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.