Published in 2002 Projects implemented as part of the Clean Development Mechanism (CDM) of the Kyoto Protocol will have the dual mandate of mitigating greenhouse gas emissions and contributing to sustainable development. Basic agreement on core elements was reached in 2001, including the decision to allow afforestation and reforestation projects. However, it is not yet clear what rules will address social concerns. Many types of projects could potentially contribute to local livelihoods and ecosystem restoration, as well as to carbon emission offsets, including those using natural forest regeneration, agroforests, improved forest fallows and agroforestry. Averted deforestation projects with multiple-use forestry, thought not eligible in the first CDM period, could be reconsidered in the future. Such projects can be designed to rigorously meet CDM criteria for carbon impact, additionality, leakage and duration. If suitable targeted, they can be cost-effective for investors in terms of production costs.

Some, however, may have higher transaction costs. Proactive efforts are needed to enable community-based CDM forestry projects and local land uses to compete effectively in carbon trading markets with project managed by large-scale operators. The CDM should require mandatory social impact assessments, harmonise the CDM with socail principles of other global conventions, promote measures to reduce transaction costs and explicitly include assisted natural regeneration and forest rehabilitation in the definitionof afforestation and reforestation. Most developing countries will require policy action to establish the enabling conditions for forest carbon projects to contribute on a large scale to local livelihoods, integrate CDM projects within national development frameworks, attract investors, establish social criteria, secure local rights and promote support services for local people. Cost-effective project design requires attention to local participation, transparency, suitable compensation mechanisms, strategies to reduce transaction costs and risks and extend the scale of projects, and to enhance profitability of land uses.