Keys in ecological product value-realization mechanism

By QIU SHUILIN, ET AL. / 11-18-2021 / (Chinese Social Sciences Today)

Farmers collect “pre-ming tea” (tea harvested before Qingming Festival), which has long been regarded as one of the best teas in China, due to its tender buds and peculiar aroma, in Gonggu Village, Dongxi County, Chongqing City on Apr. 1. Photo: CFP 

In April, a guideline jointly issued by the General Office of the CPC Central Committee and the General Office of the State Council vowed to establish a basic policy framework for value realization of products by 2025, and a sound mechanism for realizing the value of products by 2035. The efforts to transform lucid waters and lush mountains into “mountains of gold and silver” is an important measure to promote the formation of a new model of ecological progress with Chinese characteristics.
Red line
For a long time, China’s extensive economic growth model that relies on high resource input and heavy pollution has caused serious resource constraint and ecological environment deterioration, constantly pushing the boundary of ecological safety. As of today, high-quality ecological products are in short supply in the face of people’s growing needs for a beautiful natural environment in the new era. 
The red line for ecological protection refers to the areas that are under mandatory and rigorous protection. It serves as both a “bottom line” and a “lifeline” in safeguarding national ecological safety. At present, the assessment and adjustment of the national red line for ecological protection has basically been completed. The initial red line for ecological protection demarcated no less than 25% of the land area, covering nearly 40% of water conservation and flood regulation zones, and about 32% of windbreaking and sand-fixing ecological functional zones.
The designated protection area concerns regions that are both economically underdeveloped and ecologically sensitive and vulnerable. More often than not, ecological problems and poverty are intertwined. In order to realize the “catch-up strategy,” there is a tendency to over-exploit resources and the environment in these parts of the country. 
At the same time, due to undefined property rights, value accounting difficulty, and other technical barriers that are the result of the coexistence of physical and virtual forms, public welfare, and strong integrity and the non-renewable nature of most ecological products, the private marginal benefit and the social marginal benefit of ecological products is asymmetric. 
Therefore, high-quality ecological protection and ecological product value-realization are much needed. In hope of achieving market-oriented operation and sustainable ecological protection, we should actively explore the leading role of the government, and the mass participation of enterprises and all walks of life.
Attributes of ecological products
The economic attributes and property rights system of ecological products determine the leading role of the government in the realization of their value, but it does not mean that the government needs to pay for all ecological products within the red line. Only the value of ecological products with a strong public welfare nature, such as fresh air, windbreaking and sand fixation, and biodiversity maintenance, has to fall under the purview of the government. The specific approaches mainly include vertical transfer payments, horizontal transfer payments, and government purchase of ecological products.
Among them, the vertical transfer payment includes both subsidies without a specific purpose occurring when the government at a higher level intends to narrow the financial gap between governments at a lower level and improve their basic ecological support capability and when the government at a higher level reallocates funds to the government at a lower level to achieve specific ecological goals. 
At present, most of the vertical ecological compensation projects implemented in China do not include ecological red line factors into the scope of compensation standards. In the future, more support should be given to areas with a high proportion of ecological red line coverage. In addition, incentive and punishment systems should be formulated according to the total area of the ecological protection red line at the county level, the core protected area, and the protection effect.
Horizontal transfer payment is an important institutional arrangement between regions where the ecological protection red line is demarcated, which could adjust the interregional environmental benefits and economic benefits distribution by means of capital compensation, counterpart cooperation, industrial transfer, and construction of parks. 
Given the complexity of the ecological system and the space fugacity of ecological products within the red line, in addition to major river basins with clear interest relations in pilot projects, it is also feasible to carry out the responsibility index trading within the scope of the provincial territories based on different red line areas in counties or their tasks to implement clear water and forestation policies.
At last, the government’s purchase of ecological products refers to the government, in accordance with certain methods and procedures, handing over the production of ecological products, ecological management, and conservation services within the red line to qualified social forces through contract outsourcing, franchising, and voucher systems. 
At present, the institutional defects of the government’s purchase of ecological products in China are mainly manifested as the “fragmentation” of the subject, the “internalization” of the object, the “administrative rigidness” of the purchase method, and the “randomness” of the purchase procedure. In this light, it is urgent to improve the policies and regulations of the government’s purchase of ecological products, clarify the list of government purchases, and incorporate rational purchase of ecological products into the performance appraisal of local governments.
