This paper presents an analysis that explores theoretical and policy debates on environmental variability, sustainable livelihood strategies, household well-being and development policy. The paper focuses on communities in vulnerable environments with limited well-being and poor assets. The study examines the changing livelihood strategies and livelihood options of households located within ecosystems perceived to be experiencing environmental change in Northeastern Ghana. Livelihood diversification as a poverty reduction strategy has been argued to result in improved well-being or perpetuates a cycle of impoverishment. On-farm and non-farm diversification and migration as livelihood strategies are considered as survival strategies in environments experiencing rising temperatures and erratic rainfall patterns. It is argued that diversified livelihoods are operated within a cycle of impoverishment. The paper calls for geographically and locally sensitive policy intervention approaches that can sustainably expand the livelihood options of the poor in changing environments. Copyright © 2009 John Wiley & Sons, Ltd.