Ecosystem Services and Environmental Governance: Comparing China and the U.S

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Asia & the Paciﬁc Policy Studies, vol. ••, no. ••, pp. ••–•• doi: 10.1002/app5.16 Original Article

Ecosystem Services and Environmental Governance: Comparing China and the U.S.

Robert Costanza and Shuang Liu*

Abstract adjustments that are both politically feasible and likely to make a difference in these terms? The concept of ecosystem services (the benefits We conclude that while China and the United people derive from functioning ecosystems) is States represent two almost polar opposite beginning to change the way we view the rela- starting points, especially as concerns property tionship between humans and the rest of nature. rights, there is significant convergence, and the To the extent that we view humanity as embed- concept of ecosystem services can help accel- ded in and interdependent with the rest of erate this positive trend. nature, rather than viewing nature as separate Key words: ecosystem services, governance, from people or even as an adversary, our China whole approach to environmental research, governance and management changes. These ongoing changes are discussed with reference 1. Background to the evolving situations in China and the United States. The most significant effects on Ecosystem services are defined as ‘the benefits governance are the needs to shift to a more people obtain from ecosystems’ (Costanza & transparent and participatory approach and Folke 1997; Costanza et al. 1997; Millennium a broader recognition of the public goods/ Ecosystem Assessment 2005). These include common property characteristics of ecosystems provisioning services such as food, water and and their services. The main questions are: medicinal plants; regulating services such (i) to what extent do prevailing governance as air quality regulation, water purification, arrangements in China and the United States regulation of flood, drought and disease; sup- facilitate and/or hinder efforts to effectively porting services such as soil formation and manage ecosystem services?; and (ii) are there nutrient cycling; and cultural services such as recreational, scientific and spiritual benefits (Costanza & Folke 1997; Costanza et al. 1997; * Costanza: Crawford School of Public Policy, Daily 1997; de Groot et al. 2002). Australian National University, Canberra, Austra- Ecosystem services are becoming increas- lian Capital Territory 0200, Australia; Liu: Crawford ingly threatened globally (Millennium Eco- School of Public Policy, Australian National system Assessment 2005). This trend is University, Canberra, Australian Capital Territory partially due to a lack of appreciation of 0200, Australia and CSIRO Ecosystem Sciences, Canberra, Australian Capital Territory 0200, their value, because resources that are not Australia. Corresponding author: Costanza, email valued are often ignored in decision-making Ͻ[email protected]Ͼ. We thank the (Costanza & Folke 1997; Costanza et al. 1997; Crawford School of Public Policy and CSIRO for Sukhdev 2008). Referring to environmental support during the preparation of this manuscript. assets as ‘priceless’ and ‘invaluable’ has

© 2014 The Authors. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University. This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes. 2 Asia & the Pacific Policy Studies •• 2014 proven woefully insufficient in terms of reduc- instance, are predicted to increase in China due ing or halting ecosystem degradation. The to their rapidly growing international trade challenge then is to acknowledge the multiple (Weber & Li 2008). On the other hand, China contributions of ecosystem services to human has been recognised as a potential source for well-being while managing them as public new invasive species in the United States goods (Costanza 2008; Ehrlich & Pringle (United States National Research Council 2008). 2002), and the three best-known pests of North Ecosystem services valuation (ESV) is American tree populations all originated in the process of assessing the contributions of China or somewhere nearby in East Asia (Xie ecosystem services to sustainable human well- et al. 2001). The control of invasive species is being, including sustainable scale, fair distribu- an international, sometimes global enterprise tion and efficient allocation (Costanza & Folke that always involves the collaboration of mul- 1997; Liu et al. 2010). Valuation of ecosystem tiple countries (Perrings et al. 2002). Second, services has become one of the fastest growing political and cultural differences between areas of environmental research (Turner et al. China and other countries pose new challenges 2003; Costanza & Kubiszewski 2012). More to and opportunities for ESV research. For recently, efforts such as the Millennium instance, concentration of political power Ecosystem Assessment (2003, 2005) and The enables China to secure the resources to Economics of Ecosystems and Biodiversity conduct some extremely ambitious projects. (Sukhdev 2008), increasingly recognise the China has or is currently carrying out the three critical role of ecosystem service valuation for largest development projects in the world: The sustainable development. Three Gorges Dam, the South-to-North Water Diversion Project and the development of 2. Ecosystem Services Research in China Western China. All of these are expected to cause huge environmental problems (Liu & In China, ESV has also become one of the Diamond 2005). At the same time, China most significant and fastest growing areas of has the two largest payment for ecosystem ser- research in recent decades (Zhang et al. 2010; vices projects in the world in terms of scale, Chen et al. 2014). However, most research payment and duration (Liu et al. 2008): the results are inaccessible to the global research National Forest Conservation Program and the community because they are not reported in Grain to Green Program. These long-term and English. The limited number of works pub- large-scale projects offer ESV scholars unique lished in English (e.g. Guo et al. 2000; Xu opportunities to assess the value of ecosystem et al. 2003; Xiao et al. 2005; Jim & Chen services (e.g. Chen et al. 2009) and a height- 2006;Wang et al. 2009; Chen et al. 2014) are ened necessity to do so. valuable, but they do not tell the whole story of Zhang et al. (2010) review the history of ESV research in China. ESV research in China ESV research in China and point out the could benefit from increased collaboration. effects of ESV studies in creating public envi- Such collaboration is mutually beneficial for ronmental awareness and in providing a scien- several reasons. First, some of China’s envi- tific basis for eco-compensation mechanisms ronmental problems are of global significance (i.e. payments for ecosystem services). This and require solutions beyond the country’s brings us to one of the major differences in the borders. With the world’s fourth largest terri- governance regimes in China and the United tory, the largest population and the fastest States—property rights regimes. Most coun- growing economy, China generates significant tries are a mix of private and state ownership, global environmental impacts (MacBean but the United States and China represent the 2007). Likewise, the rest of the world affect current extremes. The United States is domi- China’s environment through trade, invest- nated by private property regimes and laws ment and resource exploitation (Liu & (even though there are significant areas of Diamond 2005). Invasive plant species, for public lands, especially in the west), while

