Evaluating the Pilot Implementation of Payment for Forest Environmental Services in Lam Dong, Vietnam
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Front cover photo credit: Nguyen Thi Y Ly
Evaluating the Pilot Implementation
of Payment for Forest Environmental Services
in Lam Dong, Vietnam
Nguyen Thi Y Ly
February, 2013
Comments should be sent to:
Ms. Nguyen Thi Y Ly, Department of Environmental and Natural Resource Economics,
Faculty of Economics, University of Agriculture and Forestry (UAF), Linh Trung Ward,
Thu Duc District, Ho Chi Minh City, Vietnam.
Tel: + 84 8 38961708.
Fax: +84 8 38960713.
Email: ntyly@yahoo.com
The Economy and Environment Program for Southeast Asia (EEPSEA) was established in May 1993
to support research and training in environmental and resource economics. Its objective is to enhance local
capacity to undertake the economic analysis of environmental problems and policies. It uses a networking
approach that involves attendance in courses and meetings, technical support, access to literature, and
opportunities for comparative research. Member countries are Thailand, Malaysia, Indonesia, the Philippines,
Vietnam, Cambodia, Lao PDR, China, Myanmar, and Papua New Guinea.
EEPSEA is supported by the International Development Research Centre (IDRC) and the Swedish
International Development Cooperation Agency (Sida). WorldFish of the CGIAR consortium has been
administering EEPSEA since November 2012.
ACKNOWLEDGEMENTS
I wish to express my deep gratitude to the following organizations and persons for their invaluable
support, suggestions, and encouragement in conducting this study.
The Economy and Environment Program for Southeast Asia (EEPSEA) for granting the funds to
conduct this study and for giving me several opportunities to improve my knowledge of environmental
economics and natural resource management.
Dr. Herminia Francisco, Director of EEPSEA, for her encouragement, support, invaluable advice, and
guidance throughout the research.
Dr. Bui Dung The for his help and suggestions relating to the research proposal and analysis.
Dr. David James for his valuable comments and suggestions on the interim and final report.
Dr. Nguyen Ngoc Thuy, Tran Duc Luan and colleagues in Nong Lam University for their invaluable
help and support, from data collection to the dissemination workshop.
Ms. Catherine Ndiaye, Program Assistant at EEPSEA, for her help and encouragement.
Particular thanks go to Mr. Le Van Minh, Vice Director of Lam Dong Department of Agriculture and
Rural Development, Mr. Vo Dinh Tho, Chief of Lam Dong Forest Protection and Development Fund, and Mr.
Pham Thanh Nam, Winrock International in Lam Dong, for their help in the course of the research. In
addition, I would like to express many thanks to Lam Dong Forest Protection Board, forest owners, service
users, and local farmers for their cooperation during data collection and dissemination.
All opinions, viewpoints, analyses, and suggestions in this report are those of the author and do not
necessarily reflect the views of EEPSEA. The author alone is responsible for all mistakes and shortcomings in
this report.
TABLE OF CONTENTS
EXECUTIVE SUMMARY
1
1.0 INTRODUCTION
1
1.1 Statement of the Problem
1.2 The Significance of the Study
1.3 Research Questions
1.4 Research Objectives
1.5 Scope of the Study
2.0 REVIEW OF LITERATURE
2.1 PES Synopsis
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2.2 Characteristics of the PES Program
2.3 Selected Experiences of PES
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3.0 RESEARCH METHOD
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3.1 Methods to Assess the Implementation of PES Pilot Program in Lam Dong Province
3.2 Methods of PFES Impacts Evaluation
3.3 Data Collection
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4.0 PILOT POLICY FOR PFES IN LAM DONG PROVINCE
4.1 General Information on Research Area
4.2 PFES Implementation in Lam Dong Province
5.0 GENERAL RESULTS OF THE HOUSEHOLD SURVEY
5.1 General Characteristics of Households Surveyed
5.2 Household Participation in the PFES Pilot Program
5.3 PFES Pilot Policy: The Views of Local Farmers
5.4 Cost Estimation for Supplying Forest Environmental Services
5.5 Payment Received by Service Suppliers
6.0 EVALUATION OF PFES IMPACTS
6.1 Evaluating the Impact of the PFES Pilot Policy on Household Annual Income
6.2 Evaluating the Environmental Impact of PFES
7.0 PAYERS’ ASSESSMENT OF PFES PILOT IN LAM DONG PROVINCE
7.1 Revenue and Expenditure of the PFES Fund, 2009-2010
7.2 Impact of Payment for Forest Environmental Services on Service Users’ Expenditure
7.3 Advantages of PFES Implementation According to Service Users
7.4 Shortcomings of PFES Implementation According to Service Users
8.0 EQUITY IN PFES PILOT IMPLEMENTATION
8.1 Equity in Information Access
8.2 Equity in Decision-making
8.3 Equity in Benefit Allocation
9.0 ACCOMPLISHMENT, ISSUES AND LESSONS LEARNED
9.1 Accomplishments
9.2 Issues and Lessons Learned
10.0CONCLUSION AND RECCOMENDATIONS
10.1 Conclusion
10.2 Recommendation
REFERENCES
APPENDIX
LIST OF TABLES
Table 1.
