Jiangsu province is situated on the east coast of the People's Republic of China (PRC). Its main economic activities are in the electronics and clothing industries (the capital Nanjing having given its name to nankeen cloth in the 18th century). As with the rest of the PRC, rapid economic growth has created pressures on the environment: "the fast-paced economic growth of the past three decades has lifted hundreds of millions of rural dwellers out of poverty, but it also greatly multiplied the environmental challenges for policymakers at all levels of government, has increased the pressure on fragile ecosystems, created a range of new pollution and environmental safety issues, and further strained the country’s already limited per capita natural resource base". 
This problem was been particularly acute in the Tai Lake watershed. Tai Lake is "the third largest freshwater lake in China" and, especially since the late 1970s, has suffered "degeneration of lake ecology and water quality".
The challenge for PRC policymakers, in Jiangsu province as elsewhere, has been to promote initiatives that protect the environment. In Jiangsu, "policymakers have been experimenting with a wide array of policy and programme innovations under the broad heading of eco-compensation".  This form of incentivising green policies has been deployed successfully elsewhere, for example in Mexico and Costa Rica. "Eco-compensation, or payment for ecosystem services (PES), is a payment and incentive system that supports sustainable ecosystems, provides stable financing for conservation, and — when strategically designed — can address livelihood issues for the rural poor." 
This approach to the environment has been in play for some time, for example: "in 2005, the fifth Plenary Session of the 16th Central Committee of the Chinese Communist Party issued, for the first time, the principles for developing eco-compensation mechanisms" and a task force on eco-compensation and policy research was established in the same year by the China Committee for International Cooperation on Environment and Development (CCICED).
As far as Jiangsu province is concerned: "the provincial Finance Bureau has established a special fund of almost CNY3 billion/year for provincial-level energy saving and emissions reduction, circular economy development, and Tai Lake watershed management." The fund supports its environmental policy, which has a focus on eco-compensation. "The main aim of this policy is: to develop a modern economic system that is able to better internalise the costs of environmental protection, management, and restoration within economic activities in Jiangsu."
The policy included the following components:
- "To map out and delineate the environmental zones within the province.
- "To promote a system of environmental pricing and paid resource use, develop pilot programmes for pollution emissions rights purchasing and trading in the Tai Lake watershed.
- "To promote a 'Rewards in place of Subsidies' policy to encourage improved environmental management.
- "To develop a cross-district water quality management system.
- "To develop the relevant legal and policy frameworks."
An important branch of the policy was that, reinforcing the original programme, "an initial market for the trading of the emissions rights for major water pollutants in the Tai Lake watershed began in 2010".
The public impact
Between 2007 and 2009, significant progress had been made: "emissions of major pollutants have seen significant total reductions over the past two years, where 99% and 103% of the targets for COD and SO2 emissions for the Tai Lake watershed set out by the national government in the 11th Five-Year Plan had been reached as of mid-2009".
This success has led to further pilot projects, for example: "in 2009, Jiangsu has begun implementing a paid emissions rights pilot programme for ammonia nitrogen and total phosphorous emissions, and has developed a city-level water pollution emissions rights trading market".
The impact on water quality has been positive. "Since 2015, all sources of centralised water supply in the Tai Lake basin have met the state requirements, all water supplied by water plants meet or superior to the state standard and no lake flooding has taken place. The quality of Tai Lake water has improved constantly, and the comprehensive nutrition index of Tai Lake is 55.8, a year-on-year drop of 1.3, indicating a mild eutrophic state. Water quality of the 15 major rivers fluxing into the lake has remained stable and never been below Class V14."
Public Confidence N/A
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Stakeholder Engagement Good
The main stakeholders were the government of the PRC, the Asian Development Bank (ADB) and local government bodies in Jiangsu province, such as the provincial Environmental Protection Bureau. They were committed to the reduction of pollution, particularly water pollution. "Jiangsu Province has been involved in a range of innovative environmental programmes, with the goal of developing a modern economic system that is able to better internalise the costs of environmental protection, management, and restoration within economic activities." The main central government bodies engaged in the project were the National Development and Reform Commission, the Ministry of Environmental Protection, and the Ministry of Finance (see also Political Commitment below).
Political Commitment Strong
The PRC government, along with the China Committee for International Cooperation on Environment and Development (CCICED), established the task force to initiate for eco-compensation. "Based on the research progress and urgent needs for decision-making, the CCICED established the Task Force on Eco-compensation and Policy Research in 2005."
The national government reinforced its commitment to this approach two years later. "In a speech to the 12th Green China Forum in 2007, Vice Minister Pan Yue of the Ministry of Environmental Protection (MEP) said that Eco-compensation policy is not only an environmental and economic, but also a political and strategic need."
