China, People's Republic of: Market-Based Eco-Compensation Mechanisms in Beijing

Sovereign Project | 47049-001

Summary

The technical assistance (TA) will contribute to the improvement in rural ecological systems and residential livelihood in Beijing. The TA outcome will be the establishment of market-based eco-compensation mechanisms in Beijing. The TA will produce the following outputs: (i) a main report consisting of four sub-reports on (a) potentials and valuation of carbon sequestered in the agricultural and forestry sectors in rural Beijing, (b) development of carbon trading market incorporating forestry and agricultural sectors, (c) economic analysis of carbon trading with agricultural and forestry sectors, and (d) fiscal policies and market-based eco-compensation mechanisms; (ii) a policy note on the development of market-based eco-compensation mechanisms in Beijing; (iii) an international forum on market-based eco-compensation mechanisms; and (iv) trainings for policymakers and potential stakeholders in future eco-compensation schemes.

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Project Name Market-Based Eco-Compensation Mechanisms in Beijing
Project Number 47049-001
Country China, People's Republic of
Project Status Approved
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 8471-PRC: Market-based Eco-compensation Mechanisms in Beijing
Technical Assistance Special Fund US$ 400,000.00
Strategic Agendas Environmentally sustainable growth
Inclusive economic growth
Drivers of Change
Sector / Subsector

Agriculture, natural resources and rural development - Forestry - Land-based natural resources management

Finance - Finance sector development

Gender Equity and Mainstreaming
Description The technical assistance (TA) will contribute to the improvement in rural ecological systems and residential livelihood in Beijing. The TA outcome will be the establishment of market-based eco-compensation mechanisms in Beijing. The TA will produce the following outputs: (i) a main report consisting of four sub-reports on (a) potentials and valuation of carbon sequestered in the agricultural and forestry sectors in rural Beijing, (b) development of carbon trading market incorporating forestry and agricultural sectors, (c) economic analysis of carbon trading with agricultural and forestry sectors, and (d) fiscal policies and market-based eco-compensation mechanisms; (ii) a policy note on the development of market-based eco-compensation mechanisms in Beijing; (iii) an international forum on market-based eco-compensation mechanisms; and (iv) trainings for policymakers and potential stakeholders in future eco-compensation schemes.
Project Rationale and Linkage to Country/Regional Strategy

Healthy ecological systems can provide invaluable goods and services to human well-being, including carbon storage, biodiversity, and recreational and aesthetic functions. In the People's Republic of China (PRC), the least degraded and healthiest ecological systems are located in the rural or underdeveloped areas surrounding the urban areas. Economic development and livelihood improvement in these areas are the country's priorities to achieve inclusive growth. However, development should not compromise the local ecological systems, which can reduce the services ecosystems can provide.

Eco-compensation provides an innovative way to attain urban-rural integrated development. It allows for rural livelihood improvement while reducing or mitigating some of the negative impacts of development on ecosystems and conserves the important services they provide. The basic idea is to compensate people for refraining from conducting activities that will cause serious damage and impair ecosystem services in fragile or economically important ecosystems. Based on accumulated local experiences and studies, the PRC has started drafting an eco-compensation ordinance' which will serve as a legal basis and guide for establishing eco-compensation programs. ADB has been providing substantial support to this legislative process, as well as its underlying policy studies.

Presently, most eco-compensation programs in the PRC are government-driven, relying heavily on fiscal transfers between government entities. While this kind of arrangement may be effective in the PRC context, this may not properly reflect the value of ecological services provided and the willingness-to-pay of the beneficiaries, and thus, could fail to fully exploit the economic efficiency embodied in the eco-compensation idea. Introduction of market-based mechanisms for eco-compensation is expected to achieve higher efficiency, at least in some cases.

