A thorough life cycle assessment (LCA) was conducted to determine whether wood pellets were a viable substitute for non-renewable fuels like oil and gas, especially for heating. To evaluate the properties of wood pellets and their effects on the environment, the study was conducted in the Hazara division of Khyber Pakhtunkhwa, Pakistan. A few factors were investigated, including the carbon and water footprints and the identification of potential growth opportunities in the production of wood pellets. One kilogram of wood pellets served as the analysis reference unit. Raw materials were obtained from sawmills and furniture stores to make the wood pellets. Sawdust, a bio binder, and lubricating oil were used in the production process along with the pelletizer machine. SimaPro 9.2 software was used in the environmental footprint assessment to evaluate several environmental effects, including eutrophication, ozone depletion, abiotic depletion, rusting, human toxicity, and aquatic ecotoxicity. The highest contribution was shown by the wood pellets produced from the softwood sawdust as 149.8558 in marine aquatic ecotoxicity. The study’s findings showed that using lubricating oil during the production of wood pellets significantly affected the overall environmental results. The characterization of wood pellets showed that the Higher heating Values (HHV) resulted from burning wood pellets made from sawdust of Melia azedarach as 24.79 MJ/kg. Softwood mixed species recorded the highest water footprint and damage assessment impact and the highest carbon footprint of 0.186 CO2 e. With a 3.84 × 10−7 DALY (disability-adjusted life years) measurement, softwood mixed species showed the highest contribution to human health damage among the damage categories. In terms of cost, producing one kilogram of wood pellets from softwood mixed species was priced at 22 PKR, the lowest among the assessed species. The highest cost of 26 PKR was associated with producing wood pellets from Parthenium hysterophorus and Diospyros lotus.