This chapter explores the potential impacts of payments for ecosystem services on poverty and sustainability of farm households, using the example of agricultural soil carbon sequestration. Economic analysis shows that there is a variety of technical and economic factors affecting adoption of practices that increase soil carbon and their impacts on poverty, hence, the net effect of these factors is an empirical question. The evidence suggests that carbon payments could have a positive impact on the sustainability of production systems while also raising incomes and reducing poverty. However, carbon contracts are found to have only modest impacts on poverty, even at relatively high carbon prices. Moreover, the participation of poor farmers in carbon contracts is likely to be constrained by the same economic and institutional factors that have inhibited their use of more productive, more sustainable practices in the first place. Thus, payments for ecosystem services are most likely to have a positive impact on poverty and sustainability when they are implemented in an enabling economic and institutional environmen
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