Vietnam's Payments for Forest Ecosystem Services scheme's puzzling role in protecting longstanding forests as deforestation rates rise

Abstract

Research on payments for ecosystem services (PES) schemes indicates that few of them in fact implement full marketization, highlighting the need for better understanding of the performance of incompletely marketized PES models. One prominent example of a PES program with limited marketization is Vietnam's Payments for Forest Environmental Services (PFES) scheme, a payment for environmental services program that has been progressively rolled out in 45 provinces since 2008. The program is notable both for its spatial extent and governance structure, collecting funds primarily from taxes on water consumption in hydroelectric dams and water companies, which are then redistributed via contracts managed at provincial and national levels to protect, restore, and plant new forests. We assess the impact of PFES's impact on longstanding forest loss using matched two-way fixed effects models and matched multi-period difference-in-differences estimation. These methods both suggest that PFES restrains forest loss at a rate comparable to or greater than state-managed protected areas but impacts are weak or nonexistent until PFES has been established for over three years. Taken together, these findings provide further evidence PES-like programs can perform well in forest protection even if they lack full marketization.