Table 2.
Table 3.
Table 4.
Table 5.
Table 6.
Table 7.
Table 8.
Table 9.
Allocated sample size of household survey among research areas
Forest management programs in Lam Dong province
Ethnic households in Lam Dong
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50
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Education of households participating and not participating in PFES
Average annual income of participatingand non-participating households in 2010
Number of households living in poverty, 2010
Agricultural land, PFES and non-PFES participants (ha)
Crops cultivated by household farms, 2010
Information on PFES participants up to the 4th quarter,2010
Table 10. Forest area allocation of surveyed participants, 2010
Table 11. Farmers’ assessment of the PFES pilot program
Table 12. Reasons for joining the pilot PFES
Table 13. Evaluation of the PFES implementation procedure
Table 14. Payment level, VND/hectare per year, 2009 and 2010
Table 15. Farmers’ evaluation of the payment level
Table 16. Household statements regarding participation in the next stage of PFES
Table 17. Cost estimation of environmental services by farmers (thousand VND)
Table 18. Average payment to farmers from the pilot PFES
Table 19. Binomial logit regression estimates for the PFES participation model
Table 20. Household allocation by the propensity score based on the logit model
Table 21. Average treatment effect using different matching techniques
Table 22. Average treatment effect for the treated by direct nearest-neighbor matching
Table 23. Results of simple comparison with DID method
Table 24. Results of fixed-effects (within) regression
Table 25. Farmers’ assessment of the impacts of the pilot PFES on the environment (%)
Table 26. Quality indicators for environmental change with PFES
Table 27. Illegal logging in Lam Dong province, 2005-2010
Table 28. Total expenditure and collected payments for PFES in Lam Dong, 2009-2010
Table 29. Household awareness of the PFES pilot program
Table 30. Sources of information on the PFES pilot program for farmers
Table 31. Household assessment of the amount of freedom to decide to participate in PFES
Table 32. Score scale of environmental benefit index by US conservation auction program
Table 33. Expected payment of PFES participants to conserve the forest
Table 34. Carbon sequestration of forest in Lam Dong province
Table 35. Total amount of carbon that can be absorbed by the forest in Lam Dong
LIST OF FIGURES
Figure 1.
Figure 2.
Figure 3.
Figure 4.
Figure 5.
Figure 6.
Figure 7.
Figure 8.
Figure 9.
The pilot areas, Lam Dong Province
2
Conceptual framework of payment for ES under agricultural production
A framework to analyze the efficiency of PFES
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Necessary steps when implementing PSM
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Choosing a matching algorithm
Difference in diffrences estimator
Lam Dong forest management units (FMUs) by forest management categories
Forest management system in Lam Dong Province
Pilot location of PES in Lam Dong ad other provinces
Figure 10. PFES stakeholders, pilot scheme, Lam Dong Province
Figure 11. Allocation mechanism, forest fund, Lam Dong province
Figure 12. The management and monitoring of PFES in Lam Dong Province
Figure 13. Size of participating and non-participating PFES households
Figure 14. Labor force distribution among participating and non-participating households
Figure 15. Land resources o participating households and non-participating households
Figure 16. Income distribution of PFES and non-PFES households
Figure 17. Histogram of propensity score
Figure 18. Payment distribution in 2009 and 2010
EVALUATING THE PILOT IMPLEMENTATION OF PAYMENT
FOR FOREST ENVIRONMENTAL SERVICES IN LAM DONG, VIETNAM
Nguyen Thi Y Li
EXECUTIVE SUMMARY
This study aims to assess the performance and the short-term impacts of the payment for forest
environmental services (PFES) policy in Lam Dong Province, Vietnam. After a two-year pilot implementation
(2009-2010), the Vietnam government plans to establish a national legal PFES framework. The paper
describes the PFES pilot policy and how this pilot project is being implemented. The study focuses on the
economic and environmental impacts of the pilot PFES.
Economic effectiveness is estimated in terms of household annual income contribution, improved
access to financial resources, and employment improvement. The environmental impact is assessed by
proxy variables such as time spent conducting forest protection and conservation, amount of illegal logging,
forest removed or burned, and farmers’ and local authorities’ awareness of environmental improvement.
