Vietnam Leads Southeast Asia in Payments for Ecosystem Services

In just a few short years, Vietnam has begun ramping up one of the world’s most aggressive schemes designed to preserve nature by embedding its value in the economy.   Like Brazil, Vietnam’s programs are based on user fees with heavy government oversight, and they’re getting results.   You can find out more by tuning in to this week’s Katoomba Meeting in Hanoi.

NOTE: This is the tenth in a series of articles leading up to and supporting the 17th Katoomba Meeting, which takes place this week in Hanoi and can be followed online here.

21 June 2010 | A “miracle”: That’s what many news agencies and policymakers call Vietnam’s rapid development of PES (Payments for Ecosystem Services). The nation’s program is held up by PES advocates as a model for the rest of Southeast Asia. And in fact, the Vietnamese model has already been adopted in Cambodia, Laos, and Thailand.

Just how successful is it? A few years ago, the PES concept was completely new to Vietnam. In 2008, the government’s Decision 380 on the “Pilot Policy for Payment for Forest Ecosystem Services” got the ball rolling by determining who were the buyers and sellers. By 2009, it generated total revenue of 77 billion Vietnam Dong (approximately US $4 million).

The Forests of Lam Dong

The success of Vietnam’s PES policies is particularly reflected in Lam Dong, one of two provinces selected for implementing the pilot phase. PES schemes are being distributed to 3,400 poor forest-dwelling households in Lam Dong, who are protecting 104,000 hectares of forest. When the payments are completed, each household will receive US $500 a year, a 400% increase in income.”

Located in the most upstream area of the Dong Nai river basin, more than 60 percent of Lam Dong is covered by forest. This area is crucial to the health of the river.

Thirteen state entities manage the vast majority of these forests. These include management boards of protection and special use forests, state forest enterprises, and private enterprises that rent the land for agro-forestry production and ecotourism.  

Implementing Decision 380

To implement Decision 380, Lam Dong authorities determined the economic value of ecosystem services, identified buyers and sellers, and established organizational and institutional structures for the distribution of payments.

Around 516,800 hectares of forest were identified as important, with potential for providing ecosystem services. Water regulation, soil protection, and scenic landscape values were determined as important services of this forest area and were economically measured according to these functions. (Other, more standard services such as carbon sequestration and biodiversity conservation were not accounted for during the piloting phase.)

Three watershed areas were selected as pilot sites. These areas provided ecosystem services to four buyers: two hydropower plants, one water supply organization, and one tourism company.

Calculating Payments

One of the most difficult parts of implementing Decision 380, of course, was calculating payments.

“There is no existing literature on how much the company should pay,” said a member of the policy drafting team in charge of determining payment figures. “We consulted many literatures, and international organizations also helped us.”

The team consisted of members of the Legal Department of the Ministry of Agriculture and Rural Development (MARD), the Office of the Government, and the Ministries of Finance and of Justice.

Eventually, the team developed a complicated equation for calculating payment level. The payment level for hydropower plants using water as a production input was determined at 20 VND (0.125 cents) per one kilowatt hour of electricity produced. For water supply companies, it was 40 VND (0.25 cents) per one cubic meter (m3) of water supplied.

Payments for Ecotourism

The team had difficulty in calculating the payment level for tourism companies, which benefit from landscape beauty provided by the forest. Different stakeholders were consulted about payment levels, including tourism companies themselves, with the end result being that the payment for these services was determined to be 0.5-2 percent of the companies’ gross revenue.

“We suggested the figure to the province officials and they said they are okay with it,” the team member said. “We also suggested the figure to some tourist companies and they said they can afford it.”

The K Coefficient

However, according to the 2004 “Law on Forest Protection and Development,” there are three different types of national forests:

• Protection forest (rí¹ng phí²ng hí´), which accounts for 30 percent of the total forest area, is set aside for protection of watersheds, soil and the environment;
• special use forest (rí¹ng dí¢c dung), which accounts for 10 percent, is intended for nature conservation, protection of ecosystems and flora and fauna gene resources, and historical, environmental, and cultural sites; and
• production forest (rí¹ng san xuí¢t), which accounts for 60 percent, is the source of wood and forest-based products and is meant to contribute to ecological protection.

To account for these different types of forest, as well as the different levels of services that can be provided in different geographical locations, the team introduced a “K coefficient.” The K coefficient also recognizes the status of the forest — rich, average, or poor — as well as its origin: Did the forest occur naturally, in other words, or was it planted? Each of these factors is associated with a different monetary value.

Where Payments are Distributed

Since early 2009, the provincial Peoples’ Committee has requested the four buyers to pay the service fee.   The total annual revenue derived from the four buyers is about 47 billion VND (US $2.8 million). Using the K coefficient, three different levels of payments were suggested: 290,000 VND ($16) per ha for water regulation, 270,000 VND ($15) per ha for soil protection, and 10,000 VND ($0.5) per ha for scenic landscape values.

Describing the dilemma in the top-down versus voluntary nature of PES, a member of the policy drafting team said, “We have just changed from a highly-centralized economy to a market-oriented one; we are at an intersection. As our level of awareness is low, the government has to request the buyers to pay.”

Ten percent of the total payment collected from service buyers will be used by the government agency managing the payment, while the remaining 90 percent will be distributed to service providers, per Article 11 of Decision 380. If the service providers are government-owned organizations (e.g. management boards of protected areas or state forest enterprises), they are allowed to keep 10 percent, with the rest going to individuals, individual households, or rural communities who receive contracts from the state-owned organizations.

Payments to Local Households

To ensure that local households were able to derive benefit from these revenues, local authorities maintained their own contract arrangements with local households. Currently, $2.8 million is being paid to 3,400 local households. On average, each household is contracted for around 20 ha of forest from the enterprises. When payment will be completed, each household will receive $500/year, a 400 percent increase in income.

Lam Dong and the Future of Vietnamese PES

Lam Dong’s success story will probably play a major part in forming a national decree on forest PES. The Vietnamese government is already drafting the decree, which may be passed by the Prime Minister in the second half of 2010.

PES proponents believe that once the decree is scaled-up to the national level, the derived revenues could reach $1 billion. This figure — together with buzz in the state media about the positive results of the pilot projects — has strongly driven the rapid development of PES policy and practice in Vietnam.

Millions of dollars in funding from both government and overseas development assistance have been committed to these initiatives for years to come. Thanks to its rapid development of PES, the Vietnamese government is already realizing many of its goals. It is combating rural poverty by helping communities to protect forests and improve local livelihoods, and it is establishing a sustainable source of private funding for forest protection and rural development to fill current shortcomings in the state budget.