Financing the foe
View(s):This means using money and incentives—like payments or contracts—to encourage people to protect and promote nature. As a result, the people, communities and businesses that depend on ecosystem services of the nature will have a better input flow for their benefit.
We must protect nature and wildlife.
Instead of relying only on laws or regulations, the PES approach treats clean water, fresh air, forests, and wildlife as valuable services that benefit everyone. Those who use or profit from these services like companies or cities pays those who take care of them like farmers or forest communities.
Accordingly, PES creates a system where protecting and promoting nature becomes a fair and rewarding activity towards a greener future of the country.
There are a number of countries in Asia, which have already implemented PES such as Vietnam, Indonesia, China, India and the Philippines. As of now, some other Asian countries are also implementing pilot projects and preparing to implement PES – these countries include Thailand, Laos, Nepal, Cambodia, Malaysia, Myanmar, Bhutan, Mongolia, South Korea and Singapore.
Case of Vietnam
In the misty highlands of Vietnam, it was a quiet revolution turning highland forests into financial assets, uplifting rural communities, and protecting vital water sources – PES. It has been changing the way that governments, businesses, and villagers think about nature.
Nature has a value that has been undervalued since the time when the modern industrial age had begun. The world has been making use of its nature services – the so-called ecosystem services – taking its value as granted and without investing in conserving and promoting it or making a sustainable use of it.
Vietnam launched its national PES programme in 2008, starting with pilot projects in Lam Dong and Son La provinces. By 2010, it had scaled up nationwide through Decree 99, making PES a legal requirement. Under this Decree 99, forest ecosystem services as well as the roles and responsibilities of the stakeholders were defined. The definition of the forest ecosystem services included such things as water regulation, soil conservation, biodiversity, coastal protection, carbon sequestration and tourism. The roles and responsibilities included management and use of payments.
Today, over 5,000 square km of forest area are under PES contracts. Vietnam’s forests are owned and managed by a mix of entities such as government agencies, local governments, communities, community-based organisations as well as the military units. Government agencies manage national parks, protected areas and state forest enterprises, while local governments must oversee forest protection.
Maintainance of forests, in particular, are with the ethnic minority communities, while community-based organisations such as farmer associations, women’s unions and youth groups are involved in keeping the forests safe in some areas.
Forests ecosystem services
Forests provide a wide array of ecosystem benefits critical for keeping environmental sustainability, human well-being and economic progress in a sustainable manner. They provide natural regulating services protecting watersheds, reducing soil erosion, maintaining streamflows, and preventing sedimentation in water reserviours. Forests are important in regulating carbon emmission and improving air quality. Forest cover also helps buffer against floods, landslides and droughts.
Forests are crucial in maintaining biodiversity and species habitats. Vietnam’s forests are part of a global biodiversity hotspot, hosting over 10,000 plant species and hundreds of endemic and endangered animal species. Forests provide critical habitat for wildlife and maintain ecological balance.
Forests are important sources of cultural values and supporting services, while the many ethinic groups traditionally living in such areas have deep cultural ties to forest landscapes. Soil formation and nutrient cycling is essential for agriculture and sustaining long-term land productivity. These forests also attract nature-based tourism, generating income and awareness.
Sellers and buyers
Now it is the responsibility of the communities to maintain the flow of ecosystem services of the forests by protecting and promoting them for which the communities receive a payment in cash or in-kind. More than 400,000 households—many from ethnic minority groups—receive payments for protecting forests under the PES mechanism in Vietnam. They are the sellers (or suppliers) of ecosystem services from the forests in the upstream areas.
But who are buyers? While protecting and promoting forest areas are crucial for national interests (for which the taxpayers must pay), there are direct beneficiaries of forest ecosystem services – hydropower plants, water supply companies, and tourism operators in the downstream areas. Payments for ecosystem services are collected from these downstream direct beneficiaries.
It is practically more complex than assumed to be conceptually, because there should be a market mechanism under which sellers and buyers exchange the ecosystem services. This means there is essentially a role for an intermediary institutional arrangement, which do not exist under normal market systems.
Ecosystem inputs
In Vietnam, the payments for ecosystem services are effectively embedded into the prices of the goods or services that are directly dependent on such ecosystem services – electricity tariffs, water tariffs and tourism charges. It is fair enough, because ecosystem services are vital inputs to produce these supplies. If the world is paying for labour, capital and technology, why not do the same justice for ecosystem services?
The payments are funneled through a Central and Provincial Forest Protection and Development Funds (FPDFs), which act as financial intermediaries. Over 98 per cent of PES revenue comes from public payments via electricity and water bills, with hydropower and water companies acting as intermediaries.
Then, the payments are disbursed to forest communities based on contracts and verified service delivery. Households and communities receive direct cash transfers or in-kind support. Payments are calculated per hectare or per service unit (e.g., water flow regulation). This programme focuses on four key ecosystem services: watershed protection, carbon sequestration, landscape beauty and biodiversity conservation.
Success story
Vietnam’s PES mechanism is considered to be a success story which has depicted its long-term sustainability. Apart from better management of biodiversity and ecosystem services, it has derived positive impact on forest communities as well.
In the Central Highlands, villagers who once relied on slash-and-burn agriculture, encroaching forests and illegal logging activities, now earn steady income from forest protection and promotion. Women’s groups have formed to manage payments and monitor forest health. Youth are trained as forest rangers. The programme has also improved forest cover, and strengthened local governance. Importantly, it respects customary land rights and involves communities in decision-making.
Vietnam’s success lies not just in payments, but in the institutions behind them. Each province has a Forest Protection and Development Fund (FPDF), which acts as a financial intermediary. These funds collect payments from buyers and disburse them to forest stewards. The system is transparent, with contracts, audits, and GPS-based monitoring. It blends state oversight with market incentives—a model that balances accountability and flexibility.
Lessons for Sri Lanka
Sri Lanka has rich forest ecosystems—from the Knuckles Range to Sinharaja—and vital watersheds that feed our rivers and reservoirs. Yet deforestation, encroachment, and climate stress threaten these lifelines. Already, the communities are faced with ever-escalating wildlife conflict including human-elephant and human-leopard conflicts.
In addition, Sri Lanka also has a coastal belt that provides a rich array of ecosystem services that are vital for environmental health, economic development, and community well-being. Could PES help us turn the tide?
As Sri Lanka explores nature-based solutions, PES deserves serious attention. It aligns with global trends—from the Kunming-Montreal biodiversity framework to climate finance goals. Vietnam’s story shows that PES is not just theory—it’s practice.
It’s not just economics—it’s empowerment. And it’s not just conservation—it’s transformation. If the country’s forests, upstream watersheds, coastal belt and marine zone can pay back, it’s time we start investing in them.
(The writer is Emeritus Professor at the University of Colombo and Executive Director of the Centre for Poverty Analysis (CEPA) and can be reached at sirimal@econ.cmb.ac.lk and follow on Twitter @SirimalAshoka).
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