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II. Harvesting carbon sequestration through land-use change: a way out of rural poverty?


The key principle underlying the agreements that came out of the United Nations Conference on Environment and Development (UNCED) meeting held in Rio de Janeiro in 1992 was the requirement to address both development and environmental concerns in dealing with the pressing problems of environmental degradation facing the world.

The key principle from UNCED in 1992 was the need to address both development and environmental problems in conjunction.

The agreements reached in Rio de Janeiro led to the establishment of a new international environmental governance system in the form of several multilateral environmental agreements (MEAs), including the UN Framework Convention on Climate Change (UNFCCC), the Convention on Biological Diversity (CBD) and the UN Convention to Combat Desertification in those Countries Experiencing Serious Drought and/or Desertification, particularly in Africa (UNCCD). Under these and other MEAs, a range of mechanisms to promote the generation of environmental goods and services together with economic development has been proposed and in some cases implemented.

The following explores the potential impacts on poverty alleviation of one of the main mechanisms proposed under the UNFCCC: the introduction of markets for carbon emission credits. An important group of potential participants in such a market is that of land users, including farmers and forest dwellers, who may supply credits for emission reductions through changes in their land-use practices. The lessons learned from examining the potential impacts of this mechanism on poverty alleviation and food security among land-user groups are also applicable to understanding the potential impacts of mechanisms proposed under other MEAs that will involve land-use change.


Background on the issue of climate change

There has been considerable controversy over the degree and potential impacts of climate change, with some optimists claiming that global warming is an unproven hypothesis exaggerated by the alarmists,18 and others asserting that the rate is significant and increasing and the impacts are likely to be huge.19 Most of the controversy over climate change stems from the difficulty of separating human-induced changes from those occurring naturally, since it is claimed that climate change is a historical trend supported by the evidence of past ice ages. However, the impacts of changes in climate have recently been observed with increasing frequency and severity. There is now consensus in the scientific community that the changes observed over the last few decades are almost certainly in large part the result of human activities and the ensuing emissions of GHGs into the atmosphere.20 Of these gases, carbon dioxide is dominant, accounting for about 50 percent of the warming effect of all climate-impact gases,21 but other gases such as methane and nitrous oxide also contribute considerably to trapping heat, thus increasing global warming.

Climate change has been controversial but there is now increasing consensus that changes are human-induced.

The third Intergovernmental Panel on Climate Change (IPCC) assessment report asserts that there has been an increase in the global average temperature of 0.2 oC to ±0.6 oC during the twentieth century.22 Furthermore, sea levels have risen by approximately 15-20 cm worldwide and precipitation has registered an average increase of about 1 percent. However, while areas located at high latitudes are experiencing significant increases in rainfall, precipitation has actually declined in many tropical areas. At the same time, atmospheric concentrations of GHGs have increased by about 30 percent over the last two centuries.

If nothing is done to reduce these emissions, an increase in global warming of 1.4-5.8 oC over 1990 levels is projected to occur by 2100, and on average the sea level is projected to rise by 9-88 cm. The magnitude of the projected changes, which take into consideration ozone and aerosol emissions based on estimates of population growth, energy sinks, land-use and technological changes, has significantly increased since the second IPCC assessment report dated 1996. At that time, increases in global warming were projected to be about 2 oC, with a range of uncertainty from 1 oC to 3.5 oC.23 Without a reduction in GHG emissions global warming will continue.

A new report from the United States National Academy of Science states that greenhouse warming and other human alterations of the climate system may increase the possibility of large, abrupt, regional or global climatic events, the effects of which are very difficult to estimate but will certainly be irreversible.24

The agriculture25 sector is of key importance in the issue of climate change - both as one of the sources of the problem and as a recipient of its impacts. Even taking into consideration the lowest projections of a temperature increase of 1.4 oC, serious consequences for the physical and socio-economic infrastructure, as well as for agriculture, are projected. These include:

The bulk of the impacts of climate change are likely to be felt in the developing countries owing to their geographic location and their greater dependence on the agriculture sector, which is highly sensitive to climatic conditions.

Agriculture and forestry both contribute to and are affected by climate change.

Increasing concentrations of GHGs are primarily associated with the burning of fossil fuels and cement production, which are largely undertaken by industrialized countries. Indeed, these countries are estimated to be responsible for approximately 70 percent of all human-caused GHG emissions. However, emissions from agricultural sources are also significant, accounting for an estimated 12-40 percent of current human-caused emissions.26 The IPCC estimates that agriculture and forestry practices emit about 50 percent of total methane, 70 percent of nitrous oxide and 20 percent of carbon dioxide.27

Most of the world's carbon is stored in soils and forests, but large amounts have been released into the atmosphere as a result of agricultural and forestry activity.

