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Abstract:In Asia, there is a surge of interest in the development of Payments for Environmental Services (PES) programs. They represent a new approach that focuses directly on creating a conditional benefit transfer between providers and beneficiaries of environmental services. More specifically, in Vietnam, a Fund for the Protection and Development of Forestry has been recently established that puts in place the mechanisms for the payment of fees by downstream users of watershed services to finance forestry projects in the upper-catchments. This paper reviews the potential response of upland farming households to a PES scheme that rewards them to set aside part of land for the production of environmental services. We examine the viability of PES schemes targeted at Payments for environmental services in upper-catchments of Vietnam 65 agricultural households of the upper-catchments in Northern Vietnam. We focus our attention on households identified as the poorest in the upper-catchment areas, i.e. those with a small endowment of productive land, limited access to water for irrigation, and low access to markets. We find that farmers are unlikely to participate in a voluntary land retirement program unless they are 'compensated' for the loss in food production and a 'forced' set aside program is likely to generate an overall negative impact on both poverty and environmental protection. Development and dissemination of improved technologies that increase food yields is a complementary strategy to promote environmental protection.Keywords: Environmental services, land set-aside, modelling, poverty, shifting cultivation, Vietnam Acknowledgement: This paper presents findings from PN11 "Rice Landscape Management for Raising Water Productivity, Conserving Resources, and Improving Livelihoods in Upper Catchments of the Mekong and Red River Basins", a project of the CGIAR Challenge Program on Water and Food. Additional funds from the Theme 2 PES initiative were also used to obtain the specific results on PES impact.