Environmental service provision is increasingly discussed as a potential new venue for the simultaneous pursuit of development and natural resource conservation objectives, particularly among landowners in the low-income tropics. To date, most of the experience with such market-regulated mechanisms comes from water and forest projects in Latin America. Preliminary evidence suggests that participation of, and benefits to, small-scale land users are highly unequal and that the synergistic goals of poverty reduction and resource conservation through these emerging market mechanisms might be overly ambitious. This paper assesses the possibility of pro-poor environmental service provision through carbon sequestration among smallholders in the Sahel. It focuses on a case study in the small-scale, rain-fed agricultural systems of the Old Peanut Basin of Senegal. Based on a conceptual framework including economic, institutional, policy and livelihood factors, it assesses to the extent to which specific groups of farmers are able or willing to participate in and benefit from potential carbon offset programs. Finally, the paper stresses the need for adequate and equitable financial support and a careful rethinking of the institutional structures necessary to enhance rural livelihoods and natural resource management in drylands, with or without market-based environmental service programs. ?? 2006 Elsevier Ltd. All rights reserved.