The role of carbon sequestration through land use in mitigating climate change

Scientists estimate that about 80 percent of global carbon stocks are stored in soils or forests and that a considerable amount of the carbon originally contained in soils and forests has been released as a result of agricultural and forestry activities and deforestation.28 Through photosynthesis, agricultural and forestry practices sequester and fix carbon into soil, plants and trees, thus reducing atmospheric GHGs. Consequently, changes in land-use and land-management practices could lead to a substantial refixation or sequestration of carbon in the soil and in trees.29

Reducing deforestation, generating increased forest stocks through the expansion of forestry plantations, adopting agroforestry activities, reducing soil degradation and rehabilitating degraded forests are all examples of measures that can potentially sequester carbon and thus counteract the impact of emissions made elsewhere.30

This can be reversed through increasing forest stocks and shifting to agricultural practices that fix more carbon in soils.

Dixon et al. estimate that the global economic potential for sequestration through land-use change ranges from 0.5 to 2 GtC/year (gigatonnes of carbon per year) for the next 50 years.31 According to Lal et al., the adoption of conservation tillage and residue management could lead to an increase of 49 percent in agricultural carbon sequestration; similarly 25 percent can be achieved by changing cropping practices, 13 percent by land restoration efforts, 7 percent through land-use change and 6 percent by improved water management.32

A study conducted by Tipper et al. indicates that the establishment of tree plantations on areas previously used as pasture may increase carbon stored in vegetation by about 120 tonnes of carbon/ha, while with the adoption of agroforestry practices such as growing timber and fruit trees interspersed with annual crops (e.g. maize) or perennial crops (e.g. coffee) can contribute around 70 tonnes of carbon/ha.33 Finally, where closed forests are threatened, protection can prevent emissions of up to 300 tonnes of carbon/ha and, where forests are degraded, careful management and restoration can increase carbon storage by around 120 tonnes of carbon/ha.

The Kyoto Protocol calls for both a reduction of GHG emissions and increased sequestration in forests and soils.

The Clean Development Mechanism and the potential for carbon payment programmes to stimulate land-use change

The Kyoto Protocol sets the target of reducing global emissions of GHGs to 5.2 percent below 1990 levels by 2008.34 It recognizes that net emissions may be reduced either by decreasing the rate at which GHGs are emitted to the atmosphere or by increasing the rate at which they are removed from the atmosphere through sinks and considers the two means as complementary. Increasing carbon sequestration is thus recognized as a means by which countries can offset emissions, though a variety of mechanisms. The one of greatest interest in the context of poverty alleviation is the Clean Development Mechanism (CDM).

Through the CDM, developing countries can be compensated for reducing GHG emissions and increasing carbon sequestration.

The CDM is a system established under Article 12 of the Kyoto Protocol that allows investors from Annex B countries (industrialized countries with legally binding emission reduction commitments) whose GHG emissions surpass their commitment levels to obtain a carbon credit from developing countries, which, in return, cut their emissions or increase carbon sinks through actions such as conserving forests or investing in clean technologies.35 Ostensibly, the CDM would result in investment on the part of industrialized countries in projects that promote sustainable development as well as carbon sequestration in developing countries.36 Carbon emission abatement costs are substantially lower in developing countries than in industrialized ones, which is the basis for establishing the market. It is envisioned that payments for emissions offsets to developing countries could be used to finance sustainable development, although the rules under which this will take place are still unclear.

An example of agroforestry: millet cultivation under Acacia albida in Mali
Agroforestry activities contribute to carbon sequestration and at the same time may enhance agricultural income


The establishment of the CDM has been controversial, as has allowing sequestration through land-use change as a means of offsetting carbon emissions in general. The main objections are as follows:

The CDM mechanisms for compensating land-based carbon sequestration are not yet clear, but reforestation and afforestation currently qualify for compensation.

