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Payments for Ecosystem Services in China and Vietnam

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China and Vietnam have established some of the most promising payments for ecosystem services (PES) initiatives for watershed conservation and forest management. China’s Sloping Land Conversion Programme (SLCP) and Vietnam’s pilot projects for Decision 380 subsequent PES laws are one of these initiatives. The selected research paper is reviewing how these two actions are meeting their environment and development objectives in terms of their institutional arrangements, implementation in practice, and sustainability prospects. The fundamental definition of PES was defined as a voluntary transaction for distinct ecological services, with at least one buyer, one provider, and based on the condition that the payment continues only if the provider(s) provides the defined ecosystem services to the buyer overtime period. Though PES does not specifically target poverty alleviation, yet these payments can offer better opportunities to the service providers for a diversified livelihood and greater well-being with fair incentives for the exchange of services.

Since both the parties can receive benefits from PES outcome, the acceptance by potential participants may be more for PES than for the government laws or regulations. The incentive-based environmental policy programmes, called as PES or eco-compensation in China and Vietnam, gained rapid development and global spotlight. There has been a substantial political determination to expand pilot programs and learn from experiences from local diversification of national schemes for the domestic and international environment. As a result of economic growth, rapid urbanization, population explosion, and increased demand for marginal land have affected the environmental conditions and natural resources negatively. Major elements related to land degradation include soil erosion, deterioration of water resources, deforestation, desertification and loss of biodiversity.

The mounting social and environmental problems as a result of increasing development discrepancies and denudation of natural resources have taken care of both the governments through the introduction of laws, institutional frameworks, and public programs. This study wants to create an insight for water and forest management, based on experiments with incentive-based schemes in these traditionally command driven countries to achieve their environment and development goals; and implications for large-scale government-run programs in conserving the perception of PES from concept to action. This is evaluated through examination of program’s legal and institutional frameworks, implementation in practice, and prospects for long-term sustainability. The two national program considered for study here are the Sloping Land Conversion Program (SLCP) in China and the PES pilots being implemented in association with Decision 380 in Vietnam.


China’s SLCP: After the Yangtze River flood of 1998, China’s central government recognized the extreme impacts of steep slope farming on the ecological loss of services of forest and grasslands on slopes, in particular, the effect on run-off and soil erosion. SLCP was introduced in the year 1999 by the government is also known as Grain for Green or the Conversion of Cropland to Forests and Grasslands Program, as the largest known land retirement program worldwide. The farmers in the field on slopes 15-25° or greater, have the option to transform the field into ‘ecological forest’ (timber producing) or ‘economic forest’ (farming cash crops). In exchange, they were given an in-kind subsidy of grain or cash, on annual basis. Based on the type of conversion and region location of land (w.r.t. different fertility of land), a period of compensation differed. SLCP, the first national PES program, could directly engage at the household level and encouraged voluntary participation in terms of choice of farmers for participation and type of land management. Vietnam’s pilot projects implementing Decision 380 and subsequent PES legislation: With mountainous terrain and monsoonal climate, the rural upland area forest’s watershed services play a significant role in Vietnam’s economy mainly as agriculture and hydropower sector.

The incentive-based program, Program 661 (Decision No. 661/QD-TTg/1998), introduced by the Vietnamese government to promote sustainable development that aimed to increase forest coverage by five million hectares within a period of 12 years (1998-2010). In 2007, Decision no. 380/ QD-TTg/2008, a national PES policy contained legal, institutional, and financial guidelines pertaining to PES. Important forest watershed services as water flow regulation, soil erosion reduction, and scenic landscape were economically evaluated based on program 380.

Son La and Lam Dong provinces identified as PES pilot testing generate high demand of municipal water and hydropower developments resulted from the dense population; also, these provinces have the potential to integrate land-management activities with biodiversity conservation and tourism from nearby national parks. Suitably, three classes of ‘buyers’ were specified as hydropower facilities, water suppliers, and tourism companies. In September 2010, the study from the success of pilot projects associated with Decision 380 was developed as the national ‘Payments for Forest Ecosystem Services’ Law (Decree 99-CP, 2010).

