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An Exploration of China's “Eco-Compensation” and Other Market-Based Environmental Policies

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MARKETS FOR ECOSYSTEM SERVICES IN CHINA: AN EXPLORATION OF CHINA’S “ECO-COMPENSATION” AND OTHER MARKET-BASED ENVIRONMENTAL POLICIES A Report from Phase I Work on an Inventory of Initiatives for Payments and Markets for Ecosystem Services in China Michael T. Bennett, Forest Trends June 2009 Markets for Ecosystem Services in China: An Exploration of China’s “Eco-compensation” and Other Market-Based Environmental Policies. ©2009 Forest Trends. ISBN 1-932928-39-1 COORDINATING INSTITUTIONS Forest Trends (http://www.forest-trends.org): Forest Trends is a non-profit organization that advances sustainable forestry and forestry’s contribution to community livelihoods worldwide. It aims to expand the focus of forestry beyond timber, and promotes markets for ecosystem services provided by forests such as watershed protection, biodiversity and carbon storage. Forest Trends analyzes strategic market and policy issues, catalyzes connections between forward-looking producers, communities, and investors, and develops new financial tools to help markets work for conservation and people. It was created in 1999 by an international group of leaders from forest industry, environmental NGOs and investment institutions. The Katoomba Group (http://www.katoombagroup.org): The Katoomba Group seeks to address key challenges for developing markets for ecosystem services, from enabling legislation to establishment of new market institutions, to strategies of pricing and marketing, and performance monitoring. It seeks to achieve this goal through strategic partnerships for analysis, information sharing, investment, market services and policy advocacy. The Katoomba Group includes over 180 experts and practioners from around the world representing a unique range of experience in business finance, policy, research and advocacy. Peking University College of Environmental Sciences and Engineering (http://cese.pku.edu.cn/index.asp): The College of Environmental Sciences and Engineering consists of three departments — Environmental Sciences, Environmental Management and Environmental Engineering — with 63 faculty members and staff. Major research fields include air chemistry, atmospheric environmental and pollution control, water and sediment, environmental management and sustainable development, environment and health, environmental biological technologies, waste water treatment, and solid waste treatment. From 2001 to 2005, college faculty published more than 600 journal papers, and the College has been successfully competing for research funding, obtaining grants from China’s National “973 program”, National “863 program” and the National Natural Science Foundation, raising more than RMB 70 million (~US$10.3 million) in research grants over this period. Policy Research Center for Environment and Economy, Ministry of Environmental Protection, China (http://www.prcee.org/eng_index.htm): The Policy Research Center for Environment and Economy was founded in 1989, and is a national-level policy research institute for macro decision-making on environmental protection. Its main role is to, on the basis of the needs and strategic planning of China’s Ministry of Environmental Protection, conduct research on environmental management and policy research to provide policy consultation and information services for national decision-making on environmental protection. Natural Capital Project (http://www.naturalcapitalproject.org): Founded in 2006, the Natural Capital Project is a partnership among Stanford University, The Nature Conservancy, and World Wildlife Fund to align economic forces with conservation. The Natural Capital Project aims to: (1) develop tools for mapping and valuing natural capital and integrating outputs into policy and finance mechanisms; (2) to apply these tools in places worldwide where there are key opportunities to achieve policy change; and (3) to magnify what is learned to transform how businesses, government, and local people interact with nature. In China, the Project is currently using the InVEST (Integrated Valuation of Ecosystem Services and Tradeoffs) mapping tool with local Chinese partners to inform landuse and development planning at key pilot projects along the Yangtze River Basin. The Environment for Development Initiative (http://www.efdinitiative.org/): The overall objective of the EfD initiative is to support poverty alleviation and sustainable development through the increased use of environmental economics in the policy-making process. The EfD initiative is a capacity building program in environmental economics, focusing on research, policy advice, and teaching in Central America, China, Ethiopia, Kenya, South Africa, and Tanzania. EfD's center in China, the Environmental