Table 1 Eco-services Classiﬁed According to Rivalness and Excludability (Costanza 2008)

Excludable Non-excludable Rival Market goods and services (some provisioning Common pool resources (some provisioning services) services) Non-rival Congestable services (some provisioning services) Public goods and services (most regulatory and cultural services)

China is dominated by state ownership (even Private property and conventional markets thought private property is now significant). work reasonably well for the allocation of Next, we focus on the implications of this goods and services that are both rival and for ecosystem services and environmental excludable (the upper left box in Table 1). But governance. they do not work well for allocating goods and services that fall in the other three categories. 3. Property Rights, Ecosystem Services Most ecosystem services fall into these other and Environmental Governance categories and are therefore usually not privatised or marketed. One way to classify ecosystem services is In the United States, private property has according to their ‘excludability and rivalness’ been the rule, and the recent tendency has been status. Table 1 arrays these two characteristics to attempt to use market mechanisms to pay against each other in a matrix which leads to private landowners for ecosystem services pro- four categories of goods and services. Goods duction (Farley & Costanza 2010). In China, and services are ‘excludable’ to the degree that common property has been the rule since individuals can be excluded from benefiting 1949, and the recent tendency has been to from them. Mostly privately owned, marketed allow more private ownership and control over goods and services are relatively easily exclud- land use and to financially compensate indi- able. I can prevent others from eating the viduals for lost opportunities (Zhang et al. tomatoes I have grown, or the timber I have 2010, similar to the idea of payment for eco- harvested or the fish I have caught unless they system services used in many other countries pay me. But it is difficult or impossible to (Farley & Costanza 2010). exclude others from benefiting from many Ruhl et al. (2007) document the ‘anti- public goods, like a well-regulated climate, ecosystem services bias’ prevalent in Ameri- fish in the open ocean or the aesthetic benefits can property law, regulation and social norms, of a forest. Goods and services are ‘rival’ to the and detail statutes and regulations for resource degree that one person’s benefiting from them protection of individual US states. One par- interferes with or is rival with other’s benefit- ticularly interesting counter-trend to this bias ing from them. If I eat the tomato or the fish, emerges in the ‘public trust doctrine’, an idea you cannot also eat it. But if I benefit from a that law professor Joseph Sax identified in well-regulated climate, you can also do the the 1970s as the only legal doctrine with the same. Excludability is largely a function of breadth and substance to be useful as a com- supply (to what extent can producers exclude prehensive approach to natural resource (and users) and is related to the cultural and ecosystem service) management. While the institutional mechanisms available to enforce public trust doctrine may one day fulfil this exclusion, while rivalness is a function of role, so far the US Supreme Court has declined demand (how do benefits depend on other to use it for that purpose. Recent proposals to users) and is more a characteristic of the good expand the ‘commons sector’ of the United or service itself. Table 1 places ecosystem ser- States and the global economy by creating vices into the four categories that this two-by- ‘common asset trusts’ to manage the atmo- two matrix creates. sphere, water and other natural capital assets

