Wood is a renewable source of energy because the carbon dioxide emitted when the wood is burned has been taken out of the atmosphere by the growing plant. Even allowing for emissions of fossil carbon dioxide in planting, harvesting, processing and transporting the fuel, replacing fossil fuel with wood fuel will typically reduce net CO2 emissions by over 90%. This applies to all forms of wood fuel, including wood pellets, which are usually made of highly compressed waste sawdust.

Being a source of renewable energy, wood pellets are exempt from the Climate Change Levy.