By applying the propensity score matching and difference in difference methods, the research
found that PFES has contributed to increasing annual household income by about VND 3.9 million/
household per year. It has also generated positive effects on forest environmental services as well as
improved the awareness of local farmers and authorities of the value of forests and the need for their
protection. However, some problems remain and are associated with the following: forest environmental
services have not been fully defined; participation is not completely voluntary; payment relies on a top-
down mechanism; and the sustainability of the system is not assured.
1.0 INTRODUCTION
1.1
Statement of Problem
The world’s forest area is approximately 4 billion ha, accounting for 30.3% of the total land area
(FAO 2007). Forest is very important, not only to human life but also to the global economy. However,
deforestation is a challenge because each year about 13 million ha of the world’s forests are lost due to
deforestation (FAO 2005). In an attempt to deal with this issue, several programs and activities related to
reforestation, such as establishing forest protection areas, the prohibition of illegal logging and wood
trading, and forest certificates, have been implemented. Payment for forest environmental services (PFES) is
an innovative approach to the conservation of forests and it is one that has been applied in both developed
and developing countries (Wuner et al. 2008). PFES is a highly promising conservation approach that can
benefit buyers and sellers as well as improve the resource base (Wunder 2005). Globally, Costa Rica is the
pioneer country in this area, applying payment for environmental services (PES) based on market
mechanisms. This tool has also been applied in EU countries, the USA, Australia, and Latin America in recent
years.
Forests are an important resource that provides products and services for national economic
development in Vietnam. Up to 2008 forest cover accounted for 38.27% of the total land area of Vietnam, an
area equivalent to 12.9 million ha (Tuan 2009). Besides contributing to the livelihood improvement and
poverty alleviation of local people in rural and highland areas, forests play a vital role in environmental
protection, watershed regulation, land stabilization, clean water provision, and the prevention of sediment
in reservoirs. In recent years forest conservation and development have become priority tasks within
national development schemes.
Evaluating the Pilot Implementation of Payment for Forest Environmental Services in Lam Dong, Vietnam
1
The government has been the lead entity responsible for forest protection and development.
Several programs have been applied such as: Program 327 (1992) was aimed at “Re-Greening the Barren
Hills”; Program 556 (1995) tried to refocus the activities of Program 327; Program 661 (1998) was called the
“Government’s Five Million Hectares Reforestation Program” (The and Ngoc 2006); and various other
command and control management programs. However, these programs had not fully utilized payment for
forest environmental service principles. Therefore, in April 2008, the Vietnam government issued Decision
no. 380/QĐ-TTg to implement payment for forest environmental services nationwide. The policy aims to
make PFES compulsory in Vietnam, but it was first piloted for a two-year period in Lam Dong and Son La
provinces. Experiences and lessons learned in the Vietnamese context were used to build a national policy
(2011 onwards).
So far, this policy has been implemented in Lam Dong Province (Figure 1), facilitated by the Lam
Dong Forest Protection and Development Fund (FPDF) under the management of the Lam Dong
Department of Agriculture and Rural Development (DARD) and the provincial people’s committee. Payment
has been asked for three major services: watershed regulation, sediment reduction, and the preservation of
scenic beauty, which is vital to tourism. Consequently, from 2009 to 2010, the local people who were
allocated forest land for conservation and protection were compensated by about VND 300,000 per ha. This
figure is higher than the VND 100,000 per ha currently paid by government’s 661 Program.
Figure 1. The pilot areas, Lam Dong Province
The program has generated positive effects on the environment and on local life. However,
qualitative and quantitative research on the impacts of the pilot program has yet to be conducted to
synthesize the lessons learned. This research assesses the following: the implementation of the pilot
program; its effects on the economy and on the environment; and the critical conditions for the success of
PFES in the study areas as well as in a wider Vietnamese context.
1.2
The Significance of the Study
Generally, the implementation of a pilot project is evaluated in order to distill the lessons learned
for the benefit of interested audiences. As PFES is going to be implemented nationally, it was essential to
study its results, advantages and weaknesses. These results are also needed to plan for the next stage of
implementation. This paper analyzes the implementation of PFES in Lam Dong Province to assess its legal,
political, financial, and capital feasibility as a policy. As the first country in Southeast Asia to launch PFES as a
national policy, Vietnam’s experiences will be useful to Vietnam and to other countries that are going apply
PFES.
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Economy and Environment Programfor Southeast Asia
1.3
Research Questions
The paper aims to answer the following questions:
1) How was the pilot PFES designed in Vietnam?
2) How has it been implemented in Lam Dong Province?
3) What are the impacts of PFES on the environment and household incomes?
4) How has equity been addressed via implementation? How do different stakeholders behave in
this program?
5) What needs to be improved when designing and implementing the program at a national level?
