Introduction
In Vietnam and worldwide, widespread forest degradation from illicit timber harvesting, forest land conversion and poor forest management practices, is leading to increased carbon emissions, which threatens the environment, communities, and livelihoods. Despite national increases in overall tree coverage, Vietnam’s natural forests are reducing in area and worsening in quality.
From 2020-2025, the USAID Sustainable Forest Management Project (the Project) is linking communities, local authorities, the national government, and the private sector to jointly address the drivers of forest conversion and degradation in targeted areas. The Project aims to avoid carbon emissions from natural forest conversion and degradation; increase carbon sequestration through better management of plantation forests; and improve the quality, diversity, and productivity of natural production forests– all to protect Vietnam’s threatened forest resources.
History of PFES Development in Vietnam
Payment for environmental services (PES) is a financial model where service users or beneficiaries of environmental resource-dependent services, such as hydroelectric companies, will pay service providers (i.e. forest owners) to maintain and ensure the integrity of the natural resources. Revenues generated from PES may serve as a fund for upkeep and maintenance of the natural resources, which will thereby ensure the long-term sustainability of the services derived from these resources. This mechanism was developed during the 1990s, mainly on a voluntary basis, at a small scale between a few users and service providers, and with flexible prices. Although the original idea for PES was for it to be a sustainable financing scheme to protect environmental resources, since participation in the scheme was voluntary, there was no long-term commitment from services users to pay for these services because companies do not realize the future long-term value of maintaining the resources when they are presently concerned about paying fees.
Since 2003, many small-scale voluntary PES mechanisms were inaugurated throughout Vietnam, with no remarkable impact. Another hindrance to scaling the PES mechanism is low public awareness about the importance of environmental services, and about how people living in and using forest areas can best contribute and understand their responsibilities to preserve vital resources. In Vietnam, companies respond better to government-instituted regulations, rather than appeals for voluntary contributions. Thus, the only approach to fully realize and scale PES schemes nationwide is for the government to make participation mandatory for companies.
In 2005, PES was first officially introduced—without success—by the Ministry of Natural Resources and the Environment (MONRE) through their proposal for an environmental law. However, in 2008, through support from USAID, Ministry of Agriculture and Rural Development (MARD) successfully piloted the PES mechanism, and officially called it “payment for forest environmental services,” or PFES, in Lam Dong province. The pilot lasted for two years with the participation of a few hydropower plants and two water companies (service users or beneficiaries). Fueled by the success of the pilot initiative, in 2010, the central government made PFES a national policy through Decree 99/2010/ND-CP. In the decree, PFES schemes were legalized for establishment throughout Vietnam. However, PFES in Decree 99 was not in the highest legal document (in Vietnam, Decree is under laws) until 2017, when five types of environmental services1 were defined and PFES regulations were adopted into the Forestry Law (No 16/2017/QH14). Through the Forestry Law, the government has taken steps to increase enforcement for PFES implementation in Vietnam.