Gains or losses? A quantitative estimation of environmental and economic effects of an ecological compensation policy

Ecological compensation is an innovative and effective tool to explore the coordinated development of socioeconomic prosperity and ecological protection, especially for a watershed crossing different regions. It converts the externalities of ecosystem services into practical financial incentives for local stakeholders. This empirical study applies a quantitative policy evaluation approach to evaluate the environmental and economic effects of an ecological compensation policy, using the paddy land-to-dry land (PLDL) program implemented in China's Miyun Reservoir watershed as an example. The study is based on responses to a 2017 questionnaire regarding agricultural production inputs and outputs administered to 269 households in Hebei Province, where the PLDL program has been operational for over 10 yr. The results show that the program has reduced nitrogen usage by 24% on average in 2017 and decreased the total nitrogen emission load by 16.98 tons for the entire case area, which accounts for approximately 18.6% of the total nitrogen load reduction of the Miyun Reservoir basin. However, the upstream households involved in this program have experienced agricultural income losses higher than that allowed for by the current compensation criterion. Therefore, this paper discusses the factors that should be considered in the process of determining ecological compensation criteria. In particular, the paper proposes a differential compensation scheme based on the environmental effect at the individual level to avoid a standard payment for all households irrespective of their different contributions. This differential compensation payment scheme facilitates the fair treatment of environmental contributors and maximizes environmental benefits through an equitable allocation of limited ecological compensation funds. This study serves as a theoretical and practical reference for further improvement of the current ecological compensation policy in China. The study also sheds light on practices for estimating ecological compensation criteria and formulating ecological compensation policies for other regions or countries in the future.