1.4
Research Objectives
The general objective of this study is to assess the achievements and identify the lessons learned to
improve the PFES policy in Lam Dong. Specifically, the study:
1) assesses the components of PFES design in Vietnam and in Lam Dong Province;
2) analyzes the implementation of PFES in Lam Dong Province in terms of financial budget, legal
feasibility, equity, implementation mechanism, and stakeholders;
3) evaluates the short-term impacts of PFES on the economy and on the environment;
4) explores and explains how different stakeholders perceive the implementation, monitoring, and
management of PFES;
5) analyzes the behavior of stakeholders regarding PFES and of equity in the implementation
process; and
6) draws lessons and figures out recommendations for the improvement of PFES.
1.5
Scope of the Study
The study assesses the performance and evaluates the impacts of the two-year pilot FPES policy in
Lam Dong Province. It focuses on the implementation of the policy in four piloted zones: three districts – Lac
Duong, Don Duong, Duc Trong – and Da Lat City. The study relied on household surveys, in-depth interviews
and focus group discussions (FGD) involving local authorities, experts, farmers, and other stakeholders.
Individuals and companies paying for services were interviewed to evaluate service quality and
payment levels as well as to elicit comments and suggestions to improve the program. The lessons learned
will help to ensure the program’s sustainability in the future. Implementation issues related to payment
mechanisms, monitoring systems, finances, human resources, and legal framework were assessed.
Economic and environmental impacts were evaluated by estimating the changes in local income,
forest area, amount of illegal logging, and forest density/quality since the program was implemented.
Evaluating the Pilot Implementation of Payment for Forest Environmental Services in Lam Dong, Vietnam
3
2.0 REVIEW OF LITERATURE
2.1
PES Synopsis
2.1.1 Definition
PES can be broadly understood as economic incentives providing return for environmental services
(ES) as a result of beneficial activities such as reforestation, watershed protection, and soil conservation (The
and Ngoc 2006). Wunder (2005) described PES as having the following five criteria:
〈
〈
〈
〈
〈
a voluntary transaction;
a well-defined environmental service;
being ‘bought’ by a (minimum of one) ES buyer;
from a (minimum of one) ES provider; and
if and only if the ES provider secures ES provision.
2.1.2 Scope of PES
Forests provide not only direct use values but also indirect and non-use values. However, these
values are usually underestimated because there is no market for them. The forest environment is protected
by certain members of society who depend on the forest to make a living, but they are often
uncompensated for their conservation activities. There are no financial or economic incentives for land
holders or natural resource managers to conserve their forest if they bear all the costs. The PES mechanism
has been established to internalize the cost for ecosystem conservation and to generate economic
incentives for landowners managing the ecosystem in a sustainable manner. PES recognizes these indirect
values and encourages people conserving ecosystems by providing compensation to overcome the high
opportunity costs of conservation (Emerton 2008).
2.1.3 PES Stakeholders
The principle of PES is that those who provide environmental services should be compensated,
while those who receive the services should pay for the service providers. The providers and users can
negotiate a bilateral agreement that makes both parties better off (The and Ngoc 2006). Therefore, the
stakeholders in PES regularly include service sellers, buyers, and intermediaries.
Who are the sellers?
Engaging effectively with the sellers (providers of environmental services) is a critical foundation for
PES. This ensures the sustainability of the mechanism, the positive environmental outcomes for the service
buyers, and the improvement of the livelihood of the service providers (Zbinden et al. 2005). Generally,
potential ES providers are landholders doing ecosystem conservation and development. The property rights
of landholders should also be mentioned because in some countries the individual owns the private land
property, while land belongs to the state or to local communities in other countries. The PES program can be
aimed wholly or partially at public land such as protected areas (Engel et al. 2008).
Who are the buyers?
Buyers are people or entities that benefit from environmental services. These are the actual
environmental service users, the government, NGOs, and international organizations. Buyers can also be a
mix of local, national, and international beneficiaries.
In a ‘user-financed’ PES program, the buyers are the actual users of an ES and pay directly to the
service providers or through intermediaries. In ‘government-financed’ PES programs, the buyers are a third
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Economy and Environment Programfor Southeast Asia
party acting on behalf of services users. This is typically a government agency but it could also be an
international financial institution or conservation institution in the case of global externalities (Engel et al.
2008).
Intermediaries
Knowledge of the PES principle is still fairly new for service sellers and buyers. Generally, the
implementing institution of the PES can be a multi-actor organization like a watershed authority or a micro-
watershed management committee with representatives from the government, private institutions and
NGOs, and with procedures that guarantee transparency and impartiality (Maina et al. 2007). The
government usually plays a facilitator or moderator role in linking service providers to buyers. It also
establishes the policy and institutional framework supporting payment implementation. As the moderator,
the government needs to set up the payment level based on seller and buyer capacity. In addition, local and
regional governments are required to collaborate with and encourage help from consultants from
international organizations and NGOs.
