This policy learning tool is primarily designed for policy makers and government officers who need to carry out M&E and report on the progress and impact of Payment for Forest Environmental Services (PFES policies). While this policy learning tool is designed to meet policy makers’ need to understand the impact, opportunities and challenges of PFES, it can also be adapted by analysts, program sponsors and managers, practitioners in research and research funding organizations, and professional evaluators for their own needs in understanding and identifying areas for PFES improvement.

Key messages Despite being a new funding source, PFES now contributes 22% of total forestry sector investment.The impact of PFES funding differs by location and actor group.To enhance the scale of PFES, and its impac

Research on payments for ecosystem services (PES) schemes indicates that few of them in fact implement full marketization on the ground, highlighting the need for better understanding of the performance of incompletely marketized PES models. One prominent example of a PES program with incomplete marketization is Vietnam's Payments for Forest Environmental Services (PFES) scheme, a payment for environmental services program that has been progressively rolled out across over 40 provinces since 2008. The program is notable both for its spatial extent and its implementation, collecting funds primarily from taxes on water consumption in hydroelectric dams and water companies and redistributing it through a diverse array of contracts managed at provincial and national levels to protect and plant new forests. We assess the impact of PFES using matched two-way fixed effects models and matched multi-period difference-in-differences estimation. These methods both suggest that PFES restrains forest loss at a rate comparable to or greater than state-managed protected areas. Importantly, these effects are weak or nonexistent until PFES has been established for over three years. Taken together, these findings provide strong evidence that state-managed PES-like programs can perform well in forest protection even if they lack full marketization.