Despite the problems with sequestration activities based on land-use change, there is still considerable interest in pursuing means of climate change mitigation, primarily because of the low costs involved and the potential it offers for improving the sustainability of land-use practices. In November 2001, the Marrakesh Accords were signed by 178 countries; these set the ground rules for CDM operation and confirmed the eligibility of reforestation and afforestation as legitimate activities, but excluded the conservation of standing forests (avoided deforestation) and farming-based soil carbon sequestration, at least for the first commitment period ending in 2012. The Accords also set a cap on the maximum limit of emission reduction credits that can be obtained from sequestration at approximately 175 million tonnes of carbon dioxide equivalent.37

Recent developments indicate that the ultimate demand for carbon emission credits under the CDM may be much smaller than was originally envisioned. The withdrawal of the United States from the Kyoto Protocol reduced potential demand by an estimated 40-55 percent. Another major issue that could reduce the demand for carbon emission reductions is the degree to which the Russian Federation will enter the market as a supplier and at which time. A full-scale and immediate entrance of the Russian Federation into the market could drive market prices down by one-third.38 These developments indicate that prices for carbon emission reductions could drop as low as $3.60 per tonne of carbon.

Projects for carbon-sequestering land-use changes are already being implemented.

Considerable uncertainty remains over the final form the CDM will take and how sequestering based on land-use changes will be treated. The Marrakesh Accords established a CDM board, which is currently in the process of developing guidelines and best practices. Meanwhile, there is considerable interest in harnessing carbon credits to promote sustainable agricultural development. Over 30 projects to offset carbon through land-use change have been developed on a bilateral payment basis, although it is still unclear whether they will qualify for CDM-based credits.39These projects include a number that specifically target smallholders and limited-income producers. The Scolel Té Project in Chiapas, Mexico, is one such example. In this project, carbon credits generated by forestry activities undertaken by groups and communities of small farmers are brokered through a trust fund that also provides technical and financial assistance to the participants. The costs of sequestering carbon in this project are estimated at $12 per tonne of carbon.40 Other prominent examples include the Profafor Project in Ecuador, and the TIST Project in the United Republic of Tanzania, both of which involve smallholder provision of forestry emission credits.

Several development agencies, NGOs and private firms, such as FAO, the International Fund for Agricultural Development (IFAD), the United Kingdom Department for International Development (DFID), the World Bank, Winrock International and Ecosecurities Ltd, are all working on developing relevant information or actually engaged in developing projects that meet both sustainable development and carbon sequestration goals. Interest is not limited to producing sequestration benefits for the CDM, but extends to possible future programmes that may generate payments for mitigating climate change impacts. The World Bank is currently proposing the establishment of a BioCarbon Fund, which will be designed to deliver cost-effective carbon emission reductions, together with cross-cutting benefits in terms of biodiversity and land management.41

Can compensation for land-based carbon sequestration under the CDM at the same time contribute to poverty reduction?


The impact of possible carbon-sequestering land-use changes on poor land-users is uncertain. There has been little empirical research on the economics of poor land-users actually participating. The issues are of great importance given that the majority of the world's poor are rural dwellers, dependent on land-use activities for their survival. In order to understand how carbon payment programmes could affect these estimated 800 million rural poor, it is necessary to look at the types of land-use pattern associated with poor land-users and their implications for carbon emissions, and at the potential private and social costs and benefits associated with the adoption of practices that reduce emissions and generate sequestration.

The relationship between poverty and natural-resource management is one that has been widely researched and debated. The notion of poverty as a major cause of resource degradation in the form of deforestation and forest and land degradation was the basis of many of the agreements that came out of the UNCED summit in 1992. However, research and experience with such programmes over the past ten years have shown that there are no clear and unambiguous correlations or causal links between poverty and resource degradation.

For the purpose of the following discussion, land-use practices can be divided into those that have an impact on above-ground carbon sinks, particularly forests, and those that affect soil-based carbon sinks. Currently, in view of the latest developments with the CDM, forestry-based activities42 have assumed greater prominence, although soil carbon sequestration is still considered important. The institutional framework and rules for the global management of climate change are still in considerable flux, and soil carbon sequestration may be eligible for credits under the CDM in future commitment periods.

For forestry, the link between deforestation and poverty is not clear.

Forestry and types of land use affecting above-ground carbon sinks

In a comprehensive review of the evidence on the relationship between macroeconomic growth and deforestation, Wunder concludes that the results are ambiguous: in some countries higher income levels are associated with higher rates of deforestation, while in others the opposite is true.43 He concludes that the outcome is dependent on the relative strength of two opposing effects: the growth of capital endowments, which enables deforestation, versus a "price-incentive effect" in which deforestation becomes less attractive because of higher potential returns from other economic activities. The relative strength of these effects depends on the resource endowment of the country and the type of growth path followed.