Evaluation of Slip and Decision 380 Pilots

Legal, institutional, and administrative frameworks SLCP: In SLCP, multiple agencies were involved including the departments from forestry and grain supply, to finance and land management, including the Ministry of Land and Resources, the Ministry of Agriculture, the State Forestry Administration (SFA), and the Ministry of Water Resources. Agencies were engaged in releasing the compensation (cash and grain), management of land contracts with farmers, negotiation of disputes, selecting and measuring the land area for conversion, distribution of saplings or grass species, issuing contracts, and monitoring results of conversion. There are no specific legal guidelines for the establishment of PES like approaches in China. Even though complete ownership rights of natural resources and lands belonging to the state, by SLCP the right to land use and management were provided during the period of SLCP contract. According to this policy of ‘whoever plants maintains and benefits,’ land-users are allowed to manage and benefit from the products and services on their assigned land. Decision 380: It elaborates the term ‘forest ecosystem services’ (FES) for the national legal framework by defining the rationale for payments, also the responsibilities and rights of parties to the contracts.

Further, it defines the calculation method, form, and duration of payments manages and implements payment transactions, the roles of implementing agencies, and the budget in relation to the source of financing. Though the scheme supports payments based on direct negotiations, the language in the document implies mandatory participation for both the buyers and providers for the service. If Decision 380 dictates the specific rate of payments for the stakeholders, it appears the fee and tax approach has been adopted. It appears that the participation is not based on voluntary negotiations. The institutional framework configuration promotes the vertical collaboration between different ministries for the preparation of national PES, but the horizontal collaboration was a limited imposing challenge for effective and efficient PES implementation.

The land use rights in Vietnam are restrictive and comprises of factors like a user group, forest type and classification, forest allocation, and source of investment. The institutional framework helps to maintain and enhance well-being-environment synergies Implementation SLCP: SLCP gained rapid expansion by political support an ambitious target, from an initial pilot phase in 2001 with three upstream provinces to reach across 25 provinces by 2006.

Over the same period, the rate of conversion went six times. The diversified and undocumented local implementation with limited documents about locality’s characteristic opportunities and resources, it was difficult to draw any firm conclusions about SLCP implications. There were observed significant removal of sloping farmland, but the associated impact on watershed protection, as the first objective, was unclear. Furthermore, the emphasis on planting trees was not the only solution to protect sloping soil but rather factors like land use, type of vegetation cover, the size of the basin also affects the basin management. Also, the monoculture approach of afforestation resulted in limited biodiversity. The absence of study of proto-type forest pre-SLCP within targeted areas limits the ability to substantiate claims. The budget deficiency of local agencies resulted in poor monitoring and enforcement of the SLCP and failed to coordinate with farmers and providing technical assistance with the plantation.

Again, irrespective of local conditions, land use practices, or household needs, some farmers were forced for scheme subscription by neighbors and village councils in order to meet conversion targets set by higher central councils. In poorer Ningxia province, 80% of sampled farmers were forced to participate in SLCP. Decision 380: It resulted in a huge amount of payment flows. (VND 62 billion, equiv. to US$2 million) within one to two years. Since the period of commissioning for pilot implementation was very short (2009-2010), with payments delivered and law enactment as primacy, the evaluation assessments becomes difficult. Though for a proper implementation, an organization of sensitivity analysis for rehabilitation of critical ecological habitats, community-level awareness initiatives with capacity building and specialized training was performed. Also, due to the availability of poor information of forest status and imprecise clarification and realization of voluntary transactions, prompt implementation encountered problems. Livelihood impacts and sustainability SLCP: SLCP program is indirectly targeting the poor as traditionally poor households reside on marginalized sloping uplands of China’s main watershed.

