Biomass-driven, combined heat and power (CHP) also known as co-generation plants are said to provide reliable, efficient, clean power and heat worldwide. However, it is known that the use of biomass for energy applications may lead to land use competition, environmental degradation and food in-security. This study was therefore carried out at a Paper Mill and the seven surrounding villages with the aim of assessing the environmental challenge of wood biomass utilisation for CHP generation.Data were collected by interviewing technical staff at the paper mill, Sao Hill Plantation, Government officials from Ministry of energy and other energy regulatory bodies. A questionnaire was used to collect data from seven villages surrounding the paper mill while a check list was used to collect information on environmental management aspect within the paper mill departments. Descriptive Statistics was used in assessing environmental challenge of biomass use at the Paper Mill while a chi square was used also to establish the relationship and association between variables.Findings revealed that there were negative impacts on air quality, land use and water. The chi square test revealed that there was no significant difference (ᵡ 2 =0.253 and p > 0.05) in having environmental problems and distance from Paper Mill. It was also observed that arable land which was needed to grow trees was becoming scarce affecting the sustainable supply of raw materials.