Charcoal production over the years has contributed to deforestation and environmental degradation which could affect its sustainability. Seasonality of production also makes livelihood diversification important for the producers’ wellbeing. Hence, the environmental and welfare effects of livelihood diversification of charcoal producers were investigated. The study showed that 71.4% of the respondents diversified into other agriculture and non-agricultural activities. The diversification index was 0.61. With the poverty line of ₦189,023.10, 56.1% of the charcoal producers had poor welfare status (poor). The disaggregation showed that 55.7% and 43.3% of the charcoal producers that diversified and respondents that did not diversify had good welfare status, respectively. Most of the respondents with good welfare-status (non-poor) diversified into poultry, crop farming, fish farming and artisanal work (54.6%, 57.4%, 88.9%) while those that engaged in artisanal work (carpentry, bricklaying and painting among others) were poor. The average quantity of wood used per month was 89337.6kg wood (equivalent of 3.9hectares) per month to produce 8933.76kg of charcoal. Age, household size and years of experience of respondents were factors that influenced extent of livelihood diversification. Livelihood diversification positively improved respondent’s welfare. Based on the large hectares of wooded land cleared for charcoal production monthly, relevant NGOs should embark on campaigns on the negative effects deforestation. Also, the Federal Government officials should mandate the Ministry of Commerce and Industry to encourage charcoal producers to engage in other economic activities through training and loan disbursement in different enterprises in order to reduce pressure on forest trees and by extension global warming.