This paper explores opportunities for implementing activities for reducing emissions from deforestation and forest degradation (REDD) in areas with high poverty rates, rapid population growth and complex social dynamics. We focus on the potential role of localized Forest Management Units (or KPH) as an institutional partner, using the West Rinjani Protected Forest Management Unit (KPHL RB) on the island of Lombok, Nusa Tenggara Barat province, Indonesia as a case study. We relied on five essential elements for our analysis: (1) identification of land use changes, (2) estimation of average carbon stocks in forests and shrubland, (3) socioeconomic surveys to identify drivers of deforestation and forest degradation, (4) estimation of future reference emission levels, and (5) developing alternatives to reduce the rates of deforestation and forest degradation. From 1990 to 2010, the forested area of Lombok decreased by 28.6% in the project area, representing a loss of 7130 ha (18.0%), or 1 million tC ha-1. Without intervention, carbon emission in the project area is conservatively estimated at 25.7 million metric tCO2 during the next 30 years. With the global average price for forest carbon offset at $7.8/metric tCO2, we can expect a seven-fold return on investment. Our recommendations for this investment include: strengthening the KPH's institutional and technical capacity, assuring de facto usufruct rights for local communities, bundling ecosystem services, cultivating local intermediaries, developing alternative energy sources and improving efficiency, and addressing the underlying drivers of deforestation through economic development, capacity building, and social investment.