Forest carbon is potentially an important income stream for small landowners in Guatemala that would help to cease deforestation pressures. However, the temporary nature of sequestered forest carbon, the risk of environmental disturbances releasing it, and the form of international carbon markets affect the ability of small forest owners to participate in carbon trading. To overcome these hurdles an annual carbon rental mechanism may be able to be established through the carbon banking approach. Thus, this study attempts to explore the potential of the carbon banking to include small forest owners into the carbon trading system by providing annual payments for retaining forest. This paper reports the results of an investigation into the stability of carbon pools formed by small forest owners in Guatemala and the effect this has on requirements for applying carbon banking approach. The study uses data on area burned annually in three eco-zones in Guatemala to estimate the risk of loss of forest carbon due to fire. This information is used in Monte Carlo simulation to model the risk-adjusted area of forest carbon available for leasing. The results show that only 96.35% of the forest carbon under contract from small owners in the wet zone is available for leasing to the carbon market when adjusted for fire risk. The same adjustment for the montane zone is 98.87% and for the dry zone is 97.13%. These percentages are used to calculate the minimum differential between prices paid to small owners and what is charged to carbon buyers.

Presented at the 2012 Lincoln University Postgraduate Conference, 28-29 August, 2012, Lincoln, New Zealand