Policy interventions aimed at promoting targeted bioenergy solutions can be justified by the substantial environmental externalities within agricultural systems, coupled with the local benefits of biomass production. The introduction of energy crops into crop rotations on arable land with depleted Soil Organic Carbon (SOC) levels holds the potential to enhance SOC stocks and future crop yields, representing a crucial step towards more sustainable agricultural systems. This study investigates the potential impacts of a shift in agricultural policy on regional agricultural structure, production, and the environment, utilizing an Agent-Based Life Cycle Assessment approach. The findings highlight that actively utilizing grasses for biofuel production is pivotal for achieving a positive environmental assessment of a policy instrument to promote grass in crop rotations. In summary, our research presents a methodology to systematically assess regional effects and global environmental impacts of policy instruments supporting agricultural biomass for biofuels before their implementation.