Likewise, at a micro level, the evidence concerning the relationship between income levels and deforestation is complex, with no clear direction of causality. On the one hand, increasing income levels may result in an increased capacity of producers to engage in deforestation, because of easier access to capital. On the other hand, high levels of poverty result in low labour values and thus greater incentives to undertake labour-intensive clearing of forests. In many cases, poverty is more likely to be associated with forest degradation than with deforestation, because the partial or temporary clearing of forest lands is more feasible within the constraints of poor land-users. Frequently, poor land-users gain access to forest resources only in the wake of large-scale logging efforts that put roads and other basic infrastructure into place. Poor land-users may then move in and advance deforestation.

For the degradation of agricultural land also, the link to poverty is ambiguous.

Land uses that affect soil-based carbon sinks

Carbon emission is also generated by land-management practices that result in a depletion of soil resources through erosion, or changes in the chemical and biological composition of the soil. Critical determinants of the impact of a farming system on erosion are the extent to which land cover is maintained, particularly during periods of rainfall, and the characteristics of the soil and topography involved. A major cause of soil erosion is the cultivation of the soil in preparation for agricultural production, particularly through mechanical means. Other widely used practices that generate erosion include the growing of annual crops on sloping lands or inadequate length of fallow periods for crops grown under extensive farming systems.

Payments for carbon sequestration based on land use will not necessarily involve the poor unless specific efforts are made to identify and involve them.

Poverty is often associated with the adoption of farming systems on steep hillsides or with short fallow cycles, largely because of constraints on the access to land. However, the adoption of mechanical forms of tillage is negatively associated with poverty, as is tillage under forms of animal traction. Thus, the same ambiguous result is found in terms of the relationship between poverty and land-degrading practices: where capital is a requirement for the adoption of practices that result in degradation, poor land-users are not associated with it; when the farming system involves the depletion of natural capital assets in the form of soil resources, then the system is associated with poverty.

These findings have several implications for the potential impact of carbon sequestration payment programmes on poverty alleviation. Payments for carbon sequestration based on land use will not necessarily involve poor land-users; for example, there are many situations where the poor will be neither the most competitive nor the largest potential suppliers of carbon sequestration through land-use change. However, there are countries and situations where the reverse is true, but these need to be more clearly identified in order to design effective schemes that can generate both sequestration and development objectives. To do so, a better understanding of the factors that will drive the potential response of poor land-users and increase their potential competitiveness as suppliers will be necessary.

Can the poor be competitive suppliers of carbon sequestration services?


The potential for carbon markets to achieve poverty alleviation depends on the degree to which the poor will be willing and competitive suppliers of credits. Opportunity costs faced by land users are a key determinant of who the willing sellers will be and the prices they would supply at. The opportunity costs of adopting sequestration are simply the benefits that producers would have to give up in order to provide sequestration. However, identifying such costs is not simply a matter of comparing profits from different farming systems. Issues such as the degree of food security offered by a system, and the timing and amount of labour required, are also important components of the opportunity costs of producers, which in turn determine the prices at which they would be willing to supply carbon sequestration services. In addition, the potential profits from sequestration will depend on the rate and total quantity of sequestration services that the producers can supply - factors that are largely determined by agro-ecological circumstances. The following section discusses how poverty might have an impact on the opportunity costs and productivity of carbon sequestration supply, and thus the capacity of poor producers to participate in carbon markets.

How do the poor make their land-management decisions?

Fundamental to this discussion is a conceptual framework for land-management decisions of land users and their implications for the generation of private and public benefits. In this framework (schematically presented in Figure 39), the land-using household is taken as the key decision-making unit. Households operate under given socio-economic and environmental conditions, which shape their ultimate decisions on land use. These include macrolevel factors such as the degree of market integration, the presence of infrastructure, and agroclimatic conditions. These factors will affect the incentives and constraints land users face in making their decisions. In addition, households have a given endowment of resources, e.g. land, labour and capital, which they allocate to various activities in their efforts to maintain a livelihood. These livelihood-generating activities can be divided into those that are land-use based and non-land-use based. Land-use-based activities may be for the purposes of generating private production benefits, or for the generation of environmental services for payment. The way in which households allocate their resources to land-use activities results in both private and public outcomes: private benefits in the form of products for their own consumption or income from marketed products, and public benefits (or costs) in the form of environmental services or, more specifically, carbon sequestration (or emissions).

Under what conditions would the poor be willing participants in carbon sequestration schemes?

The impacts of land-use changes adopted for carbon sequestration purposes can be divided into two main categories: 1) land-use changes that result in a shift in the source of livelihood maintenance and 2) land-management changes that have an impact (either augmenting or depleting) on current sources of livelihood. The opportunity costs facing producers and thus their willingness to supply carbon credits are different in each case.