Economics Program in China (EEPC), is headed by Dr. Jintao Xu and has three main tasks: building capacity of rigorous economic analysis into environmental policy in China, policy outreach, and graduate education that emphasizes systematic training in modern environmental economics. i ACKNOWLEDGEMENTS First and foremost, I wish to thank my colleagues at Forest Trends: Kerstin Canby for her excellent guidance, management and editing of the report, Kate Hamilton and Allison Shapiro who helped to flesh out and significantly improve the section on carbon markets in China, and Jordan Sauer for his assistance in developing the graphics for the report and hard work in overseeing the final stages of the editing, formatting and printing. The Policy Research Center for Environment and Economy, Ministry of Environmental Protection, has also been a key partner, contributing valuable insights, feedback and help in obtaining information. I especially wish to acknowledge the support and assistance of former PRCEE Vice Director Ren Yong, Ms. Feng Dongfang and Ms. Gao Tong. This work has also greatly benefited from the hard work of Peking University graduate students Yang Xiaojun and Deng Yiting, who helped compile the list of documentation and news sources. Christine Tam at the Natural Capital Project provided valuable support and input during the development stages. I also wish to thank Stefano Pagiola at the World Bank, James Boyd at Resources for the Future, Nico Heerink at the Development Economics Group, Wageningen University, and Seth Cook of Tsinghua University for their valuable comments and critique of the report, which have helped to significantly improve it. Finally, but most importantly, I wish to thank Dr. Xu Jintao at Peking University for his invaluable support, advice and encouragement. A special acknowledgement to Mobilizing Resource Stewardship: Communities, Conservation and Markets, a project of the World Bank’s Development Grant Facility (DGF). SPONSORING INSTITUTION ii ABBREVIATIONS & ACRONYMS 4W “Four Wastelands” policy CCFG Conversion of Cropland to Forests and Grassland Program (tuigeng huanlin huancao gongcheng) CCICED China Council for International Cooperation on Environment and Development CDE Carbon Dioxide Equivalent CDM Clean Development Mechanism of the Kyoto Protocol CER Certified Emissions Reductions of the CDM, Kyoto Protocol CI Conservation International COD Chemical Oxygen Demand COFCC China Organic Food Certification Center CNAB China National Accreditation Board CNCA Certification and Accreditation Administration of China CNOPS China National Organic Products Standard CSR Corporate Social Responsibility DNA Designated National Authority FECF Forest Ecosystem Compensation Fund (senlin shengtai xiaoyi buchang jizhi) FEEM Fondazione Eni Enrico Mattei GDP Gross Domestic Product GRP Gross Regional Product ha Hectare IFOAM International Federation of Organic Agricultural Movements ISO International Organization for Standardization IPCC Intergovernmental Panel on Climate Change JAS Japanese Agricultural Standard m3 Cubic Meters MEP China Ministry of Environmental Protection (previously the State Environmental Protection Agency before being upgraded in 2007 MES Markets for Ecosystem/Environmental Services MoA China Ministry of Agriculture MoF China Ministry of Finance MtCO2e Metric Tons of Carbon Dioxide equivalent mu A Chinese unit of area. 1 mu = 1/15 ha MWR China Ministry of Water Resources NEPA National Environmental Protection Agency of China (the original name of the Ministry of Environmental Protection) NFPP National Forest Protection Program NGO Non-Governmental Organization NOP US Department of Agriculture’s National Organic PrograM PES Payments for Ecosystem/Environmental Services PRC People’s Republic of China RMB Renminbi, China’s Unit of Currency SEPA China State Environmental Protection Agency (now the Ministry of Environmental Protection) SFA China State Forestry Administration SO2 Sulfur Dioxide US EPA United States Environmental Protection Agency VER Voluntary Emission Reduction credits iii TABLE OF CONTENTS PREFACE............................................................................................................................................. 5 EXECUTIVE SUMMARY...................................................................................................................... 6 Table 1 — Programs Involving Payments and Markets for Ecosystem Services in China................................................ 6 CHAPTER I: PES/MES AND ECO-COMPENSATION POLICY IN CHINA.......................................... 13 CHAPTER II: WATERSHED-RELATED PROGRAMS ......................................................................... 17 II.1 WATERSHED ECO-COMPENSATION................................................................................................................
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