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Soil nutrient depletion is a critical problem, contributing to low agricultural productivity and the limited domestic food supply in sub-Saharan Africa. Fertilizer use in Ethiopia is one of the lowest in sub-Saharan Africa. Particularly in the northern half of the Ethiopian highlands, use of dung as manure is also limited partly because of a significant level of dung consumption as a source of household fuel. Use of dung as fuel is also an important cause of health problems, mainly through indoor air pollution. Plantation interventions are carried out based on the expectation that fuelwood could substitute for dung, thus increasing agricultural productivity. This study examined (1) the determinants of rural households’ decision to use dung as fuel and as manure, and (2) the determinants of consumption of woody biomass and dung as household fuel sources. We found that the decision to use dung as fuel and manure was influenced by household assets (such as livestock and land size), as well as household characteristics (such as family size and age-sex composition of members), suggesting the important role of asset, product, and labor market imperfections. The type of stove and distance to towns also influenced fuel use. We found no evidence that woody biomass and dung were substitutes as household fuel, and in fact there were indications that they are complements. These results suggest the need to focus on asset-poor households to address the limited use of manure. Moreover, energy issues should be considered simultaneously. Encouraging the use of more appropriate (or energy efficient) stoves and other sources of energy that can reduce the use of dung as fuel are important options because they can improve energy efficiency and agricultural productivity, as well as improved health from reduced indoor air pollution.