© 2014 The Authors. Asia and the Paciﬁc Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University 4 Asia & the Paciﬁc Policy Studies •• 2014

(structured like the Alaska Permanent Fund or accrue to society as a whole, and the two are the many existing land trusts) may be one way likely to be brought into balance. Taxes on of implementing this doctrine (Barnes 2006; waste emissions and resource extraction can Barnes et al. 2008). For example, a bill was serve the same purpose as a cap and auction introduced in the Vermont Senate in 2007 and system. reintroduced in 2011 to create a ‘Vermont When a resource is non-rival, excludable Common Asset Trust’, based on the public property rights are inappropriate, but lack of trust doctrine, to ‘propertise’ (but not privatise) property rights eliminates private sector incen- the state’s natural and social capital assets in tives to provide or protect the resource. The order to better manage them on behalf of their solution is common investment and common common stakeholders (both living and future). use. The commons sector must invest in the The basic idea behind common property provision of non-rival ecosystem services and rights is that resources created by nature or in green technologies that help provide and society as a whole should belong to society protect such services. Everyone would be free as a whole, including future generations. to use the non-rival ecosystem services but The misleadingly labelled ‘tragedy of the not to degrade the ecosystem structure that commons’ results from no ownership or open sustains them. Resources for investing in non- access to resources, not common ownership. rival resources can be obtained from auction- Open access to natural capital is well known ing off access to rival resources. For example, to lead to its overuse. However, abundant society could auction off the right to green- research shows that resources owned in house gas absorption capacity and then invest common can be effectively managed through the revenue in carbon-free energy technolo- collective institutions that assure cooperative gies. When a resource is privately owned but compliance with established rules (Ostrom generates economic rent, or is used in a 1990). When a resource is rival but non- manner that socialises costs and privatises ben- excludable, it can be ‘propertised’ (which is to efits, taxation can achieve the same goals as say, made excludable) to prevent overuse. common ownership. For example, when oil or Governments—or in the case of global land prices increase due to growing demand, resources such as atmospheric waste absorp- private owners receive windfall profits that can tion capacity or oceanic fisheries, a coalition of be taxed away. Such taxes deter speculation, global governments—are generally required to bubbles and busts and the economic instability create and enforce property rights. The public they cause. Taxes can also be imposed on land sector must cap resource use at rates less than conversion or resource extraction that imposes or equal to renewal rates, which is compatible costs on others, for example by degrading eco- with inalienable property rights for future gen- system services. In both cases, such taxes can erations. Since the resources under discussion replace taxes on productive activities, such as were created by nature and enforcement of labour. The principles behind this are ‘tax what property rights requires the cooperative efforts you take, not what you make’ and ‘tax bads, of society as a whole, rights to the resource not goods’. should also belong to society as a whole. Indi- In principle, the public sector should be viduals who wish to use the resource for protecting common resources while at the private gain must compensate society for the same time allowing the functioning of private right to do so. The basic idea is a cap and markets where they make sense—for rival and auction scheme in which the revenue is shared excludable goods and services. However, in equally among all members of society, or else many western countries the private sector has, invested for the common good (Barnes et al. in the view of many observers, too much influ- 2008). Preventing the resale of the temporary ence on the political process. When govern- use–rights would reduce the potential for ments have propertised unowned resources, speculation and private capture of rent. Under they have often turned those resources over to common ownership, both costs and benefits the private sector free of charge. Not only do

