A Supply-Demand Framework for Eco-Compensation Calculation and Allocation in China’s National Key Ecological Function Areas—A Case Study in the Yangtze River Economic Belt

Abstract

China’s National Key Ecological Function Areas (NKEFAs) provide important ecosystem services but lose significant development opportunities. An NKEFA consists of a few National Key Ecological Function Counties (NKEFCs). China’s central government annually makes fiscal transfers to NKEFCs to compensate for their fiscal imbalance and ecosystem protection costs. The eco-compensation coefficient (ECC), together with the fiscal revenue and expenditure gap (FREG), determines the transfer payment, but the central government fails to provide practical methods for its estimation. This article proposes a framework for ECC estimation by integrating ecosystem service supply (ESS), ecosystem protection cost (EPC), and public service provision capability (PSC) of NKEFCs, and clarifies the criteria and indicators for ESS, EPC, and PSC evaluation. The framework was implemented in the Yangtze River Economic Belt (YZEB), and the results were compared with the payments in the current central-to-local fiscal transfer (CTLFT) system. The key findings and conclusions include: (1) The payment in the current CTLFT system mainly depends on the FREG rather than ESS and EPC of NKEFCs. (2) Some counties are notably under-compensated because their ESS or EPC are underestimated, or the province that administers them has a stronger fiscal capability. (3) The framework contributes to fair allocation and efficient use of eco-compensation payments by improving the ECC estimation method and identifying the main stressors and public service weaknesses in NKEFAs. This study gives the following policy implications: (1) Inner-provincial and cross-provincial watershed eco-compensation programs need to be developed to supplement the central-to-local eco-compensation program in the YZEB. (2) Environmental management strategies should be based on the characteristics of stressors and people’s livelihood in NKEFAs.