Carbon sequestration is sometimes accomplished through changes in livelihood sources, e.g. a shift from agriculture to forestry.

Land-use changes involving a shift in the source of livelihood

A common example of the first category is when sequestration is accomplished through a change in land use from agriculture to forestry. Referring back to Figure 39, this would result in a shift in activities from private production to environmental service production from land use. In addition, the shift could affect the amount of time or capital households invest in non-land-use activities. Of course, the degree to which this shift occurs can vary, with a mix of agricultural and environmental service provision being adopted (depending also on off-farm options).

It is important to recognize that livelihood activities generate more than just a stream of income or products; they also provide security by allowing households to cope with unexpected events, such as crop failure or sickness in the family. For many poor rural households, meeting subsistence food requirements from their own production provides a degree of protection from market-based consumption risk. This is a significant benefit to many producers who are located in areas of poor market integration, or where markets do not function well. Thus the opportunity cost of moving to environmental service payments as an important livelihood source among poor producers could be higher than that facing producers who are fully integrated into the market, who do not rely upon their own production as a source of consumption insurance. However, for poor households, carbon payments could also present an important way of increasing security, depending on the timing and the degree of uncertainty they involve. If payments are structured in such as way as to provide insurance benefits, then poor land-users may be much more responsive than others to such payments.

The poor can, in some circumstances, provide carbon sequestration services through changes in livelihood sources, if the payment programmes are designed properly.

Poor land-users also often adopt land-use activities that allow them to maintain a set of assets that they can rapidly liquidate in response to unexpected crises. A standing forest represents a potential source of income that can be accessed through logging in the case of a sudden need for income. Participation in a sequestration programme reduces or removes the potential use of this source of income and thus creates a need for other means of insurance to deal with crisis situations. Again, the impact of this factor on the poor's willingness to supply credits will be highly dependent on the degree to which payments provide insurance as well as income to households.

While security concerns may result in higher opportunity costs of providing environmental services among the poor, lower returns to agricultural production on converted lands are likely to have the opposite effect. The stream of income from capital-intensive commercial agriculture is likely to be higher than that obtained from low-input subsistence-oriented systems on converted forest lands. Thus the payment necessary to entice a land user to forego such income is likely to be lower for poor producers than those capable of engaging in more commercial systems. The implications are that low-income land-users could potentially be lower-cost providers of sequestration services, if programmes are structured so as to address their consumption insurance needs.

In other instances, carbon sequestration does not involve changes in livelihood but merely different practices, e.g. changes in agricultural or forestry practices.

Land-management changes affecting current livelihood sources

The opportunity costs facing a land user in the adoption of practices that have an impact on current livelihood sources are likely to include changes in agricultural practices that generate soil carbon sequestration and forest-management practices that reduce degradation. The key issues here are the degree to which the change affects the private benefit outcomes to the household (e.g. the size of the arrow from activity to outcome in Figure 39) and the time frame over which these impacts are likely to occur. Carbon sequestration payment programmes may generate benefits by allowing land users to take measures that result in higher productivity that they were previously either unaware of or incapable of adopting. Alternatively, sequestration payments could compensate land users for decreases in productivity associated with the adoption of sequestering practices.

Compensation for carbon sequestration can help farmers overcome capital constraints to adopting more sustainable practices that will benefit them in the long run.

An example of the first instance could be adopting no-till or low-till practices. Over time, the adoption of such practices often leads to higher agricultural productivity and higher net returns to farmers. In this case, the farmers benefit from adopting sequestration practices in two ways: from the payments that are received for making the changes and from improvements in the environmental conditions they are operating under - the latter leading to increased land-use productivity. One important reason poor farmers do not adopt such measures is their inability to make investments that require costs in the short run in order to obtain benefits in the long run. Among low-income groups the cost of accessing capital through various forms of credit is generally higher than that facing higher-income groups, which prevents them from making investments they otherwise would like to undertake. Payments for carbon sequestration services offer an interesting way of reducing the cost of capital to low-income land-users. Here again, a key issue is the degree to which payments are structured to allow producers to overcome this investment constraint. Payments that do not provide sufficient capital at the initial phase of adoption of sequestering land-use practices are not likely to be attractive to poor producers.

