Resource information
Carbon finance projects are often
intended to be both a payment for an environmental service
(PES) and an instrument to facilitate sustainable
development in developing countries. To enhance livelihood
objectives, these projects should benefit rural land users,
provided they are willing and able to participate. This
holds particularly true for forest carbon initiatives.
However, high transaction costs and large uncertainties
often bar local communities from making what are inherently
long-term and often expensive investments. Uncertainties
arise from ambiguous property rights, vague or rapidly
changing government policies and unknown carbon market
prices. Additionally, there are risks from human-induced and
natural disasters. Since many small-scale poor land users in
developing countries have only small plots of land and
serious cash-flow or liquidity constraints, they cannot
easily absorb negative shocks. Thus, risk acts as a
formidable barrier to project participation. Pooling
individual activities and signing collective contracts with
groups of smallholders spreads both benefits and transaction
costs over a large group and can be a practical means for
small-scale land users to participate. Nonetheless, pooling
requires collective action, the success of which often
depends on a mix of property rights, contracts and social
capital. These three components are not independent.
Contracts operate within a regime of property rights and
social capital can determine individuals' ability to
enforce contracts through social structures. Thus, to design
a successful forest carbon project, we need to understand
the important roles played by social capital, property
rights and contractual rules in facilitating participation.
