Yangtze River: Actions Toward Ecological Compensation

By Dr Zhanfeng Dong 20 September, 2019

Dr Dong from the Chinese Academy for Environmental Planning presents ways to design an Yangtze River specific eco-compensation mechanism

President Xi says restoring & protecting the YREB's ecological environment is a top priority; securing finance is key - getting beneficiaries to pay will be the focus to do so going forward
The ecological compensation mechanism (ECM) needs to distinguish contributors & receivers of compensation, adjust for locational differences & be market-led
China should provide stronger ecological legal protection & establish an ecological compensation fund; the creation of a central big data platform could foster departmental coordination

Ecological compensation of the Yangtze River Economic Belt (YREB) was prominently featured during the National People Congress and the Chinese People’s Political Consultative Conference (March 2019). In particular, the Ministry of Ecology and Environment (MEE), the Ministry of Finance (MoF), Development and Reform Commission and other relevant departments are working together to establish an ecological compensation mechanism (ECM) in Yangtze River, said Ganjie Li, the head of MEE.

Positive results from the RBM5bn investment prompted the Central Government to further develop an ECM in the Yangtze River Basin

The positive results from the RMB5bn investment in 2018 prompted the Central Government to further develop an ECM in the Yangtze River Basin. Leading with the official phrase “promote well-coordinated environmental conservation” (“共抓大保护”), an ECM that covers the entire YREB is formulating and will become a comprehensive management tool for the YREB’s upper and lower reaches. To enhance the mechanism, it is important to focus on improving current weaknesses and strengthening the synergy of coordinated environmental conservation.

Why establish an ecological compensation mechanism in the YREB?

1. The Central Government attaches great importance to it

President Xi suggested in the 19th National Congress of the Communist Party of China that “the development of the YREB has to follow the principle of protecting the ecological environment in a well-coordinated manner and avoid over-exploitation” (“共抓大保护、不搞大开发”). He reiterated at the Symposium of Promoting the Development of YREB in January 2016 that “the restoration and protection of the ecological environment of the Yangtze River should be a top priority on a long-term basis.”

“The restoration and protection of the ecological environment of the Yangtze River should be at top priority on a long-term basis”

President Xi, January 2016

In February 2018, the MoF published Guiding Opinions on Establishing and Perfecting the Long Term Effective Mechanism of Ecological Compensation and Protection in the YREB that emphasised using financial means to establish a sustainable ECM to protect and govern the Yangtze River ecological system. The following measures were suggested:

  • Increase financial support from the Central Government
  • Increase the weight of ecological importance in payment transfer distribution
  • Increase direct compensation to key ecological functional zones in the YREB through payment transfer
  • Implement an ecological protection and restoration incentive scheme
  • Extra support to the YREB’s projects

In January 2019, the MEE and the Development and Reform Commission also co-published the Action Plan for Protecting and Restoring the Yangtze River that proposed improving the investment and compensation mechanism, broadening the investment and financing channels, and perfecting the ecological compensation for the river basin.

2. The YREB needs ecological protection

The Yangtze River Basin is one of the most prominent economic zones in China with highly concentrated population and economy. It flows through nine provinces & two municipalities and accounts for nearly 20% & 35% of China’s area and water flow respectively. Richness in ecological resources and biodiversity has also made it an important ecological protection and construction area.

“Excessive developments have further caused imbalanced lake-to-river relationship in the middle reaches and over-exploitation in lower reaches”

However, rapid economic development has induced contradictions between development and conservation. This conflict of interests can also be found between upstream and downstream parties, leading to severe consequences, such as imbalanced demand & supply of ecological environment, serious vegetation deterioration, and intensified soil erosion, that threaten the ecological security of the river basin.

Excessive developments have further caused imbalanced lake-to-river relationship in the middle reaches and over-exploitation in lower reaches. An ECM is therefore urgently needed.

3. ECM is an important institutional means towards “gold & silver mountains”

An ECM aims to use comprehensive measures (e.g. financial payment transfer) to resolve unequal development rights, imbalanced ecological & economic interests, and unequal distribution of ecological assets between the upper & lower reaches of the river basin.

An ECM compensates stakeholders who protect the environment by requiring beneficiaries to pay

The environment (‘Green water and hills”) is a natural and socio-economic treasure. However, the current conversion process from environment to socio-economic benefits (“Gold and silver mountain”) is not sustainable. An ECM therefore has to compensate stakeholders who protect the environment by requiring beneficiaries to pay. This will create a more sustainable conversion process that aligns interests of the environment and the economy, eventually increasing the quality and services of ecological products.