Ecological economics 
The school of new institutional economics believes that the lack of a property rights system is the root cause of the externality of public goods. It is necessary to clarify the ownership of factor property rights through technological means and solve the problem of stakeholders with market approaches. The market needs to play a decisive role in the allocation of ecological products in the ecological red line, which not only conforms to the general law of the market economy, but also is the due meaning of the market-oriented reform in this field. 
As the scarcity, appreciation, and property rights of natural resources become increasingly evident, many natural resources that have not been priced but have been stocked for a long time are gradually capitalized, turning into tradable commodities. Therefore, in accordance with the requirements of ecological industrialization and industrial ecology, we should speed up the development of ecological economics in the ecological red line.
On the one hand, social entities can be encouraged and guided to invest in ecosystem management, to conduct transactions between providers and consumers (or intermediaries) of ecological products in the ecological red line. For example, under the premise of not damaging ecological functions, some tourism, forest-dwelling, and under-forest economics can be introduced. 
On the other hand, through government control or quota setting, users of ecological products in the ecological red line can be encouraged to directly sign the contract or purchase compliance quota through mutual transactions. Under the background of the national carbon peak target and carbon neutrality vision, forests, grasslands, wetlands, and other ecosystems with good carbon sequestration function within the red line contain huge market potential. 
At the same time, certification can be granted to local cooperatives and other stakeholders that adopt sustainable, environmentally friendly, and socially acceptable management practices and effectively protect the ecological red line, thereby achieving a premium on ecological products.
How to achieve value-realization
The private sector is not only a consumer of ecological products, but also a producer or provider of the red line ecological products. In other words, both public welfare and quasi-public welfare ecological products can theoretically realize their value through diversified public-private partnerships, especially the latter. 
The key of the public-private parternship in the value realization of ecological products in the red line is that the two sectors jointly participate based on contracts and intermediary agencies.
Through the integrated authorization of complementary tasks, entrepreneurship and the innovation spirit of the private sector can be stimulated to overcome the failure range of pure public sector and pure private sector to truly realize the value of red line ecological products, so as to achieve more favorable results than expected by acting alone.
Internationally, the payment for the water environmental services project in the Gil González watershed, in the municipality of Belén, Department of Rivas in Nicaragua, is a case that has the particularity of public-private partnership. Through the signature of an agreement among the Sugar Company of the South, the municipal governorship of Belén, and the Agency of German Cooperation, a protection area was established. 
Similarly, the Sarapiqui watershed ecological service payment project implemented by the Costa Rican National Forestry Financing Fund and EG, a private hydropower company, is also a typical example of the value realization of ecological products through public-private partnerships. Both provide reference for China’s practice. 
However, it needs to be pointed out that, due to the status inequality, inconsistent interests, information asymmetry, and incomplete contract, public-private partnerships are not always able to reduce the supply cost of ecological products, in which the scale of private sector participation is the key to sustainability.
It is a complex and systematic project to transform lucid waters and lush mountains into mountains of gold and silver within the red line for ecological protection. To promote the high-quality value realization of ecological products, and to promote the synchronous development of the supply chain, value chain, and benefit chain in the field, the following measures need to be adopted.
First, we need to accelerate the transformation of government functions and improve the policy framework. The key is to accelerate the legislative work of ecological protection compensation, clarify the relationship between rights, responsibilities, and interests of all stakeholders in ecological compensation, deepen the reform of resource taxes and fees, guide financial institutions to participate in public welfare ecological protection projects, and establish a horizontal green benefit-sharing mechanism. 
Second, we need to remove institutional barriers and encourage social participation. It is crucial to establish a unified ecological product catalogue and value accounting system, optimize the incentive mechanism for private sector participation, broaden the scope and form of public-private cooperation, improve the performance evaluation mechanism, and build a risk prevention system for ecological protection projects. 
Third, we need to improve the market system and innovate the way of market transactions. In this aspect, the key is to accelerate the reform of the property rights system of natural resource assets within the red line for ecological protection, promote a market trading system for ecological products, expand market-oriented financing channels, and improve the certification system for ecological products in the ecological red line.
Qiu Shuilin, Jin Leshan, and Gao Yahan are from the China Eco-compensation Policy Research Center at China Agriculture University.



Edited by YANG XUE