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The purpose of this paper is to help with the design and implementation of payment distribution mechanisms under PFES. We aim to assist and inform the development of guidelines by providing a review of lessons learnt on the ground. As the primary objective of this paper is to assist policy makers in developing the payment guidelines, our target audience is all levels of government agencies who are actually involved in designing and implementing PFES payment distribution mechanisms (e.g. the Vietnam Forest Protection and Development Fund (VNFF) and provincial Forest Protection and Development Funds (pFPDFs). However, other actors, including donors, civil society organizations (CSOs) and international organizations, who are supporting the implementation of PFES; and communities and village management boards, who are handling actual PFES payment distribution, might also find this paper useful in shaping their design and implementation of PFES and other market-based instruments. Our paper may also be helpful to organizations interested in applying lessons learnt from PFES payment distribution in future REDD+ projects.

In this paper, we will first introduce the concept, principles and analytical framework that underpin payment distribution scheme development, and provide a useful resource for those seeking an overview. We will then provide more detailed advice for those designing and implementing PFES payment distribution mechanisms on what to consider during each step of the design and implementation process. We will also provide an analysis of existing PFES payment distribution schemes in Vietnam to provide practical lessons learnt from using the 3Es (effectiveness, efficiency and equity) framework and summarize the key points for policy design. We suggest that PFES benefit-sharing mechanisms need to be designed to (i) maximize equity among the actors responsible for reducing deforestation and forest degradation; (ii) improve the effectiveness of forest management; and (iii) increase the efficiency of national and subnational programs (largely by minimizing transaction and implementation costs).