This paper presents the application of an auction scheme for the allocation of funds for environmentally improving land use change (LUC) amongst farm households in Sichuan Province, China. Competing bids were ranked using their benefit to cost ratios. Results show that the auction approach can be both practically feasible and efficient in the Chinese context. The auction approach was 15% more cost-effective than the status quo fixed payment afforestation programme. The auction approach was also more closely targeted to achieve environmental improvements. Potential improvements to the auction process would be achieved through increased heterogeneity across bids and lower transaction costs from taking bids from aggregations of farmers.