Who Benefits from Payments for Ecosystem Services? Policy Lessons from a Forest Carbon Sink Program in China

Drawing on a pooled cross-sectional dataset of 5,225 households in the Province of Sichuan, this paper analyzes the income and distributional effects among poor households in rural China participating in a forest carbon sink (FCS) program. To be able to make causal inferences, we employ an Instrumental Variable (IV) approach to control for potential endogeneity and self-selection. Our results indicate a strong need to adjust the PES program: While moderately poor rural households benefit from program participation, extremely poor rural households, in fact, suffer net-losses. The main reason is that income reduction resulting from limited access to forest resources is compensated mainly via wage income from participating in forest tending work. Extremely poor households with low labor ability cannot make use of these job opportunities and thus they’ll not only fail to benefit but even occur losses from a PES program