We review claims linking both payments for carbon and poverty to deforestation. We examine these effects empirically for Costa Rica during the late 20th century using an econometric approach that addresses the irreversibilities in deforestation. We find significant effects of the relative returns to forest on deforestation rates. Thus, carbon payments would induce conservation and also carbon sequestration, and if land users were poor could conserve forest while addressing rural poverty. We note that the poor appear to be marginalized in the sense of living where land profitability is lower. Those areas also have more forest. We find that poorer areas may have a higher supply response to payments, but even without this effect poor areas might be included and benefit more due to higher (per capita) forest area. They might be included less due to transactions costs, though. Unless the Clean Development Mechanism of the Kyoto Protocol is modified in its implementation to allow credits from avoided deforestation, such benefits are likely to be limited.