Eco-Compensation Mechanisms in China -Focus on Biodiversity Offsets and Banking-

Eco-Compensation Mechanisms in China

-Focus on Biodiversity Offsets and Banking-

Hongwei Shi

Tokyo City University,

Landscape Ecosystems Tanaka-Lab, 3-3-1 Ushikubo-nishi, Tuzuki Ward, Yokohama City, Japan



KEY WORDS: Eco-Compensation, Biodiversity Offsets, Biodiversity Banking, Polluter Pays Principle, Sustainable development


Although China has a very rich biodiversity, it is also part of a region where biodiversity resources have declined rapidly. Threats to biodiversity in China include a large human-uses of economic,industrial developments, climate change, and exotic invasive species, which reduced the habitat quality, resulting in losses of biodiversity. In 2004 year, China started to develop a huge ecological compensation mechanisms, a narrow understanding is payment for ecological services or payment for environmental services, broad understanding is PPP (Polluter Pays Principle) or BPP (Benefit Pays Principle), the biodiversity offsets compliance with PPP, put it in to this mechanism. Importantly this mechanism involve biodiversity conservation, although not enough,  thorough this paper focus on biodiversity offsets and banking as a supplement to improve this mechanism. In many countries such as America, Canada, Australia had imported biodiversity offsets and banking. Through literature research methods to analyze the status of biodiversity conservation in China, including laws, policies, case studies, to compare with the countries being implemented biodiversity offsets and banking. The results show that China exists the concepts of biodiversity offsets in the law (Forest Law) and policies (Technical Guideline for Environmental Impact Assessment Ecological Impact), in addition, there are similar cases in China (China’s Forest Revegetation Fee). According to the above situation, China can try to do the pilot project like UK, Malaysia, and France.



  1. 1.                Background and Purpose

Although China has a very rich biodiversity, it is also part of a region where biodiversity resources have declined rapidly. Threats to biodiversity in China include a large human-uses of economic,industrial developments, climate change, and exotic invasive species, which reduced the habitat quality, resulting in losses of biodiversity. Hydrological engineering projects, which interrupt the natural flow of rivers, and conversion of wetlands for agriculture and unsuitable construction and infrastructure projects in the flood plain have destroyed ecosystems and driven species out of their natural homes. Through the investigation of literature to supplement the Eco-Compensation Mechanisms and improve it.



  1. 2.                Eco-Compensation


2.1 What is the Eco-Compensation?


In 2004, China started to develop a huge ecological compensation mechanism. Although there have been some explorations, researches and practices of ecological compensation but there is no clear definition about ecological compensation. China is preparing Ecological Compensation Ordinance, it is a national mandatory requirements of ecological resources, environment, development, and must be compensated, the maintenance of ecological balance regulations. Ecological Compensation Ordinance will be clear to the implementation of the basic principles of the ecological environment compensation, the main areas and compensation methods to determine the rights and obligations between the stakeholders and safeguards, and as a basis to further refine the watershed, forests, grasslands, wetlands, mineral resources and other areas of the implementation details. Ecological compensation (Eco-compensation) is based on the conservation and sustainable use of ecosystem services for institutional arrangements to regulate the interests of stakeholders, mainly through economic means. In more detail, the ecological compensation mechanism protects the ecological environment and promote for the purpose of the harmonious development of human and nature, according to the value of ecosystem services, ecological protection costs, the cost of development opportunities, and the rely on government and market-based instruments, adjust the ecological protection stakeholders between the interest of the public system. A narrow understanding is payment for ecological services or payment for environmental services (PES), there are many instances of the PES in China. Broad understanding is PPP (Polluter Pays Principle) or BPP (Beneficiary Pays Principle), use the government intervention and market economy, regulating the relationship between environmental groups, governments and stakeholders to solve the existing environmental problems, of course, which includes the protection of biodiversity. In addition, means of market economy can be varied. So there are a lot of associated ecological compensation mechanisms which have characteristics relate to biodiversity offsets and biodiversity banking following further argument shows in this article.


2.2 Theoretic Bases of Eco-Compensation


The theories of ecological economics, environmental economics and resource economics, especially eco-environmental value theory, and the theories of externalities and public goods are the basis for the research of Eco-Compensation.


2.3 Main Mechanism of Ecological Restoration in the Eco-Compensation


2.3.1 Polluter Pays Principle: This principle requires compensation and damage body consistent with a main damage to the environment in the process of economic construction, as the obligation to restore it. But does not require compensation must be restored in local place, if the destruction of the economic zone is inevitable, allowing restore in the ecological zones .This does not mean that in the economic area can arbitrarily be destroyed. Must strive to undermine minimize compensate part only in the economic zone if cannot be fully restored. Investors and builders must be done before the project was launched in compensation arrangements and budget, the total amount of investment must contain the appropriate proportion of compensation costs.


