China Policy Journal Volume 1, Number 1, Fall 2018 | Page 79

China Policy Journal
Based on the models “hypothesis
2” and “hypothesis 3” and the new
framework for PES payment standard
setting, we calculated two new PES payment
schemes for the nine cities located
along the main stream of the Xijiang
Rivers, as shown in Table 4. For a specific
city j, a negative number reported
in the column titled signifies a loss of
the welfare of a representative person of
its population due to the transboundary
pollution flowing from its upstream
neighbor j−1. Therefore, we could use
this number to time the population size
of the city j to obtain its total welfare
loss caused by the pollution from its
upstream city j−1. To remedy such welfare
loss, the amount that the upstream
city k needs to transfer to city j should
be equal to the absolute value of this
product, as illustrated in the last two
columns of Table 1.
Additionally, in Table 5, we report
the detailed bilateral transfers
between cities according to their geographical
location and the water quality
situations in the transboundary
sections between cities. The numbers
proposed in the table were calculated
according to equations (1) to (5). The
upper panel of the table was based on
the model “hypothesis 2”, and the lower
panel was based on the model “Hypothesis
3”. A positive number signifies
a transfer from city k (upstream)
to city j (downstream) to remedy the
negative externality caused by k to j,
whereas a negative number means a
transfer from city j (downstream) to
city k (upstream) for the improvement
of the water quality and, thus, a positive
externality.
There are several interesting and
logical findings from the comparison
between the results based on models
“hypothesis 2” and “hypothesis 3”. For
example, the “distance decay” nature of
river water pollution can significantly
reduce the compensation burden for
the upstream polluters. Additionally,
for a city located a very small distance
along the river from its very-populous
direct downstream neighbor, even a
small amount of transboundary pollution
signifies a large amount of compensation.
In both cases, the distance
plays a very important role in the determination
of the compensation amount.
6. Discussion and Conclusion
The new payment standard setting
framework proposed in our
paper directly concentrates measurements
on the negative or positive
externality caused by transboundary
water pollution. This is very different
from most of the previously mentioned
preference studies, which focused on
measuring the impacts of isolated and
hypothetical quality changes in ecological
services on people’s welfare that
were rarely related to the transboundary
pollution context.
Based on the paper of He, Huang,
and Xu (2015a), our new payment
standard setting framework can propose
both the total transfers that a city
should make as a polluter or receive as a
victim. This new framework also allows
the calculation of the detailed bilateral
monetary transfer between cities, depending
on their location on the river
and their contribution to the variation
of water quality. One advantage of our
approach is the possibility to not only
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