The adoption of new land-management practices can often generate new labour requirements, either in terms of the overall labour input or in the timing of labour requirements. The opportunity cost of labour is another issue that will determine land users' response to carbon-sequestering land-use changes. Land users may be unwilling to shift to sequestering practices, even if they result in an overall increase in productivity, if they are unable to meet the labour requirement or if the returns to labour are lower than those they could obtain elsewhere. In terms of the implications for poor land-users, the effects could be contradictory. On the one hand, the opportunity costs of labour among the poor may be quite low, because there is limited potential for labour to be engaged in highly productive activities. This would indicate that poor land-users would be willing to supply labour to sequestration activities at a lower price. On the other hand, poor land-users are likely to be more constrained in their ability to augment the labour supply on-farm, owing to the higher probability of being located in areas of poorly functioning labour markets. Here, the critical determinants of poor land-user participation in sequestration supply will be the degree to which land-management practices result in increased labour burdens and the timing and level of sequestration payments.

In cases where sustainable practices involve reduced productivity, carbon sequestration payments must compensate farmers for income losses.

The alternative scenario, where the adoption of carbon-sequestering practices leads to a decrease in productivity, generates a set of opportunity costs to the land user similar to those described under land-use changes. Essentially, the carbon payment is substituting for another source of income (e.g. a shift from land-use production to environmental service production in Figure 39). The willingness of the producer to engage in such a change will depend not only upon payments meeting foregone production income, but also on the impact on consumption levels and food security. The opportunity cost of labour and capital will also be relevant. In this case, the degree to which the shift in land-management practice results in a permanent decrease in productive potential is likely to be important.

Can the poor be efficient providers of carbon sequestration services?

Under what conditions would the poor be competitive carbon sequestration providers?

While the opportunity costs to land users in supplying carbon sequestration services are a critical determinant of the price at which they respond to payments, it is also important to consider how efficiently they will be able to supply carbon in order to estimate their potential competitiveness in the market. Primary determinants of this factor are the rate and cost at which carbon can be supplied through various land-use and land-management changes across varying agro-ecological circumstances. These are determined by environmental conditions, as shown in Figure 39. There is considerable spatial heterogeneity in the biophysical capacity of land and trees to sequester carbon and the cost of the technologies required to accomplish this. The competitiveness of poor land-users in supplying carbon sequestration will be dependent on the biophysical conditions under which they operate.

The cost per tonne of carbon sequestered varies widely according to the activities, agro-ecological circumstances and technologies required. A simulation model of the marginal abatement costs of sequestration through land-use change constructed by McCarl et al. indicates that least-cost strategies involve mainly soil carbon sequestration and to some extent afforestation, fertilization and manure management.44

The costs of abatement also vary widely among categories of carbon-sequestering land-use changes. Estimates of sequestration costs in forestry from Latin America range from less than $1 per tonne up to $30 per tonne.45 For forestry-based activities, those that involve planting rapidly growing species in uniform stands in favourable agroclimatic conditions generally have the greatest potential to generate sequestration benefits at a low cost in the short run. This fact has led to concerns about the potential for carbon payment programmes to stimulate large-scale forest plantation projects, which could crowd out smaller land users and result in negative impacts on other environmental services, particularly those relating to biodiversity.46 However, this risk has been specifically addressed in the design of the CDM, which requires sustainable development objectives as well as climate change mitigation. Thus, the CDM rules are expected to emphasize the importance of identifying and promoting the adoption of land-use activities that generate cross-cutting benefits with other environmental services as well as sustainable economic benefits to the land users themselves.

The potential for, and costs of, carbon sequestration differ widely across soils and climatic conditions.

The ability of soils to sequester carbon through land-management changes varies widely depending on the type of soil, the degree to which it is degraded and climatic conditions. Antle and McCarl compared the different amounts of carbon that could be sequestered across varying sites and technologies in the United States and found considerable variation.47Estimates indicate that higher costs are incurred in achieving increases in soil carbon in highly degraded soils. Thus, areas of land that may have the greatest physical potential to supply soil carbon sequestration may also be those where it is most expensive.

To determine if and when the poor can be efficient carbon sequestration providers, more information is needed on geographic distribution of the poor across biophysical conditions.

There is insufficient reliable information on the geographic distribution of poverty across the biophysical characteristics affecting the cost of carbon sequestration supply. A review of studies on the geographic correlation between land degradation and poverty found that most studies at a macro scale of analysis did not find such a link, and that in several cases both the percentages and absolute numbers of the poor were higher in areas of high agro-ecological potential.48 However, several microlevel studies did find significant correlations between land degradation and poverty. In terms of the geographic distribution of poverty with regard to forests, there is some indication of high concentrations of the poor in marginal forest areas, although the data were not of sufficient scale and scope to draw any general conclusions.

