The South-to-North Water Transfer Project, which aims to mitigate the severe water shortage in the north of China, is the largest water transfer project in the world. However, the success of the middle route of this project is threatened by water pollution in the water supply area and insufficient funding to tackle this problem. This study focused on how to use the policy instrument of Payments for Ecosystem Services (PES) to ensure the success of water protection of the middle route project.
Non-market valuation was conducted in this study to provide policy suggestions on the design of PES schemes for water protection. From the service demand perspective, a Contingent Valuation survey with a total of 755 questionnaires was conducted in 4 cities (i.e. Beijing, Tianjin, Shijiazhuang and Zhengzhou) along the water transfer route in order to investigate urban residents’ Willingness To Pay (WTP) for the service of water protection. From the service supply perspective, a Choice Experiment survey with 246 questionnaires was conducted in 7 villages in the water supply area in order to reveal farmer households’ preferences for different designs of two water protection programs, namely the existing Sloping Land Conversion Program (SLCP) for reforestation and a hypothetical fertilizer reduction program.
Results of the Contingent Valuation survey indicate that urban residents’ WTP for water protection was significantly influenced by their income, their knowledge of the water transfer project and their attitudes to the general idea of PES. Model estimation results show that, on average, respondents in Beijing, Tianjin, Shijiazhuang and Zhengzhou were willing to pay an increase of 0.71, 0.25, 0.39 and 0.36 yuan/m3 in the water price, respectively. In this case, though the annual WTP per capita would only account for 0.14%, 0.04%, 0.09% and 0.07% of the annual disposal income per capita in the four cities, respectively, the total annual WTP of all water users in the four cities could account for 76% of the annual cost of water protection in the water supply area. Therefore, It is argued that a multi-source PES scheme co-funded by water users and governmental budgets is financially feasible without imposing a heavy financial burden to water users in the four cities.
Moreover, results of the Choice Experiment survey show that farmer households in the water supply area significantly preferred higher annual payment, longer contracts and less restrictions on the land use activities regarding both water protection programs. The trade-offs between the three attributes indicate that, on average, farmer households were willing to forgo about 8 yuan/mu/year (mu is a commonly used unit of land which equal to 1/15 hectare) for each extra SLCP contract year and 13 yuan/mu/year for the permission of planting each 10% more “commercial trees” (which are more profitable but generate less ecological benefits). Furthermore, analysis also found that the current SLCP contracts have underestimated farmer households’ preference for the “commercial trees”, and thus are discouraging them to choose the “ecological trees” which are less profitable but generate more ecological benefits. For the hypothetical fertilizer reduction program, farmer households were willing to forgo about 26 yuan/mu/year for every extra contract year but required 16 yuan/mu/year for reducing each 10% of the use of nitrogen and phosphorus fertilizers.
Overall, this research contributes to the literature of linking non-market valuation and PES studies in environmental and natural resources management. It is concluded that PES is a promising policy instrument to secure the supply of clean water for the middle route of the South-to-North Water Transfer Project in China, and non-market valuation methods (Contingent Valuation and Choice Experiments) are useful tools to reveal public attitudes and preferences in the design of PES schemes.
