Cooperative institutions for increasing rural livelihood under CDM forestation on marginal croplands. The study examines afforesting marginal croplands in Uzbekistan through cooperative institutions between farmers and a clean development mechanism (CDM) project. Three scenarios are modeled: business as usual, individual farmer afforestation, and a CDM cooperative. The cooperative scenario produces the highest total outputs of food, fuelwood, and tree products by efficiently allocating water across farms. However, some individual farms may lose profits in a cooperative. Compensating disadvantaged farms from gains by others ensures all farms benefit. Cooperation allows complementarity across heterogeneous farm types to maximize livelihoods and carbon sequestration.