The Clean Development Mechanism (CDM), under Article 12 of the Kyoto Protocol, is one of three ‘flexibility mechanisms’ available to industrialised countries (Annex 1 countries) to meet their emission reduction targets and also contribute to sustainable development of non-Annex 1 countries.A pilot phase called ‘Activities Implemented Jointly’ (AIJ) was initiated to explore ways of implementing CDM-like projects and institutionalising, in the future, the provision for working jointly to achieve emissions reductions objectives. Drawing on experiences from the AIJ pilot phase, it is possible to begin assessing whether or not land use, land-use change and forestry (LULUCF) projects have the potential to protect carbon and biodiversity, and simultaneously contribute to long-term sustainable rural development. This study assesses the actual and potential livelihood impacts of PROFAFOR, a carbon sequestration project in Ecuador, in the knowledge that the AIJ phase projects did not have a sustainable development requirement, but that this was an opportunity to explore the livelihood opportunities and risks of LULUCF projects. For PROFAFOR, addressing the livelihood needs of contracted communities will help to increase the duration of the carbon sequestered.