Eco-compensation underpins a greener future for China

Did you know that China is a global leader in the use of fiscal transfers for environmental management? If your answer is “no”, you are in the majority. China’s efforts to improve land and water management – using fiscal transfers to incentivize actions by landholders and local governments – are not well known internationally. Even within China, the great breadth and diversity of these programs, known as ecological compensation (“eco-compensation”), means that key design and implementation lessons are easily overlooked.

To address this gap, a new World Bank report documents the scope, diversity, and performance of eco-compensation. Undertaken in collaboration with the Development Research Center of the State Council (DRC), the research assesses trends, challenges, and opportunities, and provide recommendations for these programs’ further development.

The report shows that the nature and scale of eco-compensation have evolved dramatically, encompassing results-based payments for farmers, compensation for those affected by development restrictions, and fiscal incentives for provincial and local governments to meet environmental targets, among others. Since 2001, China has transferred over US$235 billion through such programs, with current annual expenditure more than US$30 billion (Figure 1).

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