Payments for Environmental Services

1
Payments for Environmental Services

• Solution to Chinas Drinking Water Problem?
• Berkeley Institute for the Environment
• November 2006
• Adam Langton
• Goldman School of Public Policy, 2007

2
Chinas Drinking Water Conditions.

• Roughly a quarter Chinas population (300M)
  consumes unsafe water, according to Chinas
  Ministry of Water Resources.
• As of 2001, only 6 of Chinas 27 largest cities
  meet state drinking water standards.
• Growing Need demand from urban users grew at a
  rate of 7.3 annually between 1980 and 2002.
• Overexploitation of groundwater resources
  (Shanghai Beijing)
• Health impacts Hep A, diarrheal diseases,
  dysentry, liver cancer, stomach cancer.

3
are Related to Chinas River Quality

• 38.1 of Chinas rivers are polluted, according
  to 2004 study of 1300 rivers.
• 75 of the water flowing through Chinas urban
  areas is polluted.
• River pollution contribute to groundwater
  pollution (90 of groundwater sources are now
  polluted).
• Creates greater infrastructure expenses.

Source China Environmental Yearbook, 2003
4
Sources of Pollution

• 50 from non-point sources (nutrient runoff,
  pesticides, livestock waste). mainly rural
  sources.
• 50 from point sources (industrial and municipal
  waste, leaching of solid waste). mainly urban
  sources.

5
Chinas National Strategy

• National drinking water standards enacted in June
  2005.
• Adds 70 new bacteria and chemicals to list of
  water quality measures.
• Estimated Cost? 6 billion (USD) for new water
  treatment centers and other infrastructure.
• Numerous national programs, s for treatment and
  enforcement (10th 5 Year plan 2.1 billion for
  treatment plans and infrastructure)

6
Uneven Progress

• Progress on largest rivers, little focus on small
  rivers/tributaries.
• Some national solutions fail to take hold at the
  local level.

7
What is Payment for Environmental Services?

• Establishes a market for watershed management
  practices (land use water quality link)
• Downstream beneficiaries support the cost of
  upstream watershed management.
• Improves downstream water conditions by providing
  incentives for upstream users to internalize
  downstream costs.

8
Ecological Services Impact Water Quality

• Forests filter out pollutants, neutralize
  chemicals, and reduce salinity of rainwater
  entering waterways.
• Watershed ecological elements reduce sediment
  loads in water ways by reducing erosion.

9
How Does PES Works?

• Internalizes a positive externality
• Improves outcomes at lowest cost by pricing
  benefits and allowing upstream users to use most
  efficient management tools
• Provides upstream economic development benefits.

10
PES in New York

• EPAs 1996 water regulations set new standards
  for NYC.
• NYC water users pay for environmental services in
  Catskill and Delaware watersheds.
• Upstream farmers received compensation for a
  variety of environmental services

Source Pagiola, 2003
11
PES in New York

• Supported by 9 user fee on NYC water users.
• Supports several conservation programs
  easements, reduced development rights, and other
  eco-friendly practices.
• Avoided infrastructure costs would have doubled
  the cost of water for NYC users.
• Operating expenses 1.5B USD over 10 years.
• Avoided 4-6B in infrastructure and 300-500M in
  ongoing expenses.

12
PES in Nepal

• Environmental payments support watershed
  management in Kulekhani watershed basin.
• Sediment loads threatened hydropower dams.
• Payments from Kulekhani dam to upstream
  communities for watershed management.
• Compensation in the form of development
  assistance (medical services, education
  resources, etc.)

13
PES in the Philippines

• Many PES arrangements in local watersheds.
• Mindanao Geothermal plant success in improving
  water quality by supporting upstream forest
  management practices.
• Payments through government to local watershed
  management boards results in some inefficiencies.
• Large watershed boards slows process.

14
Best Practices for a PES system

• Direct link between stewards and beneficiaries
• Clearly articulated environmental goals and
  annual performance measures
• Local upstream community participation.
• Managing boards with stakeholder representation.
• Detailed negotiations and long-term agreements.
• Involvement from state/national government.

15
Limitations of PES Model

• Aimed at non-point pollution sources
• Ineffective at reducing point source pollution,
  like industrial waste or sewage.
• What exactly are the benefits and how are they
  quantified for compensation?
• Potential for high transaction costs
• Too many upstream and downstream users

16
PES in China Will it work?

• Not a cure-all, but could help improve water
  conditions in Western China and may reduce some
  treatment costs.
• Examples Shanghai and Chongqing.
• Political and geographical obstacles.

17
PES in Shanghai

• Trade and industrial center at the mouth of the
  Yangtze.
• Most local sources are polluted, forcing Shanghai
  to use distant sources on Huangpu River.
• Strong local interest, investment in
  environmental issues
• New goal by 2010, clean water city-wide.

Source www.chinatravel.com
18
PES in Shanghai
Source www.chinamaps.com

• Yangtze Too complex, too many stakeholders, too
  much point source pollution.
• Huangpu Little watershed management. 2005 City
  Plan announced re-forestation plans, agricultural
  pesticide controls.

19
PES in Chongqing

• 4th largest city in China (30 million in metro
  area).
• 25 of local rivers are grade V or worse.
• Water quality fell in 2005 from grade II to grade
  III.
• Fails on 80 of the 100 chemical measures of the
  2005 regulations.
• Struggles to end upstream industrial pollution.

20
PES in Chongqing

• Less Upstream industry than other cities.
• Strategically located to benefit from upstream
  management
• Could generate improvements to local rivers.
• Collaborate with Three Gorges Dam?
• Some regulatory methods have failed.

Source www.chinatravel.com
21
Implementation Challengesin China

• Local/regional solution as a complement to
  national programs.
• More research needed to quantify benefits of
  upstream watershed management.
• Political obstacles (decentralized political
  power, economic focus).
• Upstream economic development benefits might be
  biggest selling point.