The poor farmers are truly enhanced is dependent on the opportunities of alternative livelihoods and time period of contract which constraints economic recovery through payments from ecological degradation. High-level payments recognized as SLCP characteristics. In some province, the households are willing to subscribe to the scheme even in the absence of monetary payments but called for enhanced usage and rental rights over the lands they reforest. In a survey of nearly 10,000 families within 16 selected counties in Yunnan Province, 95% ‘liked’ the SLCP and believed payments should continue with improvements in market access, land tenure, subsidy duration, and greater self-selection of tree species. With the impacts of land retirement and subsidy income on local economic development, the central government urged local governments to initiate strategies encouraging off-farm business enterprise development, alternative agriculture, and broader rural development programs. A study revealed fair adoption of off adoption of off-farm activities by farmers limited by some constraints. The connection between State Grain Bureau grain supply and government investment for funding the SLCP raised ambiguity in determining government priorities and subsequent confidence in the sustainability the SLCP for ecological rehabilitation. Decision 380: Intensive efforts were made by Decision 380 to integrate incentive based forest watershed eco-service schemes with the development of stakeholders. Pilot projects promoted local community participation.

An increase of 400% in average annual payments per household was there as compared to the previous scheme Program 661. Local farmers were able to participate in commercial contracts with new market opportunities with agroforestry system. Certainly over these short period results, doubts cast if these will sustain over long-term implementation to give the same results. The doubts are passed over implications of other national law ‘Decree 99’ with Decision 380 as a baseline, and sustainability of similar national schemes like FES. The framework or Decree 99 seems inefficient to stimulate new livelihood opportunities. Decree 99 stands inefficient for poverty alleviation due to the absence of the Ministry of Labour, Invalids and Social Affairs. Also, the availability of substantial public and private financing is unlikely to be duplicated on similar PES schemes nationwide unlike Decision 380.

Decision 380 conducts highly dictating command-driven approach, making it more difficult for a voluntary participation by local communities in guiding and meeting new social norms for future schemes. Reflections for the global discussion and development of pes If two alternative scenarios for PES as incentive-based negotiations or as government controlled payments are marked as in Fig-1. Under scenario (a), the motivational driver for the transaction would be higher as service providers would be in the best position to negotiate based on demand and supply resulting in lower internal transaction costs (TCs). The costs of having many potential service providers and beneficiaries, developing contracts, as well as the technical support needed for fair and individualized trades would tend to inflate external transaction costs. In scenario (b), well-resourced governments can act to procure the provision of ecosystem services for the sake of public interest through subsidy payments. These programs can be implemented even in the absence of well-defined property rights, as governments can use a combination of regulatory and voluntary maneuvers to encourage transactions. This influence would tend to reduce the external costs of mobilizing actors, negotiating and implementing contracts.

The ambiguity in property rights and the dual role of government as an intermediary and ‘buyer’ encourages principal-agent conflicts and rent-seeking behavior. In this case, the motivational driver for transactions would be lower, and hence internal transaction costs higher. Consequently, overall transaction costs could conceivably be of a comparable size in both scenarios unless government shifts its role to an enabler of negotiations governed at the collective level in reducing both internal and external transaction costs (Xiaoyun et al. 2006).

China and Vietnam, which have both experienced unprecedented economic growth in recent decades, are offering incentives to those who adopt land use practices that benefit society as a whole. But these programs, aimed at protecting forests and promoting watershed conservation. And because they are carried out on state-controlled land, farmers have little choice but to take part and have little or no sense of ownership. In compensation, they are given both cash and grain subsidies and provisions of tree seedlings. While initiated by the central government, it is implemented by cash-strapped local agencies, many of whom are eager to find ways to garner more money after they meet their conversion quotas. At the same time, limited technical support and poor quality seedlings mean that many trees planted on former farmland often do not survive, thereby, undermining whole projects.

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