Mitigation of the potential impacts of climate change is one of the leading policy concerns of the 21st century. However, there continues to be heated debate about the nature, the content and, most importantly, the impact of the policy actions needed to limit greenhouse gas emissions. One contributing factor is the lack of systematic evidence on the impact of mitigation policy on the welfare of the poor in developing countries. In this letter we consider two alternative policy scenarios, one in which only the Annex I countries take action, and the second in which the first policy is accompanied by a forest carbon sequestration policy in the non-Annex regions. Using an economic climate policy analysis framework, we assess the poverty impacts of the above policy scenarios on seven socio-economic groups in 14 developing countries. We find that the Annex-I-only policy is poverty friendly, since it enhances the competitiveness of non-Annex countries—particularly in agricultural production. However, once forest carbon sequestration incentives in the non-Annex regions are added to the policy package, the overall effect is to raise poverty in the majority of our sample countries. The reason for this outcome is that the dominant impacts of this policy are to raise returns to land, reduce agricultural output and raise food prices. Since poor households rely primarily on their own labor for income, and generally own little land, and since they also spend a large share of their income on food, they are generally hurt on both the earning and the spending fronts. This result is troubling, since forest carbon sequestration—particularly through avoided deforestation—is a promising, low cost option for climate change mitigation.
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