Key messages • There are currently five payment distribution models implemented in Dien Bien and Son La provinces under the national payment for forest environmental services (PFES) program for community forests: (1) equal distribution to all households within a community, (2) payment for forest protection groups, (3) building infrastructure, (4) community investments, and (5) livelihood development options e.g. microcredit schemes. Each of these models has pros and cons for achieving the 3Es outcomes of effectiveness, efficiency and equity. Current payment distribution models focus on the equality aspects and overlook the equity, efficiency and effectiveness of the program. Combining different payment distribution options can enhance the 3Es outcomes. • The main underlying factors that drive villagers’ to decide on a payment distribution model are the local communities’ perceptions on equity, the size of the PFES funds and their trust in local authorities’ accountability and capacity. • There is a risk of PFES contractual obligations being breached given the absence and their associated of regular auditing and monitoring of financial transactions. A better monitoring system and auditing system is required to assess the chain of benefit distribution, from ecosystem service payments provided by the users (hydropower/water companies), the transactions mediated by the intermediaries (FPDF, commune government) and benefits received by the sellers (village committees/households). One option for those communities with access is to promote the use of banking systems to deliver funds from the province to the community. Alternatively, mobile banking systems could be an option in addition the government should aim to improve the capacity of people in the village to manage and record all of their financial transactions. • Local people have a limited understanding of how the PFES funds are distributed; they are unsure of their eligibility, the payment amount, the timing of payments and the conditions attached to the payment. Enhancing information dissemination, availability and transparency about payment conditionality and distribution is recommended to support both effective decision-making on resource use and PFES overall. Anastasia Lucy Yang, Pham Thu Thuy, Dieu Hang, Grace Wong, Le Ngoc Dung, Januarti Sinarra Tjajadi and Lasse Loft Lessons from the perceptions of equity and risks in payments for forest environmental services (PFES) fund distribution A case study of Dien Bien and Son La provinces in Vietnam 1. Introduction Reducing Emissions from Deforestation and forest Degradation (REDD+) is a performance-based mechanism that aims to provide financial compensation for the reduction of carbon emissions through sustainable forest management practices (Wertz- Kanonnikoff and Angelsen 2009; Loft et al. 2014). One of the biggest challenges for countries that wish to implement REDD+ activities is to develop appropriate and institutional structures to distribute both monetary and non-monetary benefits in an effective, efficient and equitable manner (Luttrell et al. 2012, 2013; Pham et al. 2013b; Loft et al. 2014). As REDD+ is still in its early stages, CIFOR has been following the progress of other similar benefit-sharing mechanisms to derive lessons for REDD+. The payments for forest environmental services (PFES) system in Vietnam, implemented nationwide since 2011, provides valuable insights for REDD+. While the Vietnamese Government has approved the national REDD+ action plan, the Ministry of Agriculture and Rural Development (MARD) is still working on how best to link REDD+ implementation to the existing PFES system for payment distribution for the provision of carbon sequestration services (Pham et al. 2013a; 2013b). PFES is a key policy mechanism in Vietnam, similar to REDD+, in terms of its aims of improving management of forests, increasing forest area and quality and the improving the social well-being of local people. Vietnam underwent extensive deforestation in the past with loss of 5 million ha of forest, representing 28% of the total land losses area between 1943 and 1990. 1 Since the 1990s, the Vietnamese Government has attempted to reverse this trend through the implementation of a number of reforestation and forest management programs, of which PFES is the most prominent. Forest cover has since increased to almost 40% of the land area by 2011, mainly reflecting increases in production forest (Pham et al. 2013a). This remarkable achievement has also witnessed a steady decline in the overall forest quality and area of remaining natural forests (Pham et al. 2013a). The main bulk of PFES financing comes from hydropower plants that account for nearly 98% of total funds (Pham et al. 2013a). The payments are aimed at watershed protection through 1 http://www.kiemlam.org.vn/ CIFOR briefs provide concise, accurate, scientific information on current topics in forest research. cifor.org No. 36, July 2015 CIFOR briefs provide concise, accurate, scientific information on current topics in forest research. DOI: 10.17528/cifor/005675