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Concerns about climate change have been a key driver in the rapid evolution of carbon markets over the last five years, as a potentially efficient and cost-effective way to reduce greenhouse gas concentration in the atmosphere. Carbon offset projects implemented in developing countries are one of the approaches that have been developed as a way to achieve emissions reductions or removals that generate credits that can be traded in carbon markets. They include a wide range of technologies for which emissions reductions or removals can be quantified, from tree planting and avoided deforestation, to energy efficiency, renewable energy and capture of industrial gases. The theory is simple: by implementing projects in developing countries, carbon finance can be harnessed to contribute to sustainable development whilst also reducing the costs of tackling climate change. Poverty reduction is an aspect of sustainable development that commercial carbon offset providers, donors, governments and NGOs are increasingly interested in addressing through carbon offset projects.

This report presents findings from a research study looking at the opportunities that carbon offset projects offer for poor rural communities. It addresses three main questions:

1. What are the different approaches to establishing carbon offset projects in the forestry and bioenergy sectors?
2. Does the carbon offset aspect of these projects introduce new opportunities or risks for the poor? I.e. has the fact that these are carbon offset projects, rather than more traditional development projects, given rise to new opportunities or risks for the rural poor?
3. How does carbon finance influence the long-term sustainability of any new opportunities?

The analysis is based on a review of existing literature and fieldwork on six existing projects. These included three carbon forestry projects in Uganda (a World Bank supported CDM project and the first registered in Africa, a commercially operated voluntary project and an NGO led project) and three bioenergy projects in Karnataka, India (including two NGO run household biogas projects and a commercial community biomass electricity generation project). The findings suggest that supporting such projects with carbon finance can have some positive impacts on opportunities through improved monitoring, but that considerable progress needs to be made in balancing the interests of project financers with those of the communities involved and improving policy coordination with existing institutions external to projects.

The research contributes valuable evidence on the opportunities and risks of carbon offset projects for the rural poor, particularly in Africa, where there is still little data on such projects. Recommendations are made for different actors involved in developing carbon projects in the forestry and bioenergy sectors.