2.3.2 Own Compensation and Commissioned Compensation: Comply with PPP, mainly refers to the destroyer of compensation must fulfill obligations to pay compensation for investment or cost. Either do compensation by the destroyer directly in the ecological zones, can also entrust specialized agencies to restore in the ecological zones. For example, cause the construction of the highway take the impacts to the ecological surround the project, offsite compensation can be carried out by the highway builders, can also pay some compensations to relevant organizations, and offsite implement restoration, or set up a specialized agencies to offsite restore the ecological in accordance with the different damage type, scope and extent.


2.3.3 Equal Compensation and the Doubling Compensation:

In order to maintain the ecological balance overall, a distinction should be made between the different situation to implement the same amount of compensation and the doubling compensation. The same amount of compensation is the destruction of the amount equal to the compensation amount. For example, there is the destruction of 1Ha of forest or grassland in one place, to create 1Ha forest or 1Ha grassland in another place. Some damages maybe no clearly measurement units, can use comprehensive measure to achieve the same quantity. The doubling compensation is the quality of compensation larger than the quality of destroyed. For example, in one place, cut down five trees, 10 trees planted in another place and ensure survival.


2.4 What is the Biodiversity Offsets and Biodiversity Banking?


In the development process, if cannot evade, minimize the environment impacts, then have to do biodiversity offsets to balance the biodiversity loss with mitigation, and restoration efforts, so that the total acreage of biodiversity in the area does not decrease (No Net Loss), but remains constant or increases (Net Gain) based on the Polluter Pays Principle (PPP). It is implemented in many countries. Typically, developers do not have the ability to repair or transplantation biodiversity environment, which requires the expert in this field, and the one-off biodiversity offsets will be found they are not continuous on the map, we need a specialized agency on the comprehensive management and credit transactions, which is a good means of financing, too. We called that Biodiversity Banking. Biodiversity Banking has been imported to the United States, Canada, Australia, and there are pilot projects in the France, Malaysia, and United Kingdom.


2.5 Which Problems can be solved by Biodiversity Offsets?


Conservation groups, governments and companies are looking for practical mechanisms that integrate environmental issues into planning and development. Biodiversity offsets are conservation actions intended to compensate for the residual and unavoidable loss of biodiversity incurred during new developments. They are increasingly attracting attention because of their ability to achieve more, better and higher priority conservation and livelihood outcomes than currently occur in the context of infrastructure projects. Biodiversity offsets not only rehabilitate sites but also address the company’s full impact on biodiversity at the landscape scale, thus assisting companies to manage their risks, liabilities and costs. In addition, biodiversity offsets can support sustainable livelihoods, addressing some of the underlying causes of biodiversity loss incurred by human use of natural resources. (Kerry &Mira, 2007)



3.  The Relationship among Eco-Compensation, Biodiversity Offsets and Biodiversity Banking


From conceptual distinction, due to Eco-Compensation can use many market economy means, so the biodiversity offsets as economic mean of Green Development Mechanisms (GDM) belongs Eco-Compensation, no contradiction between them. Eco-Compensation can also include Payment for Ecosystem Services, Clean Development Mechanism or the other economic means. PPP and BPP both of them belong Eco-Compensation (Figure1).


3.1 Why focus on the Biodiversity Offsets and Biodiversity Banking?


First, biodiversity loss is very serious problem in China, for example, all the species listed by the Convention on International Trade in Endangered Species (CITES) as critically endangered, one quarter is found in China(WWF), and the sustainable development of China need to balance economic development and environmental conservation, so government urgent need effective economic means such as biodiversity offsets. Second, in the international arena, around the Convention on Biological Diversity (CBD), since the 2007 G8 Ministers of the Environment meeting, there was a hot discussion about the import of Green Development Mechanisms such as biodiversity offsets. Thirdly, biodiversity offsets comply with the theory of Eco-Compensation mechanism such as external diseconomies, although many of biodiversity offsets standards have not been involved in the Eco-Compensation. Finally, biodiversity offsets has a close relationship with the Environmental Impact Assessment or Strategic Environmental Assessment, it can be used as a functional module. So we need focus on them.


3.2 Existing Biodiversity Offsets similar Cases of Eco-Compensation


Relative to the theoretical study of the ecological compensation, the instances are not rich. Forest Revegetation Fee and Forest Ecological Benefit Compensation Fund are the existing instances of ecological compensation, the former is similar to the in lieu fees of United States, it belongs to the government funds into the financial budget management, and implementation of earmarking. Use the Forest Revegetation Fee to recovery, manage and maintain the forest, and it was defined as similar case of biodiversity offsets by The Business and Biodiversity Offsets Program (BBOP). The latter Forest Ecological Benefit Compensation Fund based on the China’s Forest Law, it not only used to restore and manage vegetation, but also to compensate for the loss of specific populations, such as returning farmland to forests, the economic compensation to farmers. China’s current situation are the lack of practice and Eco-Compensation law, although there are many theoretical studies basis.


