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Payment for ecosystems services (PES) is a mechanism that attempts to create motivation for the conservation of biodiversity, where insufficient motivation existed before. Laos is a country rich in natural resources, with high dependence on these natural resources (particularly forests and rivers) for national income generation. Consequently, the country would seem to be fertile ground for the application of the PES concept, particularly in the hydropower sector. The largest hydropower project currently in operation in Laos is the Nam Theun 2 dam, which exports most of its electricity to neighboring Thailand. The dam’s watershed is the largest nature reserve in Indochina, Nakai-Nam Theun National Protected Area. Through mechanisms brokered by the World Bank, Nam Theun 2 has several features common to PES schemes. They are focused on using revenues from the dam to conserve the biodiversity and forest cover of Nakai-Nam Theun.

This brief examines the degree of alignment of Nam Theun 2 with PES principles as commonly understood, and examines the potential for successful application of PES schemes generally in Laos. Some generally recognized constraints to implementation of PES schemes in developing countries are compounded in Laos, a Marxist state, which embraces social and economic philosophies contrary to the capitalist PES features of individual ownership of natural resources and transparency. Consequently, motivation within government for advancing PES in policy and law will likely be low, and a constraint to its uptake within the country. The way forward will likely be to focus on small, local projects that align with existing government policy.