2.2
Characteristics of the PES Program
2.2.1 How are PES mechanisms established?
Types of environmental service
In order to evaluate the feasibility of a payment scheme for environmental services, studies
regarding supply and demand for environmental services must be carried out. Generally, the ES can be
grouped into four broad categories: watershed protection, carbon sequestration and storage, biodiversity,
and natural beauty.
Payment level establishment
Landholders have several ways of generating benefit via their land so the revenues to service
providers must be good when compared to other land use alternatives. But while the payment must be
more than the land opportunity cost, it must be less than the value of the benefit of services. Hence, the
payment levels must be carefully determined by adjusting the supply (willingness to accept) and demand
(willingness to pay) of environmental services. Maina et al. (2007) expressed this principle in Figure 2.
Landowners are willing to accept the minimum level equal to the lowest opportunity cost. The payment
must obviously be more than the additional benefit to land users for the alternative land use (Pagiola et al.
2003).
Not all farmers provide the same level of environmental services when participating in a program,
and ideally PES schemes should offer differentiated levels of payment to correspond to these differences
(FAO 2007). But it takes time and money to determine payment at an individual level, relying on their service
quality and quantity. It is also very difficult when there are several alternative land uses, hence there will be
different opportunity costs. Many PES programs pay a fixed level per hectare for given activities to simplify
the procedure.
Cash is considered to be the most flexible and preferable mode of payment in PES systems. Cash is
most appropriate when ES suppliers forego cash income to comply with a PES contract (Wunder 2005).
However, PES schemes can also provide compensation packages mixed with other benefits such as access to
credit, capacity building, information, and other collective or individual services (Mayrand and Paquin 2004).
Evaluating the Pilot Implementation of Payment for Forest Environmental Services in Lam Dong, Vietnam
5
Source: Maina et al. 2007
Figure 2. Conceptual framework of payment for ES under agricultural production
2.2.2 The effectiveness and efficiency of the PES program
Several papers have mentioned the income and non-income effects of PES. As long as participation
in PES programs is voluntary, there is a preliminary assumption that they will make participants better off. In
addition, PES contributes to social and environmental impacts such as environmental service quality,
employment, and social security.
The framework to evaluate the effectiveness of the PES program originated from Pagiola (2005) and
is presented in Engel et al. (2008) (Figure 3). The vertical axis denotes the net value of environmental services
generating to others and the horizontal axis stands for landholders’ net profitability. The win-win quadrant
shows the best case, in which PES generates benefits for both landowners and environmental services. The
lose-lose quadrant represents implementation of PES that does not bring benefits to land users and
generates a negative impact on the environment. Cases that have a negative impact on the environment
but gain benefits for landholders are presented in the bottom-right and top-left quadrants, respectively.
Normally, the efficiency of the PES program assessed from the social viewpoint is higher than that assessed
individually because PES gives benefits to society much higher than social costs. Hence, the 45° diagonal
indicates that the implementation of PES brings positive total social value.
Source: Engel et al. 2008
Figure 3. A framework to analyze the efficiency of PES
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Economy and Environment Programfor Southeast Asia
2.2.3 Challenges and issues in PES design and implementation
In principle, PES is a simple mechanism, but practically, there are several challenges and issues in
designing and implementing it. Wunder (2005) identifies two key problems in PES implementation: (1)
limited demand, and (2) poor knowledge of the institutional requirements of the program.
Land tenure is another challenge because PES influences the activities of landholders. Service
buyers want to be certain that they are entering into a contract with those who are able to determine land
use over the long-term. In addition, service sellers are unlikely to participate unless their rights to the land
are strong enough to guarantee that their investment will not be lost (United Nations 2009).
One of the most obvious and significant potential hindrances to the participation of poor people in
PES is transaction costs. Working with many small dispersed farmers imposes high transaction costs, and
special efforts are needed to ensure that the poor have access to the new opportunities created by PES
programs (Pagiola et al. 2003).
Another significant challenge is overcoming existing inevitable inequalities in the design process
(United Nations 2009). Service providers are usually poor, uneducated, and lack information. It is not easy for
them to understand what environmental services are, and they usually make mistakes in making
commitments.
Finally, the implementation of PES is a process that involves the collaboration of different
organizations so the success of PES programs depends on successfully coordinating the policies and efforts
of relevant authorities (United Nations 2009). The management mechanism of most developing countries is
organized as a system from the top to the bottom, and from the national to the regional then to local levels.
Ensuring coordination between these levels presents another challenge.
2.3
Selected Experiences of PES
PES has been employed in some high income countries such as the USA and in European countries.
The US Conservation Reserve Program spends about USD 1.5 billion annually to contract for 12-15 million
ha. In Europe, 14 nations spent an estimated USD 11 billion between 1993 and 1997 to divert over 20 million
ha into long-term set-aside and forest contracts (The and Ngoc 2006).