3.3 The Common Points and Differences among Eco-Compensation, Biodiversity Offsets and Biodiversity Banking

State of Biodiversity Markets Offset and Compensation Programs Worldwide of BBOP’s report was released in 2007, compared with the traditional compensation funds Table 1, and in 2012, BBOP formulated 10 principles of biodiversity offsets, compare them with characteristics of Eco-Compensation Table 2. By comparing between them, we can know the inadequacies of the traditional compensation funds and biodiversity offsets or banking can be used as a supplementary of Eco-Compensation, moreover, Ecological Compensation Ordinance is still in the preparation stage, they can provide some references at this stage.


Features of Compensatory Mitigation Programs Worldwide
Compensation Funds One-Off Offsets Mitigation Banking
Driver Compliance Compliance or Voluntary Compliance
Policy Examples China’s ForestRevegetation Fee;Brazil’s Industrialimpact compensation(‘developer’s offsets’) Offsets under variousEnvironmental ImpactAssessment laws US CompensatoryMitigation (akawetland mitigation);BioBanking in NewSouth Wales, Australia
Implementation Complexity Low Medium High
Required Market Infrastructure Low Low to medium High
Broad-Scale or Strategic Conservation Dependent on programdesign Less likely More likely
Ecological Effectiveness Dependent on designand enforcement Dependent on designand enforcement Dependent on designand enforcement
Who supplies the compensation Government The developer Third-party,government, or thedeveloper
Transparency Moderately likely Less likely More likely

 source: State of Biodiversity Markets Offset and Compensation Programs Worldwide


Design of Eco-Compensation in China



4.  Conclusion and Prospect


Now, Eco-compensation has not introduced a system of regulations yet, although they are being considered, China exists the concepts of biodiversity offsets in the law (Forest Law) and policies (Technical Guideline for Environmental Impact Assessment Ecological Impact), in addition, there are similar cases in China (China’s Forest Revegetation Fee). Biodiversity offsets and banking can be classified in the Eco-Compensation, they are not in conflict, we can learn from biodiversity offsets and banking to improve the system of Eco-Compensation, for example, develop the law to improve transparency, attract more third parties, combined with environmental impact assessment or strategic environmental assessment, use quantitative evaluation to assess ecosystem, suggest to use Habitat Evaluation Procedures (HEP) for animals, Habitat Hectares Socring Method for native vegetation, last we need practice, plan to implement the biodiversity offsets or banking pilot projects like UK, Malaysia, and France.

 Table 2

Biodiversity offsets 10 principles (BBOP) Judge For Eco-Compensation Description
Adherence to the mitigation hierarchy Indirectlyexist Forest Law(1998) , XVIIITechnical Guideline for Environmental Impact Assessment Ecological Impact(2011)
Limits to what can be offset Not exist Eco-Compensation have no definition of Biodiversity offsets
Landscape context Exist It’s designed to sustainable development, give full consideration to the environmental, social, and economic factors. To be considered in the strategic environmental assessment process.
No net loss Exist, but insufficient It has concepts such as Equal compensation and the doubling compensation. But, lack of instances and quantitative evaluation.
Additional conservation outcomes Indeterminate Many ecological compensation cases based fund, low complexity. Lack of quantitative evaluation, so it is difficult to calculate.
Stakeholder participation Exist Although the requirement to use the means of market economy, but government is still dominant, lack of participates of developer and third party.
Equity Low Due to the lack of participation of a third party, and government-led, rely solely on government funds is not enough. For example, the Land – lost Farmers cannot get enough economic compensation.
Long-term outcomes Demanded
Transparency Low Lack of appropriate laws and regulations, it is difficult to be supervised
Science and traditional knowledge Demanded Requires a lot of expertise covers a very wide range of Eco-Compensation




Tony Yang. Environmental problems in China.

Task Force on Eco-Compensation Mechanisms and Polices. (2007).Eco-compensation mechanisms and policies in China.

Kerry ten Kate, Mira Inbar. (2007). Biodiversity Offsets. 189-203, Carroll Nathaniel, Fox Jessica, Bayon Ricardo, Conservation and Biodiversity Banking. Earhscan, London, 298pp.

United Nations Development Programme. (2010). State of Biodiversity Markets Offset and Compensation Programs Worldwide, p5, p44.

Business and Biodiversity Offsets Programme. (2012). Standard on Biodiversity Offsets.




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