Study on payment for ecological and environmental services in China

46917 Study on Payment for Ecological and Environmental Services in China A Pilot Study on Payment for Ecological and Environmental Services in Lashihai Nature Reserve, China. FINAL REPORT Authors: Alessandra Sgobbi Anil Markandya Alessandra Goria Carlo Giupponi Feem Servizi s.r.l C.so Magenta 63, Milan, Italy, Tel. +39 02 52036934, Fax. +39 02 52036946 E-mail contacts: anil.markandya@feem.it, alessandra.sgobbi@feem.it, alessandra.goria@feem.it  Summary The study, funded by the World Bank and carried out in cooperation with Conservation International-China, aims at exploring the feasibility of using compensation for ecological and environmental services to address natural resource management issues in China. This report provides the preliminary findings of the pilot study on the Payment for Ecological and Environmental Services (PES) in the Lashihai Nature Reserve in the Yunnan Province of China. The Lashihai Nature Reserve was established in 1998 with the main purpose of protecting the Lashihai wetland, an area of special interest for migratory birds, listed under the Ramsar Convention. Major protection measures currently in force include a ban on and inspection of fishing, poaching and hunting, but a potential threat for the lake ecosystem remains, due to increased increasing unplanned tourism and agricultural activities. The watershed provides ecological services of economic value to a wide range of stakeholders: biodiversity services (protected migratory birds species feed on farmlands surrounding the wetland with, however, a negative impact on farmers' yields), and landscape services (the Lashihai lake supplies water to the old town of Lijiang, which is used to fill in the traditional water system). Despite only being in use for three months a year, the landscape use of water from the Lashihai Lake is very important for the old city, which relies on tourism. The lake's water quality is thus a concern, as it may be harming the tourism industry. The main pollutants come from non-point agricultural sources, especially in terms of fertilisers' use. The two main problems that the pilot study addresses are therefore the estimation of a suitable level of compensation to farmers for the damages inflicted to their yields by protected bird species; and the most suitable design of an incentive mechanism to induce farmers to adopt more environmental- friendly agricultural practices, in order to provide clean water for landscape services to the city of Lijiang. The study also notes that a PES solution to the problem is more likely to be cost effective and politically acceptable than an engineering solution involving water diversion to Lashihai Lake. As part of the assessment of the PES option the study attempts to: estimate the value of the environmental services provided by farmers located around the Lashihai wetland in terms of maintaining biodiversity through provision of food supply to migratory birds, and restoring water quality for landscape use in Lijiang old town, through improved agricultural practices; estimate the costs of provision of these services, i.e. both the direct and indirect (opportunity) costs of provision; propose guidelines and recommendation for the local implementation of PES schemes in the specific pilot study area; draw more general conclusions on the usefulness of PES mechanisms in China, and how they could be implemented locally. 1  Table of contents SUMMARY..................................................................................................................................................... 1 1 INTRODUCTION: SETTING THE PROBLEM INTO CONTEXT........................................................ 4 2 PES SCHEMES: AN OVERVIEW...................................................................................................... 5 2.1 Assessing the effectiveness of PES schemes........................................................................................................ 6 2.2 Strengths and weaknesses of PES schemes......................................................................................................... 7 3 EXISTING APPLICATIONS OF PES SCHEMES IN CHINA ............................................................. 9 4 A PILOT STUDY FOR IMPLEMENTING PES SCHEMES IN THE YUNNAN PROVINCE .............. 11 4.1 Lijiang old town...................................................................................................................................................11 4.2 The Lashihai Nature Reserve.............................................................................................................................13 4.3 The ecological/environmental services..............................................................................................................14 4.3.1 Water resources.................................................................................................................................................14 4.3.2 Bird biodiversity ...............................................................................................................................................18 4.4 Problem structuring ............................................................................................................................................19 5 QUANTIFICATION OF THE EES .................................................................................................... 24 5.1 Estimating the costs of provision .......................................................................................................................24 5.1.1 Losses to farmers from the bird sanctuary .......................................................................................................24 5.1.2 Losses to the town of Lijiang from poor water quality in Lashihai Lake .......................................................25 5.2 Estimating the value of the identified environmental services.......................................................................26 5.2.1 Preliminary results............................................................................................................................................28 5.2.2 The sample of respondents Descriptive Statistics............................................................................................29 5.2.3 Willingness to pay for EES ..............................................................................................................................32 6 IDENTIFYING PES OPTIONS ......................................................................................................... 34 6.1 Potential PES options..........................................................................................................................................36 6.1.1 Exploring alternative land use options.............................................................................................................37 6.1.2 Extension services.............................................................................................................................................45 6.1.3 Organic farming................................................................................................................................................47 7 INSTITUTIONAL SET UP................................................................................................................ 49 7.1 Current institutional set up ................................................................................................................................49 7.2 Farmers' participation in the scheme ...............................................................................................................51 7.3 Charging service beneficiaries ...........................................................................................................................52 7.4 Setting payment levels.........................................................................................................................................54 2  7.4.1 Water services...................................................................................................................................................54 7.4.2 Birds..................................................................................................................................................................56 7.5 Institutions involved ............................................................................................................................................58 7.5.1 Using current institutions..................................................................................................................................58 7.5.2 New institutional set up ....................................................................................................................................60 7.6 Monitoring compliance .......................................................................................................................................61 8 CONCLUSIONS .............................................................................................................................. 62 REFERENCES ............................................................................................................................................. 67 ANNEX I. STATE AND IMPACT FACTORS & STRATEGIC OPTIONS...................................................... 71 ANNEX II. DETAILED INSTITUTIONAL REVIEW ....................................................................................... 74 ANNEX III: ASSESSMENT OF LAND USE AND LIVELIHOODS SURROUNDING THE LASHIHAI WETLANDS ................................................................................................................................................. 80 3  1 Introduction: setting the problem into context This report provides the preliminary findings of a pilot study on payment for ecological and environmental services (henceforth PES) in the Yunann province of China, conducted by Fondazione Eni Enrico Mattei (FEEM) in cooperation with Conservation International-China, under the World Bank funding (Italian CTF030815). The pilot study aims at identifying the main ecological and environmental services, and the most appropriate payment schemes which can provide incentives to landholders to maintain or generate the services identified. The pilot scheme addresses two such services in the region, which are affected by the activities of farmers within the Lashihai Nature Reserve. First, the downstream waters of the Lashihai wetland play an important landscape function in the old tourist city of Lijiang, where the water canals have made the town deserve the sobriquet `Venice of China'. Improved agricultural practices around the lake can thus benefit the city through improved water quality. Second farmers' activities within the nature reserve have the added environmental benefit of maintaining birds' biodiversity. The Lashihai Nature Reserve represents a unique protected habitat for several bird species, and hosts agricultural land owned by local farmers, who bear economic losses from birds' feeding on crops. Relating to these two services the pilot study addresses two main problems: the identification of a suitable level of compensation to farmers for the damages inflicted to their yields by the protected bird species in the Lashihai Nature Reserve; and the most suitable design of an incentive mechanism to induce farmers to adopt more environmental-friendly agricultural practices, to preserve the quality of water for landscape services to the tourist city of Lijiang. This report is organised as follows. First, based on a thorough review of the literature1, Chapter 2 describes existing PES schemes, and provides an assessment of their effectiveness in maintaining key EES. The main experiences with PES schemes in China are then described in Chapter 3. Chapter 4 describes in detail the case study application: first, the problem is set into context (Sections 4.1 and 4.2); the key ecological services addressed are described in Section 4.3, while the methodology adopted to identify the causal links in the model