Costa Rica
Costa Rica pioneered the first formally-labeled PES program in 1996-1997 and since then there have
been more than 280 PES programs documented worldwide (United Nations 2009).
PED started in Costa Rica in 1997 (Pfaff et al. 2008) as an alternative approach to halting
environmental degradation as a result of deforestation (Russol and Candela 2006). The National Fund for
Forest Financing (FONAFIFO) was established to collect money from beneficiaries then to distribute this
income among service providers.
The environmental services defined include carbon sequestration and storage, watershed
protection, biodiversity protection, and landscape beauty (Pagiola 2008). Service providers are individual
farmers contracted to conserve, reforest, or manage forest sustainably throughout the life of individual
contracts (Russol and Candela 2006). Service buyers are fuel consumers, hydro-electricity companies,
countries that need green house gas emission permits, and international donations.
The payment mechanism is based on the opportunity cost of land (OCL), in which the payment level
must be greater or at least equal to the OCL. Compensation to landholders is set for a five-year period and
varies in payment level according to the type of activity undertaken: reforestation (USD 450 per ha), forest
preservation (USD 200 per ha) and agroforestry systems (USD 0.75 per tree). The payment fund comes from
fuel companies, the World Bank, the Global Environment Facility, and the Ecomarkets Project.
Evaluating the Pilot Implementation of Payment for Forest Environmental Services in Lam Dong, Vietnam
7
Mexico
In Mexico, the PES program for hydrological services began in 2003 (the project focused only on
water services). Payments are made to individuals and communities as incentives to preserve existing forests
(Alix-Garcia et al. 2005).
The design of Mexico’s PES program was strongly influenced by its political and lobbying processes.
The payment was considered a subsidy program because the payment mechanism was not based on the
competitive market. In addition, the government was involved as the only buyer in choosing which forest
plots would be eligible for payment (Pina et al. 2007), and the federal government decided on almost
everything. The payment level was chosen based on the land opportunity cost as a fixed-price, with USD
27.3/ha per year for cloud forest and USD 18.2/ha per year for normal forests.
Consequently, several issues were generated in the implementation process, and the program’s
objective was not achieved. For instance, the government gave priority to the poor and to high-risk
deforestation. The results showed that 50%-70% of the forests were at a low risk of deforestation, the
poorest people did not participate, and most of the participants were not located in areas given high priority
according to water scarcity criteria (Pina et al. 2007). Many implementation tasks were rushed and there was
no standard procedure, hence there were misinterpretations and the program was delayed (Alix-Garcia et al.
2005).
The Philippines
In the Philippines, PFES has not been established to rely on comparative markets. Here, PFES could
be considered an environmental service subsidy or compensation because the payment level does not
depend on market mechanisms. Francisco (2003) presented four case studies of forest environmental service
payments in the Philippines that all originated from the idea that “upland communities collaborating in the
implementation of forest/watershed management projects could be paid or compensated in terms of wages
for services rendered, provision of free planting materials, conduct of skills-training, technical assistance, and
tenure security, among others. Hence, the payment now takes the meaning of rewards.”
In the cases presented, service sellers are upland farmers using agriculture land sustainably, doing
reforestation, and watershed rehabilitation. Service buyers are water users, hydroelectric consumers,
hydropower companies, bio-prospecting firms, generators of carbon gases, and society. Funding is
contributed not only by private beneficiaries but also by government, NGOs, and other international
organizations.
3.0 RESEARCH METHOD
3.1
Methods to Assess the Implementation of the PES Pilot Program
in Lam Dong Province
3.1.1 Stakeholder analysis
The research applies a review of the literature, a survey-based approach, and direct observations to
analyze the performance of the pilot policy. The performance of the PES policy is evaluated for
legal/institutional and political feasibility, financial and human resources for implementation, and for the
impacts of the PFES project on service buyers, sellers, and on the environment.
Stakeholder analysis aims to review and discuss the problems of the project from different
perspectives, understanding how different stakeholders are affected in different ways, and what kinds of
solutions are presented and by whom.
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Economy and Environment Programfor Southeast Asia
3.1.2 Payment rate identification analysis
The research investigates the basis for the payment level in Lam Dong Province and also estimates
the appropriate payment rate, relying on forgone opportunity costs and providers’ statements. In addition,
to assess the appropriate payment rate, we compare the actual compensation with the costs of inputs used
to provide services. Through the household survey, we identify the total cost for forest conservation and
protection including labor costs and equipment.
3.1.3 Analysis of the behavior of service providers
In Vietnam all land is owned by the government and landholders only have a right to use land for a
limited period; therefore, participation cannot be fully decided by farmers. Like most PES in developing
countries, the selection is based mainly on geographic criteria (a selected participant must live within the
forest area or in the buffer zone) and meeting of the minimal criteria: having enough labor for forest
conservation, participation is voluntary, and the first priority is given to ethnic minorities and poor
households. Hence, the local inhabitant’s behavior in this program is the condition for sustainability. The
decision of farmers to participate in providing forest ES can be analyzed by FGDs, surveys, and depth
interviews to answer the key questions: are they willing to participate? Why do they participate or not? Will
they participate when PFES is applied nationally? And what do they expect to gain by participating in PFES?
