China Policy Journal Volume 1, Number 1, Fall 2018 | Page 58

Payment for Ecological Services and River Transboundary Pollution: Policy Inspirations from a Contingent Valuation (CV) Study on the Xijiang River Drainage Basin in South China Jie He 1 China Policy Journal • Vol. 1, No. 1 • Fall 2018 Abstract Based on the contingent valuation study results reported by He, Huang, and Xu (2015a), we propose a new payment standard-setting framework that could include the total transfer that a city should pay as a polluter or receive as a victim. This new framework differs from the previous mechanism by explicitly excluding the willingness to pay (WTP) reduction due to a city’s own pollution discharge and focusing only on the WTP variation caused by transboundary pollution. This new framework also allows the calculation of detailed bilateral monetary transfers between cities depending on their location on a river and their contribution to the variation of water quality. One advantage of our approach is the possibility to identify not only polluters and victims but also “cleaners” who inherit bad water quality from the upstream neighbor and clean it up. The compensation regime proposed by our approach can thus determine both the compensation for negative externalities to be paid by the polluters to victims and the compensation from the “victim-to-be” to the cleaners for their efforts, which creates positive externalities and prevents their downstream neighbors from suffering from potential welfare loss. Based on our results, it seems that simply using the total WTP as the compensation standard for a better ecological service risks mixing the pollution caused by upstream cities with the pollution from a city’s own activities, which thus tends to exaggerate the necessary compensation payment; for the Xijiang River, such exaggeration can range from 2 to 10 times. We also compared our results with the Xin’an River PES pilot program, whose transfer amount was arbitrarily fixed at 500 million yuan per year, which is approximately 86% of the compensation amount that Foshan city needs to pay to Zhongshan city. Our results therefore can be considered a supportive ar- 1 University of Sherbrooke, Canada; [email protected] 55 doi: 10.18278/cpj.1.1.3