Commissioned by FSD Africa and the UK Foreign, Commonwealth & Development Office (FCDO); authored by Agora Global in collaboration with the Institute of Development Studies, University of Sussex

This landmark publication presents a comprehensive realist systematic literature review examining carbon market participation on social and economic effects on local communities in low- and middle-income countries (LMICs). Carbon trading, particularly voluntary carbon markets, is gaining prominence in global climate mitigation efforts, raising concerns about its impact on local communities.

The report, based on 52 empirical studies in Africa, Asia, and Latin America, examines the impacts of carbon projects on community livelihoods, highlighting systemic challenges and potential risks. These include delayed payments, lack of inclusion in governance, land tenure inequalities, and increased workload for women, often without commensurate compensation.

The findings reveal a stark reality: while carbon markets hold potential to generate co-benefits alongside emissions reduction, this promise is highly contingent on project design, governance structures, and enabling policy environments. For example, agricultural and clean energy projects demonstrate more substantial positive community impacts than many forest conservation efforts, which may restrict access to vital natural resources and exacerbate social tensions.

The study explores factors enabling carbon markets to foster inclusive development, including transparent benefit-sharing models, high-integrity standards, premium pricing, and community engagement. It also highlights critical knowledge gaps, such as equity outcomes and the scalability of community benefits.

This review provides a balanced perspective on the carbon market’s sustainability, emphasising the need for reimagining carbon projects, particularly in low-income countries, to promote equitable, locally owned development. It is valuable for stakeholders in the carbon market.