Among the goods and services an ecological system offers is carbon sequestration. Carbon sequestered in land and forestry accounts for a large share in terms of economic values. In a voluntary greenhouse gas emission trading market and with the expected pilot cap-and-trade programs in the PRC, carbon sequestration is an ecological service that could be incorporated into market-based transactions, aside from government driven transactions. In this case, developing market-based eco-compensation mechanisms should start with incorporating carbon sequestration from the agriculture and forestry sectors into carbon trading markets; although many issues in this regard need to be addressed within the PRC context, which include: (i) calculating the amount of carbon sequestered and the potential for additional sequestration, (ii) appropriate methodology for verifying the amount of carbon sequestered and generating carbon credits, (iii) how to practically incorporate the carbon sequestration into a cap-and-trade program, (iv) economic benefits and transaction costs, and (v) how market mechanisms and government-driven eco-compensation programs can better complement each other.

The proposed TA will address the above issues, with Beijing Municipality as the geographical focus. Beijing was chosen for the following reasons: (i) Beijing is prepared to launch a local carbon trading market by the end of 2013, one of the seven pilot programs nationwide. The TA can enhance the experiment in a timely manner; (ii) ecological services provided in the rural area of Beijing are highly valuable and cannot be easily replaced, while the need for rural development remains a challenge to Beijing; and (iii) as a leading city in carbon market development, Beijing's experience could easily be disseminated either through the central government or directly to other local governments.

Increasing carbon sequestration via afforestation, forest management and conservation, improving ecological compensation mechanisms, and controlling greenhouse gas emissions from agricultural practices and animal husbandry are among the key activities highlighted in the Notification of the State Council regarding the Implementation Plan for the Control of Greenhouse Gases in the Twelfth Five-Year Plan (2011) . The proposed TA will provide direct support to these national priorities.

Impact Improvement in rural ecological systems and residential livelihoods in Beijing
Project Outcome
Description of Outcome Establishment of market-based eco-compensation mechanisms in Beijing
Progress Toward Outcome --
Implementation Progress
Description of Project Outputs

A main report on developing market-based eco-compensation mechanisms prepared

A policy note on development of market-based eco-compensation mechanisms in Beijing prepared

An international conference on market-based eco-compensation mechanisms held

Capacity building related to policy and practice of market-based eco-compensation for policy makers and potential stakeholders provided

Status of Implementation Progress (Outputs, Activities, and Issues) Consulting services commenced on 12 January 2015. Inception mission is scheduled in end-March 2015.
Geographical Location
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Business Opportunities
Consulting Services The proposed TA will require an estimated 8 person-months of international and 26 person-months of national consultants with expertise in the areas of carbon market development, forestry and agricultural sinks, agricultural economics, rural development, and fiscal policy. Resource persons may be invited to review the consultants' outputs and share knowledge during workshops and conference. The consultants will be engaged through a consulting firm by the executing agency, in accordance with ADB's Guidelines on the Use of Consultants (2013, as amended from time to time), using the quality- and cost-based selection method, with a quality-cost ratio of 80:20, and by inviting simplified technical proposals.
Procurement Equipment for research and field investigation will be procured following ADB's Procurement Guidelines (2013, as amended from time to time).
Responsible ADB Officer Yi Jiang
Responsible ADB Department East Asia Department
Responsible ADB Division Environment, Natural Resources & Agriculture Division, EARD
Executing Agencies
Beijing Municipal Bureau of Financial WorkZHANG Jibing, Director, Financial Market Divisionzhangjibing887@163.comThe 3rd Floord, No 2. Courtyard Huaibaishu Street, Xuanwu District Beijing, P.R.C. 100053
Timetable
Concept Clearance 07 Aug 2013
Fact Finding 26 Jun 2013 to 27 Jun 2013
MRM -
Approval 01 Oct 2013
Last Review Mission -
Last PDS Update 19 Mar 2015

TA 8471-PRC

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
01 Oct 2013 25 Oct 2013 25 Oct 2013 31 Mar 2015 19 Jan 2016 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
400,000.00 0.00 290,000.00 0.00 0.00 0.00 690,000.00 01 Oct 2013 0.00
Title Document Type Document Date
Market-based Eco-compensation Mechanisms in Beijing Technical Assistance Reports Oct 2013

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