Workers in a forest nursery in Pakistan
Planting trees on degraded lands may provide farmers with an additional source of income if it generates marketable carbon credits


These findings underline the need for better identification of the geographic distribution of the poor across biophysical conditions at a fairly detailed scale of analysis but with a broad - even global - coverage. It would then be necessary to identify, on the basis of these data, the means by which sequestration could be generated and the associated costs in areas that have good potential for achieving both carbon sequestration and poverty alleviation goals.

Carbon market design, transactions costs and poor land-users

There is still considerable work to be done in finalizing the rules under which sequestration programmes such as the CDM will operate. How these issues are settled is likely to have major implications for the potential of such programmes to reach the poor. The following section discusses some of the key issues regarding implementation, such as permanence, contract design and enforcement and transaction costs.


The permanence of carbon sequestration as a means of mitigating climate change is of concern because carbon-sequestering land-use changes are reversible, and sequestered carbon can be emitted if management practices are subsequently changed. In addition, the carbon storage capacity of ecosystems is limited - they reach a point of saturation after which no further carbon can be stored. Estimates indicate that soil carbon sequestered through tillage changes generally reaches saturation after about 20 years, while forest-based sequestration has a longer saturation period. The reversibility and saturation potential of sequestration activities are likely to result in some sort of discount factor being applied to prices paid for such services, according to the length of time before saturation and the perceived risk of sequestration reversal.49In addition, these factors raise important issues about how payments should be structured to create incentives to maintain carbon stocks in saturated areas, or to refrain from reversing sequestration through changes in land-use practices. Presumably, once land users have reached a point of sequestration saturation they will cease to keep such areas under a sequestering land-use regime, unless doing so would provide sufficient private benefits to warrant the costs involved. Where this is not the case, either payments for storage would be required, or the price of the carbon offset would be considerably discounted. Likewise, sequestration efforts that are perceived to involve a high risk of reversal will probably be considered less valuable.

Sequestered carbon can be re-emitted through deforestation or the reversal of land-use practices. The permanence of sequestration is a cause for concern.

Concerns about permanence could result in reduced levels of payment for sequestration services provided by the poor, if the poor are perceived as being more likely to reverse sequestration practices. This may well be the case, owing to the higher need among the poor to insure against consumption risk and their more limited capacity to do so. As discussed above, the liquidation of natural capital assets is a typical means of managing unforeseen crises, and poor carbon sequestration providers may therefore be more likely to reverse sequestration practices in the absence of other insurance mechanisms. This could result in lower carbon payments to poor providers, or exclusion from the market as suppliers.

However, permanence issues may also work to the benefit of poor land-users if they are perceived to be permanent adopters in view of the overall productivity benefits they stand to gain. This would be the case where the practices adopted for sequestration would generate a long-term overall benefit to the land users but lack of capital had prevented their previous adoption; the land users' incentives to maintain these practices would here be generated from private benefits rather than ongoing payments. This situation is likely to arise more frequently among poor land-users. Referring back to Figure 39, in such cases there will be a strong positive feedback between environmental service outcomes and improvement in the producers' environmental conditions.

Another problem is the uncertainty of actual sequestration meeting expectations.

Uncertainty and contract design

A further risk arising in the market for carbon sequestration services stems from the uncertainty of actual sequestration levels meeting the projected potential. Land users may enter into a sequestration agreement based on the assumption that they will be able to generate a certain amount of carbon, but find that after some years they have not met expected levels even though they have followed the recommended practices. Furthermore, sequestration services will only merit compensation if they provide an additional benefit above an estimated baseline, which is subject to a degree of uncertainty.

The design of carbon contracts and subsequent monitoring procedure will determine the extent to which this risk will be shared between buyers and sellers. Land users could be paid on a per hectare basis for adopting practices that are known to generate carbon, regardless of the amount that is actually sequestered, in which case the seller would assume the risk of any shortfall. Alternatively, land users could be paid for actual carbon sequestered, in which case they would assume the risk. The efficiency of either scheme will be determined by the relative costs associated with monitoring land-use practices versus actual carbon tonnage and by the biophysical and economic conditions that influence sequestration supply.50

For poor land-users, contracts based on the per hectare adoption of land-use practices are clearly more beneficial. Poor land-users are unlikely to be capable of bearing the risk associated with carbon supply shortfalls. However, they are also more likely to present a higher degree of spatial heterogeneity in terms of carbon supply because of the smaller size of their areas, the greater variation in management levels applied to land-use practices and perhaps an even greater heterogeneity in the biophysical resources under their control. In addition, monitoring either land-use practices or carbon tonnage outcomes among poor producers is likely to be much more expensive because of the size of the area and tonnage involved. The following section considers the transaction costs involved in dealing with poor producers.

