**2. Overview of PFES policy in Vietnam**

#### **2.1 The process of developing PFES policy in Vietnam**

In 2004, the revised Law on Forest Protection and Development was approved by the National Assembly of Vietnam, which affirmed the important role of forests in providing environmental services such as limiting soil erosion, regulating water sources and climate, biodiversity conservation, and landscape preservation for tourism and recreational activities. Then, in 2007, Vietnam's Forestry Development Strategy for the period 2006–2020 was approved. The important task was identified as *"mobilizing revenue from PFES payments for forest protection and development activities and improving people's livelihoods"*. On the other hand, the Strategy also set out the important task of fully assessing the economic values of forest environmental services. These were considered two important legal documents laying the foundation for the development and implementation of the policy on PFES in Vietnam.

In 2008, the Government of Vietnam established the National Forest Protection and Development Fund (According to Decree No. 05/2008/ND-CP). The main task of the Fund is to act as an intermediary connecting forest environmental services suppliers and users in Vietnam. In addition, on April 10, 2008, the Prime Minister of Vietnam signed Decision No. 380/QD-TTg on the pilot implementation of the PFES policy in two provinces, Son La and Lam Dong. After only two years of implementing pilot projects on PFES, in 2010, the Government of Vietnam issued Decree No. 99/ 2010/ND-CP on implementation of PFES nationwide. This was considered an important event in the process of implementing payment for forest environmental services in Vietnam. With this Decree, Vietnam became one of the first countries in Asia to institutionalize the implementation of PFES on a national scale [4]. In the process of implementation due to the identification of payers for environmental services, payment levels, and beneficiaries. The Government of Vietnam has issued Decree 147/ 2016/ND-CP to amend a number of provisions in Decree No. 99/2010/ND-CP to be

*Integrated Effect of the Payment for Forest Environmental Services (PFES) in Vietnam DOI: http://dx.doi.org/10.5772/intechopen.112900*

more appropriate. The process of amending Vietnam's forest protection policy continues with the promulgation of the Law on Forest Protection and Development 2017 on November 15, 2017, and Decree No. 158/2018 on November 16, 2018, guiding the implementation of the Law on Forest Protection and Development 2017. Both of these documents continue to specify the contents of PFES to solidify the legal basis for the implementation of PFES in Vietnam. Besides, Vietnam's Law on Environmental Protection 2020 also stipulates to encourage the implementation of payment for environmental services as an economic tool to protect the environment.

Presently, Vietnam has basically completed the legal basis for implementing payment programs for forest environment services nationwide.

#### **2.2 Review of past PFES experiences in Vietnam**

In 2008–2010, USAID and the German Development Agency (GIZ) assisted the Ministry of Agriculture and Rural Development to develop a pilot project on PFES in Vietnam and suggest potential buyers and providers of ES [5, 6]. Lam Dong and Son La provinces hosted the pilot projects. The main buyers included primarily hydropower plants, and it was intended that local farmers should protect the forests as service providers or receivers. With one exception [7], we selected peer-reviewed articles or CIFOR publications released in 2010 or later to gain insights into how scholars evaluate PFES achievements in Vietnam.

Scholars agree that the pilot phase's process was seemingly hasty because of the lack of rigorous evaluation and highly optimistic in forecasting an increase in revenues to \$ 2 billion in 2020 [8]. Several studies before the issuance of the final Decree 99 were not reflected in the final decision [9].

A fundamental question is, therefore, whether the Vietnamese PFES experience appears to be a success. The answer probably depends on the criteria applied (environmental, economic, or social) and mainly on the conceived 'pureness' of the Vietnamese version according to economic principles.

Vien et al. [10] refer to two fundamental weaknesses in a PFES scheme from Bac Kan province: the ES receivers are not the services' direct users. The payment differs from the social cost or opportunity cost of forest protection. Wunder et al. [7] mentioned to rename the PES experience a nonstarter in Vietnam because few environmental services are provided (they emphasize hydropower plants and watershed protection). Few entities buy the services and there is an absence of private land ownership. Despite the pessimistic forecasting and, as pointed out by McElwee et al. [5], Wunder et al. [7] were proven wrong because PFES became a relative success in Vietnam, with a cumulative annual user fee of US\$100 million. Suppose the scenario in which PFES ultimately serves to collect taxes and subsidize forest authorities [8]. In that case, Wunder et al. [7] 's criticism conveys more an intellectual claim that the Vietnamese PFES falls short of adhering to theoretical economic principles. The reality is that PES schemes transfer funds to the state outside the regular government budget, and the amount is not negligible.