This action was strengthened by support from other government bodies, such as the National Development and Reform Commission, the Ministry of Finance, and the provincial government of Jiangsu (see also The Initiative). "With the support and attention of the National Development and Reform Commission, the Ministry of Environmental Protection, and the Ministry of Finance, Jiangsu began water pollution emissions rights trading pilot work for the Tai Lake watershed in 2007."
Clear Objectives Strong
The national and provincial governments had clear environmental objectives for the province as a whole and for the Tai Lake watershed in particular:
- To define clear environmental zones within Jiangsu province.
- To set out 99% and 103% of the targets for COD and SO2 emissions for the Tai Lake watershed.
- To promote a “Rewards in place of Subsidies” policy to encourage improved environmental management.
- To promote a system of environmental pricing and pollution emissions rights purchasing and trading in the Tai Lake watershed as a means of eco-compensation.
- To implement a paid emissions rights pilot programme for ammonia, nitrogen and total phosphorous emissions.
- To develop a city-level water pollution emissions rights trading market.
Several pilot projects were conducted in other regions of China during 2005 to validate the requirements of eco-compensation policy, and during 2008 several surveys and pilot projects were conducted to design the policy framework.
CCICED conducted various interviews and field surveys to validate the effectiveness of the policy. "The Task Force contains six thematic research fields including national strategy, theory and method, watershed, mineral resource development, forest and natural reserves."
Policymakers referred to many existing policies in other parts of the world, such as the Conservation Reserve Program and Wetland Mitigation Banking in the US. Pilot studies were conducted in key areas, including watershed eco-compensation, mineral eco-compensation and forest eco-compensation. Local villagers helped in conducting the survey which then fed into the design of eco-compensation policies.
To evaluate the financial and legal feasibility constraints of eco-compensation in Juangsi, policymakers conducted several pilot studies and also conducted surveys of the Tai Lake watershed (in 2007). Through these surveys, they were able to set the initial prices. "Through large-scale survey work, initial prices have been set at CNY2,600 to CNY4,500/ton for CO2 and CNY2, and 245/ton for sulphur dioxide (SO2)", with penalty rates of "CNY15,000/ton of over-target COD, and CNY10,000/ton of over-target ammonia nitrogen and total phosphorous".
This preliminary work not only helped in evaluating the feasibility but also in strengthening the capacity of key watershed monitoring and control units, which further assisted in achieving the key objectives.
The ambition and scope of these initiatives is evident from the Five-Year Plan from 2006 to 2010, which called for policymakers to innovate in environmental policy, develop eco-compensation pilot projects and accelerate the development of eco-compensation mechanisms (especially intraregional and watershed-related eco-compensation mechanisms). "The eco-compensation management mechanism work across the departments and boundary should be carried out through negotiation with the coordination of the upper level organisations."
There was also mechanisms, such as Jiangsu's regional environmental zoning system, "to lay the groundwork for improved environmental management".
There were many indicators which were used by the policymakers to set the pricing of the eco-compensation mechanisms so that it resulted in an adequate drops in pollution. For example, "on 1 July 2007, the fee for air pollution emissions was increased from CNY0.6/equivalent unit to CNY1.2, and the fee for water pollution emissions was increased from CNY0.7/equivalent unit to CNY0".
The amount collected was also a measure of sorts, although it indicated high levels of pollution: "in 2008, Jiangsu collected CNY2.1 billion in fees under this system, the most of any province for eight consecutive years". Apart from this, the policymakers were monitoring progress of the policy consistently through regular surveys and regular checks on pollution levels by agencies.
All the actors, such as the national and provincial governments and the local communities shared common interests and were aligned towards a common objective.
There was coordination between departments in the national government. "The eco-compensation management mechanism... comprises relevant ministries, such as the Commission for Development and Reform, the Ministry of Finance, the Bureau of Environmental Protection, the Bureau of Forestry, The Ministry of Irrigation, and the Ministry of Agriculture, for coordination, supervision, arbitration, reward and punishment."
An example of the alignment between national and regional government is that "with the support and attention of the National Development and Reform Commission, the Ministry of Environmental Protection, and the Ministry of Finance, Jiangsu began water pollution emissions rights trading pilot work."
There were also instances of cooperation between local communities and government. "To encourage administrative villages to conduct comprehensive environmental management and participate in provincial environmental checks and assessments, an award of CNY20,000 per village has been set, to be used primarily to subsidise the costs of within plan village management of industrial pollution sources, household wastewater and garbage collection, and husbandry wastes."