The costs of implementing and monitoring carbon sequestration programmes are higher when they involve poor smallholders.

Transaction costs

High transaction costs51 associated with poor suppliers of sequestration services represent a major barrier to participation in carbon markets. These costs arise from the small scale under which poor land-users operate and the higher degree of uncertainty regarding their rights to land-based property. Frequently, poor land-users do not hold secure and clear title to their land assets, or they operate under systems of common property management that require a capacity for group coordination in order to institute changes. In addition, more than one type of property right may exist for a given land area, such as rights to trees, water and post-harvest residue collection. The poor may have access to only one type of property right affecting a given piece of land and often this is only on informal terms. These factors result in much higher costs in instituting carbon-sequestering land-use changes and a greater degree of uncertainty in the capacity to supply sequestration services.

The costs associated with identifying, negotiating, contracting and enforcing sequestration payments are obviously much higher when dealing with small and geographically scattered producers operating under heterogenous agro-ecological and institutional conditions. Reducing the transaction costs associated with payments for carbon sequestration (or any other type of environmental service) is a key issue that must be addressed in order to channel the benefits of such programmes to the poor.

Ensuring the participation of the poor will require coordination and capacity building.

Coordinating and consolidating sequestration supply among groups of poor landholders will be necessary for their effective participation in carbon markets. Carbon transactions may be conducted through local-level organizations that are already in place, such as local governments, farmers' associations or NGOs. Identifying areas and situations where large groups of low-income land-users are engaged in similar types of land-use activity - such as in areas of resettlement or agrarian reform or in communally held lands - could be an important means of consolidating the effective provision of sequestration services among the poor.

Addressing the problem of complex and unclear property rights will be more difficult, although it is clear that some sort of institutional development will be required. While such a process will necessarily involve government institutions, at least in order to formalize any reforms, the process of negotiating and coordinating solutions to the problem may be handled most effectively by NGOs, which could facilitate the development of coordination norms and agreements among stakeholders at the local level.

It also involves identifying situations with high crossover benefits between carbon sequestration and poverty alleviation.

Capacity building at a national level, in order to facilitate market transactions, and a system of honest and low-cost carbon market brokerages will be necessary if carbon markets are to offer benefits to the poor. The clearer identification of locations and situations where there is likely to be a high crossover benefit between carbon sequestration supply and poverty alleviation will also contribute significantly to making carbon payments accessible to the poor. International agencies and research institutes can play an important role here. Reliable information on where the least-cost sequestration potential through land-use change is obtainable, and the extent to which poor land-users are associated with such opportunities, will be critical for both investors and suppliers in attaining a carbon market that addresses both poverty alleviation and sustainable development goals. The development and dissemination of investment opportunity profiles that result in competitively priced carbon credits as well as poverty alleviation could greatly stimulate the capacity to achieve these goals.

Involving the poor requires special efforts, but can help contribute to the objectives of Agenda 21.


The analysis presented suggests that poor land-users are not likely to become beneficiaries of payments for carbon sequestration credits unless concerted efforts are made in terms of institution and capacity building and information provision. Even where such measures are being taken, payments for carbon-sequestering land-use changes do not represent a panacea for either the reduction of rural poverty or the mitigation of climate change. Nonetheless, carbon sequestration payments can play an important role in promoting sustainable development among the poor in line with the development goals of Agenda 21 and may represent an important new means of finance for such efforts.

Payments for environmental services can enable poor land-users to adopt sustainable agricultural practices, particularly in situations where a lack of investment capacity is the primary constraining factor. It is important to recognize that conflicts as well as synergies may become apparent between the dual goals of environmental and economic development; nevertheless, the complementarity between environmental and poverty alleviation goals can be greatly enhanced through policy and institutional reforms.

Equity and efficiency goals must both be addressed in designing mechanisms to promote environmental objectives.

Above all, it is necessary to consider that both equity and efficiency are fundamental criteria in designing mechanisms to stimulate the provision of environmental goods and services that benefit the global community. This was the basis for the agreements reached at Rio de Janeiro in 1992, although it has not been consistently applied since then. It is neither fair nor effective to demand the provision of environmental goods and services from the poor, unless such measures also offer the potential for improvements in their livelihoods. In order to ensure that this will be the case, much more information, institutional reform and capacity building will be required.

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