What are the key issues of an ecological compensation mechanism of the YREB?

1. Distinguishing contributors and receivers of ecological compensation

The main contributors are the Central Government, the local governments in the upstream and downstream areas, and the beneficiaries of ecological resources such as water and mineral extraction companies. For compensations with significant public interests such as upstream water source protection and ecological conservation, the Central Government will determine the division of responsibilities. For compensations with clear ecological environment responsibilities, the local governments will pay for them by coordinating through an upstream/downstream mechanism.

Major receivers will be local governments that meet the environmental standard and provide services that are ecologically beneficial to the YREB, as well as local governments and farmers that incur opportunity costs due to ecological environment protection measures.

2. Setting ecological compensation standards with locational differences

It is inappropriate to adopt a unified compensation standard due to the various levels of economic development between provinces. Instead, a cross-border compensation mechanism with a base standard while flexible enough to adjust for locational differences should be established. Provinces may negotiate among themselves and include the following considerations in the calculation of compensation standard:

  • Direct contribution: efforts made by upstream areas to meet the environmental quality standard
  • Indirect contribution: losses of development opportunities in exchange for attaining the environmental quality standard in upstream areas
  • Extended contribution: extra efforts made by upstream areas to improve the ecological environment, such as constructing new environmental protection facilities, water conservatory facilities, and environmental pollution control projects

3. Methods of Ecological Compensation

The existing ECM in the YREB primarily relies on government-led financial transfer payment. Stronger collaboration between upstream & downstream governments can generate more diversified policy-based and market-based compensations, such as trading of water & discharging rights.Ac

With the improvement of the water-rights system and maturing ability in leveraging market forces to implement public policies, an ECM can gradually transform from government-led to market-led.

What should be done to improve ecological compensation in the YREB?

1. Stronger legal protection

The ecological legal protection should be strengthened by formulating either an YREB environmental protection law or the Yangtze River protection law.

A YREB environmental law or Yangtze River protection law should be formulated

Either of these laws should clarify the environmental protection responsibilities of the central/local governments and various departments. It should also emphasise the importance of implementing ecological protection/compensation and specifying the compensation benchmarks, methods, standards, and the mechanism of a joint prevention and treatment system.

2. Progressive improvement from easy to difficult

Formulation of an ECM should adopt a progressive approach with pilot projects. It should start with an intra-provincial (autonomous cities & regions) scale between the upstream and downstream region, then gradually expanding to a cross-provincial scale. The final ECM should possess a compensation allocation standard that mainly focuses on the water equality of the trans-boundary section of mainstreams and favours the upstream and middle ranges. At the same time, ways of establishing an ECM in important ecological function zones and wetlands should be explored in order to utilize synergistic effects.

3. Expansion of Financing Channels and Compensation Methods

There are 4 areas that can be focused on to enhance the diversity of financing channel and compensation methods:

  • To improve the ecological function of the ecological barrier areas in the middle and upper reaches: increase the amount of direct compensation to these areas
  • To broaden the financing channels: establish an ecological compensation fund that facilitates a sustainable government-led + market-oriented financing and investment mechanism
  • To bring sustainable income for farmers and residents: align the interests of poverty alleviation and ecological compensation
  • To integrate ecological compensation into regional development that yields industrial undertakings and creates superior industries & economic zones: explore the compensation mechanism for using ecological resources and possibilities of ecological industrialization

4. Establish a platform for joint prevention and control

A collaboration platform should be established to protect the water quality by promoting the establishment of an ECM in nine provinces and two cities through strengthening general guidance, providing technical guidance and emphasizing norms and regulations. Specifically, it should achieve the following targets:

  • Build a horizontal ECM for the upper and lower reaches
  • Protect and control the ecological environment through consultation
  • Jointly investigate trans-boundary illegal activities
  • Build a mechanism for cooperation on environmental impact assessment for prominent projects and prevention of environmental pollution

5. Establish a central big data platform

Interaction and information sharing among provinces and departments in the YREB should be realised promptly in order to build a big data platform for ecological compensation. It should then be combined with the integrated information platform for the protection of the YREB.

The integrated platform can be utilized by the central and local governments to jointly formulate ecological environment monitoring programs that use the same monitoring facilities, thereby achieving full coverage of environmental quality and ecological conditions.

