Ecological Compensation System

China is emerging as an interesting player in the world of "green" policy. China knows it has serious environmental/ecological problems, and the country has adopted all kinds of "green" measures. Not many people are aware of the extent of what China has been doing. On October 16, the Farmer's Daily described efforts to install an "ecological compensation system," apparently based on a conference held in Ningxia to discuss ways to improve the program. It's not clear how this works, but it seems to involve government funding to address deforestation and desertification problems, mostly in western China. They have plans to use tax incentives and arm-twisting of banks and companies to chip in funds in the future.

According to the article, China started a pilot fund for central forest ecological efficiency compensation in 2001-04. Since 2005, the Ministry of Finance invested over 20 billion yuan, and the program covers 700 mllion mu of key ecological forests. In 2006, national government issued a document about restoration of mining areas and a pilot compensation program was initiated. The Finance Ministry increased expenditures on environmental protection and developed transfer methods, increasing spending for Qinghai’s three-river area, the south-north water diversion project area, and some natural forest protection areas.

Over the past 10 years compensation projects included implementing reforestation and pasture restoration, natural forest protection, Beijing-Tianjin sandstorm control, northwest karst area desertification control, Qinghai three-river plain natural preservation area, Southern Gansu Yellow River important water resource compensation.

The authoritarian system in China makes it one of the few places where textbook solutions can be implemented. This paragraph sounds like it came from an environmental economics class:

"Through the establishment of the compensation mechanism external costs of ecological environment were internalized, so that those who damage the environment pay protectors of the environment in a rational compensation process that raises the environmental protection consciousness of all segments of society. The 'Ecological Compensation Regulations' will now establish a better legal framework."

The article says, "The overall basic weakness of our country’s ecological protection has not been changed. The advance of ecological improvement and environmental protection benefits has still not been rationalized." Spokespeople from NDRC and Ministry of Environmental Protection said establishing an environmental compensation system is a new task with various work just at the beginning, the coverage is not yet determined, and the compensation standard is not scientific, compensation methods are standardized, funding sources lacking, and policy and regulation system are lagging.

They plan to continue working on the pilot project, including the karst desertification project and a new one on the Tibetan plateau. They will expand coverage of the forest ecological compensation system and raise the amount of compensation. They plan to build infrastructure and public service systems, and explore land and population control policies, tax policies, getting investment from commercial banks and "social capital."

This last part is an important and unique reflection of how China carries out policies. It uses its control over land and financial institutions to control how land is used and generate huge amounts of funds for new policies quickly. "Social capital" means convincing companies to invest in projects favored by the government in exchange for access to some other lucrative market. This control over land and capital enables China to implement policies like this much quicker than in democratic countries.