3.1.4 Analysis of the behavior of service payers
The study used a semi-structured questionnaire to interview representatives of service users
including the Dai Ninh Hydropower plant in Binh Thuan Province, the Da Nhim Hydropower plant in Ninh
Thuan Province, the Water Supply Company of Ho Chi Minh City, the Dong Nai Water Supply Company, and
organizations and individuals conducting ecotourism businesses in the pilot areas. Their opinions on
payment responsibility, assessment of environment service, and payment level were collected in order to
understand the payer’s behavior.
3.1.5 Analysis of the equity in PFES’ pilot implementation
Equity is a key component of sustainable development and a key criterion to take into account in
the development and implementation of PES (Corbera et al. 2006). Equity analysis is necessary to test the
first criterion of real PES (voluntary transaction). This research limits the equity in PES design and
implementation to three elements: equity in access, equity in decision making, and equity in PES outcome.
Equity in access concerns the mechanism by which individuals or organizations are legal, able, and willing to
participate in the PES scheme. This is evaluated by information access, land and forest resource access,
knowledge, and networks. Equity in decision making indicates whether all stakeholders participate in
designing, adjusting, and meeting the PES. The research focus is on whether the poor, limited knowledge,
limited resources, and women are considered when designing PES schemes. Equity in PES outcome refers to
the distribution of PES benefits to different program participants, specifically the net benefit from PES and
perceived fairness from landholders. In this research, the net benefit is assumed as payment. Ideally,
schemes should offer differentiated levels of payment to correspond with the actual outcome level of
providing for ES. The reward for ES providers could be equitable if benefit is varied, relying on their service
quality, quantity, and opportunity cost. In this part, we also assess the benefit distribution among the poor,
non-poor, ethnic, indigenous and non-indigenous peoples by considering the payment distribution across
all participants.
Evaluating the Pilot Implementation of Payment for Forest Environmental Services in Lam Dong, Vietnam
9
3.2
Method of PFES Impacts Evaluation
3.2.1 Time dimension and baseline for evaluation
The choice of baseline to compare the differences between with the PFES project and without the
PFES project is important to determine PES efficiency. An environmental service baseline must be
constructed to see whether the project generated effects or differences. To avoid inconsistencies in the
baseline, the research will compare the current situation with the baseline situation that occurred without
PFES to evaluate the impacts of the pilot policy. In addition, the livelihoods of households before and after
the program will be compared to see the contribution of the PES program. It means that the baseline for
comparison is dynamic by time.
3.2.2 Theoretical base
Internationally, several studies have been conducted to evaluate the impacts of PES programs on
economics, society, and the environment. However, this paper emphasizes the methods used to evaluate
the PES programs in Costa Rica, Mexico and Vietnam.
In Costa Rica, Locatelli et al. (2007) evaluated the impacts of reforestation under the PES program on
local development in the north of Costa Rica. They applied a fuzzy, multi-criteria analysis including
socioeconomic, institutional, and cultural dimensions and it was based on the individual perceptions of
landowners. The impacts of PES on local development were broken down into 12 criteria and 27 indicators
to compare the situation with and without PES. The data were collected by interviewing 37,132 landowners
receiving PES for reforestation in the area. In addition, fieldwork was conducted and experts met with
national and local governments to figure out and weigh the impact criteria and indicators. The results
showed that the impact of PES on local development depended on the composition of the beneficiaries; the
PES applied to reforestation had a globally positive effect; and the negative economic impacts were
balanced by the positive institutional and cultural impacts.
“Paying for Environmental Services: An Analysis of Participation in Costa Rica’s PES Program”
(Zbinden and Lee 2005) analyzed the factors that influence both PES participants and non-participants. The
binary logistic model was used to analyze the decision of a landowner to participate in the reforestation
program. A multinomial logistic regression analysis was used for the decision of a forest owner to participate
in forest protection, sustainable management, or in both aspects of the program. The research was done by
the data collected in mid-2002 by conducting a survey of 246 land and forest owners in the northern
lowlands of Costa Rica. The study showed that farm size, human capital and household economic factors,
and access to information were significant variables that affected participation in PES.
Pfaff et al. (2008) evaluated the impact of PES on Costa Rica’s deforestation rate by applying the
matching method. They employed the matching estimation method to compare the complete lack of
deforestation on PES land with the deforestation on untreated land with similar demographic features to the
PES land. Data were collected from primary data and household surveys (participants and non-participants
in the PES program from 1997-1999). They found that PES had a very small impact on deforestation. In
particular, a five-year forest protection contract was signed in 1997, 1998, and 1999, which prevented
deforestation in the first contract year, but only 0.21% of the total land enrolled. The covariate matching
standard errors suggest no significant impact from PES.