“A water quality monitoring system of the Yangtze River Basin should also be established to gradually providing trend, prediction and risk analysis”

A water quality monitoring system of the Yangtze River Basin should also be established to gradually providing trend, prediction and risk analysis. Finally, regular monitoring and assessment of the ecological environment in the Yangtze River Basin should be strengthened, especially in prominent ecological protection areas such as natural reserves, key ecological function areas, and ecological redline zones.

Further Reading

  • Too Big To Fail! Protect At All Costs – Multiple policy innovations have been unleashed to protect the Yangtze River as it is too big to fail – corporates and investors need to get on top of the YREB to avoid regulatory shocks
  • Capital Two Zones: Protecting Beijing’s Upper Watershed – The Capital Two Zones plan is set to protect Zhangjiakou, upstream of water stressed Beijing & host of the 2022 Winter Olympics – how will this impact industry and development? China Water Risk’s Yuanchao Xu explores
  • Blue City Water Quality Index – Building on their successful Blue Map mobile app, IPE takes it up another notch with the new Blue City Water Quality Map. Hear from their Shen Sunan on which cities are leading and which are lagging
  • Thirsty And Underwater: Rising Risks In Greater Bay Area – How will water & climate risks, including rising sea levels & droughts, threaten the already water-stressed Greater Bay Area (GBA)? CWR’s Tan & Mirando explain in their latest CLSA report and highlight companies’ failure in climate risk disclosures
  • No-Sense Climate Strategies: From DSD To HSBC – Hong Kong’s shortsighted & unrealistic climate plans will leave key assets & infrastructure exposed that mean the government, companies, investors and the public are even more exposed. China Water Risk’s Dharisha Mirando & Debra Tan expand
  • Eco-preneurs To Combat Pollution – What are “eco-preneurs”? The Ministry of Ecology & Environment’s Dr Zhanfeng Dong explains & elaborates on their role as a lynchpin in winning China’s war on pollution
  • Yangtze Flows: Pollution & Heavy Metals: Areas along the Yangtze River dominate Chinese production but at what cost? With Grade V water in its tributaries, rapid growth in upstream wastewater plus concerns over a disproportionately large share of the nation’s heavy metals discharge, can the Yangtze River Economic Belt still flourish? CWR’s Hu takes a closer look
  • Water-nomics: Trade-offs Along The Yangtze – With significant economic, water use and pollution disparities along the Yangtze River, China Water Risk & the Foreign Economic Cooperation Office of the Ministry of Environmental Protection, publish a joint brief to explore strategies to find the right development mix. Check out some of the key findings in this review
  • Two Sessions: Reform – Transform – It has been a tough year but President Xi is staying true to his resolution to build a Beautiful China – what transformations can we expect? Find out in our review of this year’s Two Sessions
  • Moutai: Risks Along The Intoxicating River – Moutai’s stocks have soared & with a 90% profit margin it is hard not to have a hopeful outlook but China Water Risk’s Yuanchao Xu warns of river basin risks – best to keep a clear head to ensure future prosperity


Dr Zhanfeng Dong
Author: Dr Zhanfeng Dong
Dr. Dong Zhanfeng is currently working at the Chinese Academy for Environmental Planning (CAEP) directly under the Ministry of Ecology and Environment (MEE), acted as the associate director of the Environmental Policy Institute (EPI). He is mainly engaged in SDGs, ecological and environmental policy. He served as editor-in-chief of Progress in Environmental Economics Research and served as editorial board of some academic journals such as Ecological Economics. He also serves as the senior environmental policy consultant experts for UNEP, UNDP, ADB, GEF and other international agencies. He acted as the core expert of China Council for International Cooperation on Environment and Development (CCICED) in 2016. He has presided over about 60 international cooperation and domestic research projects in recent 10 years. The international cooperation projects were mainly funded by UNEP, ADB, GEF, etc. Domestic scientific research projects were mainly funded by the National People's Congress (NPC), the State Council, MEE, Ministry of Science and Technology(MOST), Ministry of Finance(MOF), the National Natural Science Foundation(NNSF), etc. He has made several recommendations on environmental policy to the National People’s Congress (NPC), State Council, MEE, National Development and Reform Commission (NDRC), MOF, State Administration of Taxation (SAT) in China, and were adopted by the relevant ministries and commissions. He has published more than 150 papers in academic journals, authored 9 monographs and 20 books.
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