The proposed Clean Development Mechanism (CDM) of the Kyoto Protocol paves
the way for financial and technological transfers to support forestry proje
cts that sequester carbon or protect carbon stocks. From its inception, the
concept has been highly controversial. It has been enthusiastically suppor
ted by those who believe that conservation of tropical forests will be diff
icult unless forest owners and managers are compensated for the environment
al services of their forests. Others believe that financial transfers suppo
rting 'carbon farming' would ignore social concerns and the full range of g
oods and services of forests. This paper examines the implications of CDM f
or forest conservation and sustainable use, by drawing on recent literature
and the results of a policy dialogue with CDM stakeholders. We conclude th
at initial estimates of the contribution tropical forestry could make to bo
th climate change mitigation and to forest conservation need to be scaled d
own. CDM payments for tropical forestry are likely to be received in a far
more limited area than initially expected. The cost-effectiveness of forest
ry projects relative to projects in the energy sector may have been overest
imated. In particular few estimates have adequately accounted for the likel
ihood that the duration of CDM forestry projects is unlikely to be as long
as the residency time of carbon in the atmosphere. Also political realities
and investor priorities may not have been sufficiently understood. CDM fun
ding for forestry may also decline in future as economically viable clean t
echnologies are increasingly developed in the energy sector. Tropical fores
ts are likely to be an intermediate climate change mitigation strategy for
buying time, until more permanent options become available. The most import
ant justification for including forests in CDM may lie in the contribution
CDM could potentially make to forest conservation and sustainable use. An a
nalysis of the implications of CDM for forests reveals the importance of in
volving forest stakeholders more closely in the CDM debate. To prevent perv
erse outcomes and reduce the risk of 'leakage' of emission reduction to are
as outside project boundaries; CDM projects may need to be limited to niche
s which meet certain political and institutional preconditions and where su
fficient understanding of local decision-making and the broader context is
available. CDM may be more effective if used to remove non-economic impedim
ents to forestry activities that are economically viable and meet local nee
ds. Lessons from the forestry sector in relation to plantations, natural fo
rest management, forest conservation and non-timber forest products are dis
cussed to illustrate the dangers of misusing CDM and also to give examples
of how CDM could be harnessed for better use of forests. CDM should be seen
as one more tool for enhancing the effectiveness of more conventional ways
of promoting forest conservation and sustainable use.