© 2014 The Authors. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University Costanza and Liu: Ecosystem Services and Environmental Governance 5 governments frequently fail to capture rent, defined as the spatial, temporal or institutional they actively turn it over to the private sector. dimensions used to measure and study any Society should therefore create a commons phenomenon (Gibson et al. 2000). The mis- sector that has an explicit, legally binding match between scales is a problem of lack of mandate to manage the wealth of nature and fit where human institutions do not map coher- the cooperatively created wealth of society for ently on to the biogeophysical scale of the the common good. We need an expanded environment. The problem of scale mismatch commons sector to enhance sustainability and is pervasive, and examples include migratory a just distribution of resources. Once these two marine fisheries (Berkes 2006) and ‘social goals have been achieved, the market will be traps’ in which the short-run, local reinforce- far more effective in its role of allocating ments, guiding individual behaviour are incon- scarce resources towards the products of sistent with the long-run, global best interest of highest value, then allocating those products the individual and society (Costanza 1987). towards the individuals that value them the Mismatches between the scales of social most. institutions and ecological systems can con- In China, the problem is the reverse. There tribute to the mismanagement of ecosystems is a well-established and formerly all- and a lack of an appropriate monitoring frame- encompassing commons sector, but one that works and enforcement frameworks. Climate attempted to also manage the production of change and oceanic fisheries are perhaps the private goods and services. The challenge is best known examples. As a result, inefficien- allowing the appropriate amount of private cies occur, important components of the ownership and control over rival and exclud- systems are lost and/or functions of the social- able goods and services while maintaining ecological system are disrupted (Cumming transparent public sector management of eco- et al. 2006). The loss of ecosystem services is system services and other common assets. This an example of such a disruption. process was begun in 1978 with the opening of Ecosystem services have different spatial China to international trade and the develop- scales, and one way of classifying them is by ment of a market economy and is continuing their spatial characteristics (Costanza 2008). today. For example, services like carbon sequestration are at a global scale, and habitat or refugia 3.1 Prevailing Governance Arrangements services are normally provided at a local scale. Urban green spaces provide both these ser- Institutions such as property rights are mecha- vices, and they are also characterised by nisms people create to control their use of the large spatial heterogeneity and rapid changes environment and their behaviour towards each (Pickett et al. 2001). Traditional institutions fail other (Bromley 1991). They link society to to match these scales and, consequently, the nature, and have the potential to coordinate capacity of urban social-ecological systems to sustainable development of human and natural cope with future global changes is degrading systems as a whole. They also have the poten- (Borgstrom et al. 2006). tial to inhibit the co-evolution of the joint Conventional institutions in China and system and create gridlock and confusion in the United States represent two different in environmental management (Folke et al. approaches to governance and scaling: mono- 2007). centric vs multi-level (Termeer et al. 2010). In the context of natural resource manage- The former refers to an institutional setting in ment and conservation, several problems are which the state is the centre of political power also due to ‘lack of fit’ or ‘scale mismatches’ and authority that exerts control over other between ecosystems and conventional institu- sectors. It does so by setting the agenda and tions that manage them (Lee 1993; Costanza policy goals and by top-down implementation et al. 1998; Folke et al. 1998; Cumming et al. of its policies (Kooiman 2003). In the latter, 2006; Guerrero et al. 2013). Here, ‘scale’ is governance is characterised by continuous

© 2014 The Authors. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University 6 Asia & the Pacific Policy Studies •• 2014 interactions among governments and private sustainable manner. Environmental gover- entities, operating at, and between multiple nance in China, for example, is at an early administrative levels (Termeer et al. 2010). stage of transformation from the traditional The monocentric approach of environmen- command and control model to a model that tal governance in China is reflected in the emphasises the advantages of economic incen- design and implementation of the largest tives and encourages the participation of the payment for ecosystem services (or ‘ecocom- public (Liu et al. 2010). pensation’ as the Chinese call it) program in Proponents of monocentric governance the world. The central government plays a key prefer to find solutions in a further clarification role in establishing institutional and policy of responsibilities or in a structural change schemes, and provides support for large-scale such as amalgamation (Termeer et al. 2010). In programs such as the National Forest Conser- China, lower level environmental protection vation Program and the Grain to Green bureaus (EPBs) formally report to higher Program (Zhen & Zhang 2011). On the other level EPBs, yet the funding and supervisory hand, it would probably be more productive to functions are provided by the provincial or conduct system planning at multiple govern- lower level administration. This problem in ment levels. This requires overall strategic organisation has been exacerbated by the planning at the central government level and higher priority given to economic growth over detailed planning at the local government level environmental protection. At the same time, with a better integration of the two (Liu et al. more than 2,500 different environmental units 2008). at the county, municipal, provincial and state Sub-national climate change policies dem- level struggle to address problems that are onstrate the multi-level governance approach often trans-boundary in nature. To cope with in the United States. Although there is no US this problem, an intergovernmental report rec- federal participation in the Kyoto Treaty, the ommended creating a direct line of authority implementation of climate change policies at between provincial and local environmental state, regional and municipal levels of govern- EPBs and consolidating the local EPBs at the ment has been shown to be widespread, cov- metropolitan level for all major urban centres ering more than half the country by gross (Task Force on Environmental Governance domestic product (GDP) (Fisher & Costanza 2006). 2005; Koehn 2010). On the other hand, fine- Key concerns for the multi-level approach scale decisions hardly add up to the kind of are a lack of coordination and the potentially cohesive action that is required for broad-scale high costs associated with coordinating mul- ecological management. Key decisions may be tiple actors at different levels (Hooghe & made by individuals acting in their own inter- Marks 2003). For example, a recent assess- ests rather than in a coordinated manner ment of global water markets found that there (Cumming et al. 2006). has been a limited interaction among inter- state water basin agreements, and that in the 4. Needed Adjustments western United States, trades primarily occur within river basins or sub-basins (Grafton et al. Regardless of the dominant model of environ- 2011). Ruhl et al. (2007) suggest that a cure for mental governance one starts from, in an the coordination problem is the development increasingly diverse, interdependent and multi- of institutions for coordination of ecosystem scale world, governance must adapt. The resources management and for regulation of dichotomy of monocentric or multi-level gov- natural capital and the provision of eco- ernance is clearly inadequate in providing system services as public goods Under this viable management solutions to address the proposal, Regional Ecosystem Resources multi-scale nature of ecosystem services. Coordination Agencies would be organised Politically feasible adjustments are required to as far as possible along biogeographical or manage the joint ecological-social system in a watershed boundaries, instead of political

