The following chapter introduces the international climate regime and particularly one of its so-called ‘flexible mechanisms’ for the fulfillment of emission reduction commitments, namely the Clean Development Mechanism (CDM). Emphasis is put on land use, land-use
change and forestry (LULUCF) projects for carbon sequestration (storage) under the CDM framework. Subsequently, LULUCF projects are examined with regard to their potential developmental benefits, especially in rural areas. Furthermore, LULUCF projects in the CDM are considered
as a special case within the broader framework of payments for environmental services (PES). While the PES approach was primarily designed as a mechanism to improve the efficiency of natural resource management, potential synergies with poverty reduction and rural development are
important to look at (PAGIOLA et al. (2005)). The CDM, in contrary, explicitly establishes a twin objective of climate protection and sustainable development. Thus, the CDM is a ‘special case’ of PES with its own specific international regulatory framework.
Rural Development through Carbon Finance In a timely contribution to the international discussion of the post-Kyoto climate regime this study hypothesizes that Clean Development Mechanism (CDM) projects in the land use and forestry sector are an efficient instrument for climate change mitigation that contributes to rural development and poverty alleviation at the same time. To this end, the study analyzes socio-economic aspects of a forestry project established under the CDM rules considering an East African case study exemplarily. An agricultural household survey in Tanzania delivered the empirical data for the structural equation model at the center of the analysis. Looking at different farm assets it is shown that the benefits of land use-related climate projects go way beyond pure mitigation. They also have a positive impact on a very broad asset base on which poor farm households depend. Hence, the current CDM only allowing for afforestation and reforestation projects is far too restricted to deliver on its twin objective.