and biodiversity benefits are strongly context-dependent and that the outcome of afforestation is often highly questionable. In Europe, grasslands managed at low intensity contribute substantially to biodiversity conservation and carbon storage. However, many of these grasslands have been lost due to abandonment and subsequent spontaneous succession towards woody vegetation, or due to land use intensification. Moreover, grasslands are the ecosystems most often deliberately afforested in the context of EU carbon-centered policies that may thus counteract biodiversity conservation programmes. By reviewing the main EU policies targeting forests and grasslands, we found a striking ambivalence between policies and funding schemes addressing grassland conservation on the one hand (e.g. Habitats Directive, green payments within the Common Agricultural Policy) and those supporting afforestation on the other (e.g. rural development funds). We suggest three measures towards a better harmonization of the European Union policies that target forest and grassland ecosystems: (1) promoting the alignment of the decisions taken across different policy sectors; (2) focusing on the whole range of ecosystem services and biodiversity issues rather than on carbon management only; (3) valuing systems managed at low-intensity for their multifunctionality.