Compensating natural resource users for the environmental services they supply is becoming an increasingly attractive policy option in a number of countries. Ranging from official carbon trading through the Clean Development Mechanism (CDM) of the Kyoto Protocol to more informal arrangements, payments for environmental services (PES) can offer financial incentives for promoting ecologically sound conservation and development practices. PES principles could be applied more widely in Brazilian Amazonia to help curb high rates of deforestation which are gradually undermining the region's capacity to supply key services such as carbon sequestration, biodiversity maintenance and water cycling, and to sustain people's natural resource-dependent livelihoods. This potential could be especially significant if avoided deforestation were eventually to be permitted for acquiring certified emissions offsets under the CDM. Copyright © 2008 John Wiley & Sons, Ltd.