One of the social objectives of the PES is to contribute to poverty alleviation. Households with limited access to the forest should participate in the program with the broader purpose of poverty reduction [11].

In an earlier evaluation of the Vietnamese PFES experience, Pham et al. [4] conclude that each household receives only a small amount, which is counter to increasing efficiency. Simultaneously, the system does not account for resource quality and thus lacks incentives to protect the forest. Despite data paucity, To et al. [8] followed the same line of argument by stating that no agency has produced data to show that

poorer households received a higher share of total PFES payments. In support of this argument, Doung and De Groot [12] state that the direct contribution of PFES to poverty alleviation is small compared with the average household income, based on estimations from samples in three provinces. In contrast, Phan et al. [13] studied two groups of households in Lam Dong province, one participating in a PFES scheme and the other not, concluding a significant difference in 2008, with nonparticipating households reporting income levels twice as high. Later, the difference in income disappeared (2014).

Furthermore, households considered payments to be too low relative to their living costs. In certain villages, income opportunities other than PFES payments are limited. McElwee et al. [5] refer to many contradictory cases, making an overall conclusion on social objectivity at the national level virtually impossible.

The economic aspects of PFES encompass different angles, as either significant financial support to the forest sector or support for poor households (see above). If the Vietnamese government envisaged PFES payments to reach a \$ 2 billion level in 2020, the PFES experience was a disappointment. Nevertheless, the current annual level of \$ 100 million from PFES schemes appears significant compared with the forestry sector's central government budget. According to data from the Vietnam Administration of Forestry [14], the total payment for forest environmental services in the 2008–2018 period in Vietnam was VND 10,000 billion (an average of VND 1300 billion/ \$56,000/ year). This amount accounts for 16% of Vietnam's total forest protection budget.

Did PFES assist in saving the forest cover or at least slow the transformation of the primary forest into plantations? [15] Decree 99 refers to an 'improved forest, 'but falls short of specifying what the condition implies and how to monitor progress [16].

In light of this, forest protection is one of PFES's primary objectives; surprisingly, few studies have been conducted to bring evidence to the environmental debate. Two studies represent an exception. Phan et al. [17], using a district-based satellite image interpretation of Lam Dong province, showed an increase in forest cover from 2010 to 2014. Arriving at a similar conclusion, Duong and De Groot [12] find that forest protection has become more effective due to the implementation of a PES scheme in three different provinces. However, only this single study from Lam Dong used forest cover data from satellite images and then one district. A national-level conclusion is not possible at this stage. The last study by Duong and De Groot [12] argued that forest protection had been very successful due to PES as a result of regular official visits to forest areas and threats of severe consequences in case of noncompliant behavior. Even if this statement is correct, the risk of leakage has not vanished. Farmers can clear forests in one area for agricultural production and receive PFES money for another protected forest area [18].

Fairness and transparency are essential in PFES schemes, and, usually, studies on this topic should be abundant. However, only two studies in our sample concentrate on these aspects, while others briefly refer to the discussion. Perceived fairness of payment distribution is at the core of Loft et al.'s [19] analysis. Households preferred an equal share with only a minority in favor of payments based on work efforts (Dien Bien province). Local people rejected the initial idea of differentiation of payments according to forest conditions (primary, secondary, and degraded forest) using a weighting system (K1–K3 coefficients) and opted for a flat rate.

In a study of three different PFES schemes in Thua Thien-Hue province, Hass et al. [20] found considerable differences. Households entered lucrative contracts with the national park, whereas other PFES schemes involved low payment. The authors focused more on the lack of transparency in selecting households than on the

### *Integrated Effect of the Payment for Forest Environmental Services (PFES) in Vietnam DOI: http://dx.doi.org/10.5772/intechopen.112900*

difference between the degrees of voluntarism among PFES schemes (our theme in this article). The government must ensure clarity in all PFES payment steps, from verification of forest area to payments to receivers [4]. Whether fairness in terms of payments based on performance equals equity is the concern of Pham et al. [21]. The authors conclude that 'equal distribution' among all villagers discourages any attempt to reach efficient local forest management.

Although the present literature review helped us situate the debate, we are unable to present an ultimate answer for Vietnamese ventures in regard to environmental payments, partly because any assessment depends on the criteria (ecological, social, or economic objectives) and partly because even within a limited scope and focusing on one of the requirements only, scholars seem to disagree. Most observers support the view that PFES programs in Vietnam differ from basic payment principles because authorities define mechanisms and compel service providers' participation. Scholars agree that payments appear inferior to opportunity costs or previous forest protection programs (Program 661) [21–23].
