Although improved efficiency in converting harvested trees into wood

in "because of doing", "doing " refers to general action but not to specific action of someone in the sentence. this is key point.
in contrast, "by doing" refers to the subject of the main clause. this means the subject perform action of doing

so, in choice B, "because of increasing and lowering" is wrong because "it", "efficiency" dose not perform action of increasing and lowering

similar example

because of learning gmat incorrect way, I fail on the test.

this is wrong, because "learning" dose not refer to "I". Learning is not perform by "I". we have to say
learning gmat incorrect way, I fail on the test.
this is correct, Learning refers to "I" and "I" perform "learning".

"because of learning" can be correct

failure because of learning gmat incorrect way is normal

this is correct. we dont have any person who perform action of learning. we say about general action of learning.

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