China Policy Journal Volume 1, Number 1, Fall 2018 | Page 82

Payment for Ecological Services and River Transboundary Pollution
identify polluters and victims but also
“cleaners” who inherit bad water quality
from the upstream neighbor and
clean it up. The compensation regime
proposed in our approach can accordingly
determine not only the compensation
for negative externalities to be
paid by the polluters to victims but also
a compensation from the “victim-tobe”
to the up-stream cleaners for their
efforts that create positive externalities
and avoid potential welfare loss. We believe
such two-direction compensation
systems can more efficiently discourage
the creation of negative externality and
encourage that of positive externality,
both of which contribute to better river
water quality.
It is difficult to directly compare
the numbers proposed in our approach
with those from previous studies. One
reasonable comparison that we can
make is between the compensation that
we proposed in this paper and the aggregate
WTP reported in He, Huang,
and Xu (2015a) for the achievement of
the targeted Class II level river water in
corresponding cities. The latter can be
regarded as an example similar to most
of the previous valuation studies that
have used the WTP as the compensation
standard for a better ecological
service quality. Referring to the three
columns under the individual WTP in
Table 2, we can make the general observation
that using the total WTP for
a better ecological service quality risks
mixing up the pollution caused by the
upstream cities and the pollution from
a city’s own activities and thus tends to
exaggerate the necessary compensation
payments. According to Table 5, such
exaggeration ranged from 2 to 10 times
for the Xijiang River. Another possible
comparison is with the pilot PES project
at the Xin’an River, in which the transfer
between two provinces is arbitrarily
fixed at 500 million Yuan per year. Taking
the potential necessary transfer between
Foshan and Zhongshan cities as
an example, the total yearly transfer is
already equal to 86% (36.09*12 months)
of the total transfer between Zhejiang
and Anhui provinces. Shen et al. (2015)
advocated the necessity to increase the
transfer amount for the Xin’an River
PES pilot to reinforce the water protection
motivation of both provinces; our
paper can be considered as a supportive
argument for their policy recommendation,
although we admit the potentially
big difference between the Xin’an
and Xijiang Rivers.
Another advantage of the new
approach for payment standard setting
is to directly associate the compensation
amount that a city needs to pay
(for negative externality) or to receive
(for positive externality) with the size
of the victims/beneficiaries of the related
externality. From the point of view of
efficiency, for a specific city, the further
it is located toward the upstream end of
the river, the larger will be the size of its
potential victims/beneficiaries and thus
the higher will be the amount of compensation
to pay or to receive if it creates
negative or positive externalities.
Such logic, acting with more emphasis
on the more upstream cities, can largely
contribute to efficiency of the control of
transboundary pollution and thus facilitates
the realization of the water quality
improvement targets of an entire river.
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