From the Field From carbon-market ambition to smallholder benefits in Ethiopia

Workshop participants emphasized that carbon-market potential alone does not ensure viable programmes or smallholder benefits. Agricultural and household-energy activities involve high upfront costs, dispersed participants, modest mitigation outcomes, and complex monitoring requirements. Development, aggregation, Monitoring, Reporting and Verification (MRV); verification, and certification costs can be high relative to carbon revenues.

A central challenge is the timing mismatch between investment and results-based revenue. Agroforestry requires early financing for organization, establishment, and monitoring, while cookstove programmes require investment in technology deployment and user engagement. Carbon revenues arise only after mitigation outcomes are verified, while timing and value remain uncertain. Upfront and complementary finance is therefore necessary.

Financial viability must be demonstrated rather than assumed. It depends on mitigation potential and scale, implementation and MRV costs, certification requirements, carbon prices, revenue timing and risk, and benefits reaching households. MRV must balance environmental integrity with practicality and affordability. Carbon revenues should reinforce—not substitute for—the productivity, resilience, energy-access, and livelihood benefits of these activities. Safeguards, transparent benefit-sharing, and trusted farmer engagement are essential to equitable participation of women and other potentially marginalized groups.

VCM activities do not automatically qualify for Article 6. Any future transition or scaling would require government authorization, alignment with Ethiopia’s NDC and carbon-market framework, appropriate accounting, and compliance with the relevant mechanism or bilateral agreement.

CompensACTION is using its agroforestry and improved cookstove activities to investigate these challenges under Ethiopian smallholder conditions. The work is led by IFAD, with the Alliance providing accompanying research, and Acorn and VITA contributing implementation experience. First, the assessment will examine mitigation potential, methodological eligibility, scale, implementation and certification costs, revenues, and household benefits. Smallholder perspectives will be incorporated through consultations on feasibility, incentives, benefit sharing, and participation barriers.

Second, it will evaluate fit-for-purpose MRV options for smallholder activities, drawing on Acorn and VITA’s experience. The assessment will compare MRV approaches, data requirements, institutional arrangements, and costs to identify affordable options that maintain environmental integrity.