Emissions from deforestation are significant and account for more than 18% of global annual anthropogenic greenhouse gas emissions. With the Bali Action Plan categorically placing reduced emissions from degradation and deforestation (REDD) activities on the agenda of future climate change negotiations, there is now a strong possibility that policy approaches and incentives relating to enhancement of carbon stocks in low biomass forests will be successfully negotiated and accepted as a legitimate greenhouse gas mitigation option in the upcoming post-2012 climate change regime. Using the institutional mechanisms provided by community-based forest management (CBFM), 833.8 Tg carbon can be sequestered by enhancement of forest carbon stocks in low biomass Indian forests. By protection refugia, restoring biodiversity, providing connectivity, mimicking nature in plantations and controlling man-made fires, CBFM as practiced in India can be an effective way of managing forests during times of climate change. Appropriately designed CBFM policy can provide means to sustain and strengthen community livelihoods and at the same time avoid deforestation, restore forest cover and density, provide carbon mitigation and create rural assets. Channeling carbon investment funds into CBFM projects can make both development and conservation economically viable and attractive for the local communities to maintain biodiversity and integrity of nature. However, before actual funding under the Clean Development Mechanism and other international C investment funds is available, policy approaches and positive incentives on issues relating to REDD need to be negotiated and agreed upon by the participating nations to UNFCCC.