1. Towards More Sustainable and Market-based Payment for Ecosystem Services A Pilot Project in Lijiang, China Lu Zhi

2. How does CI approach payment for ecosystem services programs?  Target areas for payment for ecosystem services and determine opportunity costs  Integrate ecological processes and development needs into payment mechanism design across priority landscapes  Replicate and scale up successful models, and share new tools and results with key decision-makers  Foster enabling conditions: provide data on service flows, value of services, policy frameworks, governance, market development, and structure implementing entity

3. Target areas: Bundling services in Madagascar Each individual ES layer was: Z-normalized (mean=0 and standard deviation=1) Combined using equal weights Scaled between 0 and 1 BUNDLED ES: percent overlap of three services

4. Target areas: Opportunity costs in Madagascar PROBABILITY OF DEFORESTATION ADDITIONALITY: Bundled ES * Probability of deforestation HIGH OPPORTUNITY COSTS TARGETED PAYMENTS FOR ES BIODIVERSITY : number of mammals, birds & amphibians weighted by threat status CARBON : above- and below-ground biomass WATER: water quality weighted by human population, rice & mangroves BUNDLED ES: percent overlap of three services WATER: water quality weighted by human population, rice & mangroves

5. Incorporate ecological processes and services into land use planning and decision- making: Landscapes Integrate hydrological processes within a systematic conservation planning framework Bundle biodiversity and ES into conservation and development Leverage ES into sustainable financing for conservation landscapes Generate a body of knowledge and analytical lessons in: Mapping key features of ecosystem processes and services Addressing issues in scale and management (biomes and institutions) Incorporating ES into land use and development planning (costs and trade-offs) Economic valuation and design of PES mechanisms (markets, stakeholders, policy) Understanding ES and landscape resiliency with change

6. Case Study: China China, with 1.3 billion people, is listed as one of the 13 most water-deficient countries in the world. China pollution trends are threatening economic growth, human health and watershed ecosystems. (63 ％ of monitored sections in 7 major river basins can not meet standard for drinking water resource’s quality) Water distribution is extremely uneven in time and space.

7. The root causes of issues… and solutions The environmental benefits and relevant economic gains have been allocated unfairly between the protectors, beneficiaries, the destructors and victims. PES (Payment for Environmental Services) is the generic name of a variety of arrangements through which the beneficiaries of ecosystem services pay back to the providers of those services.

8. Existing applications of PES or eco-compensation in China Huge conservation incentive programs exist in China (the planned investment for the Natural Forest Conservation Program and the Grain to Green Program is $100 billion) These schemes are based on top-down government decisions, with little attention to the demand or supply forces (market) behind the implementation and public participation

9. Key words

10. Market-based PES mechanism a new market is created and revenues are collected an explicit link is made between those who benefit from an environmental service and those who provide the same services Financing Mechanism Payment Mechanism Beneficiary Land user Governance structure Environmental Financing Mechanism Payment Mechanism Beneficiary Land user Governance structure Financing Mechanism Payment Mechanism Beneficiary Land user Financing Mechanism Payment Mechanism Beneficiary Land user Governance structure Governance structure Environmental services

11. Factors determining the ease or difficulty of establishing a PES system The “distance” between cause (providers) and effect (beneficiaries) The numbers of service providers and service beneficiaries Collecting beneficiary payments and making transfers payments to service providers (channel availability) The legal and institutional framework The outcome monitoring system

12. Illustration of a potential PES application: the cases of Lijiang

14. The environmental services Global benefits are traditionally not included in local PES schemes. The payment collecting channel of visitors was available – easy to implement

15. Quantification of the ES Estimating the costs of provision (minimum level) ► Water improvement (Agriculture income losses to farmers): 0 ► Birds biodiversity (Losses to farmers from the bird sanctuary): US$250,000 Estimating the theoretical value (maximum level)

16. Potential PES options Environment friendly agriculture through carefully designed capacity building campaigns and extension services ► Lower fertilizer and pesticide inputs and improved land use ► Organic farming under proper conditions (may influence birds due to greenhouse)

17. Proposed compensation standard (based on WTP)

18. Institutional set up Special fund ► financial transparency ► public participation Coordinating body Outcome monitoring Enhance public awareness

19. Growth creates environmental risks…. …but also opportunities for innovation and reformation Thanks!