© 2014 The Authors. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University Costanza and Liu: Ecosystem Services and Environmental Governance 7 ones. This has been done in Australia since the The key to achieving sustainable gover- late 1990s. The 56 natural resource manage- nance in our complex, interdependent world is ment groups that cover all of Australia are an integrated (across disciplines, stakeholder based on catchment boundaries and are groups and generations) approach based on responsible for managing natural resources. adaptive governance. Six core principles (the The idea of common asset trusts, like that Lisbon Principles) that embody the essential being proposed in Vermont, is also a variation criteria for sustainable governance have been on this theme. proposed (Costanza et al. 1998). The six Apart from these adjustments and refine- Lisbon Principles together form an indivisible ments over the two existing governance collection of basic guidelines governing the approaches, another option is to establish a use of common natural and social capital third type of governance that can adapt to the assets. complexity of dynamic social-ecological systems over time. Adaptive governance is a • Principle 1: Responsibility. Access to systematic approach to improving the manage- common asset resources carries attendant ment process and accommodating changes by responsibilities to use them in an ecologi- learning from the outcomes of a set of environ- cally sustainable, economically efficient and mental policies and practices (Holling 1978; socially fair manner. Individual and corpo- Walters & Hilborn 1978). Rooted in both the rate responsibilities and incentives should be ecological system and institutional theory aligned with each other and with broad (Cook et al. 2010), adaptive governance has social and ecological goals. been proposed as an integrated and multidisci- • Principle 2: Scale matching. Problems of plinary approach for confronting complexity managing natural and social capital assets and uncertainty in natural resources manage- are rarely confined to a single scale. ment (Costanza et al. 1998; Folke et al. 2002). Decision-making should: (i) be assigned to For example, the Murray Darling BasinAuthor- institutional levels that maximise input; ity in Australia has developed an adaptive (ii) ensure the flow of information between planning and management approach to water institutional levels; (iii) take ownership and management through its Basin Management actors into account; and (iv) internalise costs Plan (Murray-Darling Basin Authority 2011). and benefits. Appropriate scales of gover- In contrast to monocentric and multi-level nance will be those that have the most rel- governance, adaptive governance has three evant information, can respond quickly and characteristics. First, adaptive governance efficiently, and are able to integrate across relies on the concept of resilience as a funda- scale boundaries. mental organising principle (Olsson et al. • Principle 3: Precaution. In the face of 2004). Second, the concept of scale is not con- uncertainty about potentially irreversible strained to spatial and jurisdictional scales impacts to natural and social capital assets, alone (Termeer et al. 2010). Other dimensions decisions concerning their use should err on considered include temporal, institutional, the side of caution. The burden of proof management, network and knowledge scales should shift to those whose activities poten- (Cash et al. 2006). Finally, adaptive gover- tially damage natural and social capital. nance also emphasises cross-scale and cross- • Principle 4: Adaptive management.Given level interactions, where level is defined as the that some level of uncertainty always exists units of analysis that are located at different in common asset management, decision- positions on a given scale (Gibson et al. 2000). makers should continuously gather and inte- For this reason, institutional interplay and grate appropriate ecological, social and co-management have been put forward to economic information with the goal of adap- facilitate solutions to complex environmental tive improvement. problems that decision-makers have historical • Principle 5: Full cost allocation. All of the difficulty in solving (Cash et al. 2006). internal and external costs and benefits,

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