In Vietnam, some of the first pioneer research on PES was “Payment for Environmental Services in
Vietnam: Assessing an Economic Approach to Sustainable Forest Management” (The and Ngoc 2006). This
research was done when PES had not yet been applied in Vietnam. An experimental PES scheme on
sustainable forest management was conducted for a 26-month period in Thua Thien Hue Province. Cash
payment was used to compensate forest owners who adopted a sustainable forest management program.
The payment level was determined based on the farmer’s willingness to accept VND 140,000/ha per year
(USD 7.4) and VND 156,000/ha per year (USD 8.2). As a result, payment from the PES program had a limited
effect on household income (only 2% of adapting household income), indicating that the PES program had
no significant impact on poverty reduction. Nevertheless, the PES program did have positive social and
environmental effects.
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Economy and Environment Programfor Southeast Asia
From this overview, to evaluate the impacts of PES, three main cluster effects should be indentified:
effects on sellers, on environmental services, and on intermediaries. Other papers have mentioned that the
effects could be evaluated as income, non-income, and in-direct benefits. Some impacts are visible and
quantifiable and some are invisible or unquantifiable so choosing criteria or indicators for evaluation
depends on the available data.
3.2.3 Measuring the economic and environmental impacts
of the PES scheme in Lam Dong
The preliminary economic impacts of the pilot policy on stakeholders and its impact on the targeted
environmental services was evaluated through quantitative and qualitative data. The paper focuses on
economic and environmental influences by using the following indicators.
Economic impact
The most obvious impact of a PES program on participants is the additional income it provides
(Pagiola et al. 2005). The impact of PFES on annual household income is estimated by the average difference
between participants and non-participants as well as before and after participation by applying the
propensity score matching and difference in differences (DID) methods.
Propensity score matching
This method is used to compare the outcomes of program participants with those of matched non-
participants, where matches are chosen on the basis of similarity in observed characteristics (Todd 2006)
(Figure 4). The paper applies matching estimators to compare the difference in annual household income
between participants and non-participants.
Source: Caliendo and Kopeinig 2006
Figure 4. Necessary steps when implementing PSM
Assuming that there are two potential outcomes, denoted Yi(0), Yi(1) represents the annual income
for farmer i with treatment and without treatment, respectively. Xi is a (k×1) vector of covariates affecting
outcome along with the treatment including variables capturing the socioeconomic characteristics and
input usage of the sample farms. Given the vector of these variables, the net income of farmer i will vary
depending on the participation on PFES.
With the outcome Yi(1|Xi) and Yi(0|Xi), the impact on household annual income, as a result of
participating, can be calculated as:
Evaluating the Pilot Implementation of Payment for Forest Environmental Services in Lam Dong, Vietnam 11
Step 1: Propensity score (PS) estimation
PS is actually the probability that a person is assigned to a particular treatment group given a set of
known covariates. PS seeks to create comparison groups that are similar on all covariates but different in
treatment levels. Two choices have to be made when estimating the PS, including the model to be used for
the estimation, and the variables to be included in this model. In this research, the model i relied on the logit
model with impact of related variables on the probability of farmers’ decision to participate.
Step 2: Choose a matching algorithm
There are different matching algorithm choices when matching (Figure 5). The nearest matching
estimator is the most straightforward matching when the individual from the comparison group is chosen as
a matching partner for a treated individual that is closest in terms of the PS. Caliper and radius matching
imposes a tolerance level on the maximum propensity score distance (caliper). Stratification and interval
matching partitions the common support of the propensity score into a set of intervals and to calculate the
impact within each interval by taking the mean difference in outcomes between treated and control
observations. Kernel and local linear matching are non-parametric matching estimators that use weighted
averages of all depending on the choice of the kernel function – individuals in the control group to construct
the counterfactual outcome.
Figure 5. Choosing a matching algorithm
Step 3: Check overlap/common support
ATT are only defined in the region of common support. Hence, only the subset of the comparison
group comparable to the treatment group should be used in the analysis (Caliendo 2008).
Step 4: Assessing the matching quality
This involves checking if the matching procedure is able to balance the distribution of the relevant
variables in both the control and treatment group.
Step 5: Sensitivity analysis
Sensitivity analysis is done by testing the statistical significance of treatment effects and computing
their standard errors.
Difference in difference (DID)
If one just observes the outcome difference between treatment and control in areas with
performance payments, one cannot discern the PES impact separately from omitted variables such as the
recipient’s location, schooling, conservation attitudes, etc. (Wunder 2005).
12
Economy and Environment Programfor Southeast Asia
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