In Asia, there is a surge of interest in the development of Payments for Environmental Services (PES) programmes. 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. The study examine the viability of PES schemes targeted at agricultural households of the upper-catchments in Northern Vietnam. The focues is 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. The 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.