China, People's Republic of : Ecological Valuation and Compensation Mechanism in the Kubuqi Desert

Agriculture, natural resources and rural development / Land-based natural resources management - Water-based natural resources management

The project will be aligned with the following impact: resilient ecological protection and security in the Yellow River Basin achieved. The outcome of the TA is the sustainable financing for the ecological protection and green development in the Kubuqi Desert prompted. The project will include the following outputs:

(i) Output 1: Framework and methodology on ecological valuation of the Kubuqi Desert proposed. This output aims to set up the ecological valuation framework and methodology by learning from international and national experiences for accurately quantifying the ecological restoration effects and establishing the ecological value assessment model for the Kubuqi Desert. It will conduct (i) the literature review and a training workshop on international and national frameworks and methodologies on the valuation of ecological assets; and (iii) the valuation of the ecosystem services of the Kubuqi Desert, including valuation on forest, grassland, wetland, and cropland; and based on surveys, monitoring, statistics, and integration with the existing data platform and management system.

(ii) Output 2: Policy advice on ecological compensation mechanism for the Kubuqi Desert finalized. This output will develop the ecological compensation mechanism. Its activities include (i) conduct of a case study on the costbenefit analysis of the Kubuqi Desert's model of industry-based ecological restoration for its sustainability and replication in other regions in the PRC and in ADB's developing member countries (DMCs), particularly in the central Asian countries; (ii) conduct of an international exchange on eco-compensation and sustainable financing, and (iii) development of ecological compensation mechanisms, including the policies or guidelines and accounting tools for the public goods of large-scale ecosystem restoration led by the private sector.

(iii) Output 3: Knowledge of multiple stakeholders on ecological valuation and compensation enhanced. The output will support the capacity building on developing the eco-compensation mechanisms and sharing knowledge with all stakeholders and DMCs. Activities under Output 3 will include (i) organization of workshops to be participated in by multiple stakeholders for guidelines on ecological valuation and eco-compensation; (ii) conduct of knowledge sharing on the TA subproject 5's results at the high-level Kubuqi Desert Forum to facilitate the sustainable development of the Kubuqi Desert; and (iii) publication of at least one knowledge product for sharing with other DMCs, especially the central Asian and regional economic cooperation (CAREC) countries.

The Kubuqi Desert has its (i) special geographical locationbeing located in the middle and upper reaches of the Yellow River Basin; (ii) natural environmentbeing the easternmost and seventh largest desert in the PRC; and the transition zone between desert and sand; and (iii) important economic rolebeing one of the key implementation areas of the Government of the PRC's subproject began in the 1980s to build the world's influential "three Northern" shelterbelt system, including returning farmland to forests and grasslands, protecting natural forests in the middle and upper reaches of the Yellow River, and controlling the sources of sandstorms in Beijing and Tianjin, which has resulted to gradually improved ecological environment and remarkable achievements of changing sand damage into sand and wind sand into scenery; and thus, creating a green miracle of desertification prevention and control in the world. Therefore, conducting research and further designing innovative experiments in the Kubuqi Desert are of great importance to the PRC's practice of ecological civilization.

The government requested a TA from ADB to conduct a study on ecological valuation and compensation mechanism in the context of the Kubuqi Desert. The TA is included in the country operations business plan (COBP) for the PRC, 2018-2020. The TA subproject 5 will support the overall TA cluster with strong focus on developing the ecological compensation mechanism in the Kubuqi Desert with the involvement of private sector. The TA subproject 5 will also help to formulate fiscal and sustainable ecological solutions, so as to better protect the environment while increasing the productivity and incomes of local people in the Kubuqi Desert.

The expected results of the proposed TA subproject 5 are as follows: (i) build different ecosystem assessment models, and develop technical guidelines for ecological valuation; (ii) formulate a diversified and market-oriented ecological compensation program to promote ecological protection and green development in the Kubuqi Desert; and (iii) share knowledge on items (i) and (ii) to other regions in the PRC; and to ADB''s DMCs, particularly to the central Asian countries.

Resilient ecological protection and security in the Yellow River Basin achieved

Sustainable financing for the ecological protection and green development in the Kubuqi Desert prompted

Framework and methodology on ecological valuation of the Kubuqi Desert proposed

Policy advice on ecological compensation mechanism for the Kubuqi Desert finalized

Knowledge of multiple stakeholders on ecological valuation and compensation enhanced

The inception workshop on Ecological Valuation and Compensation Mechanism in the Kubuqi Desert, which was held on 6 July 2021 and attended by about 30 participants, discussed international and national methodologies on the ecological valuation of the Kubuqi Desert, natural capital lab framework, eco-compensation mechanisms, carbon trading, role of the private sector in providing public goods, and knowledge sharing plan with other developing member countries. Director of Environment, Natural Resources and Agriculture Division of ADB East Asia Department introduced the Yellow River Ecological Corridor Program; and highlighted the importance of the project as a case study of natural capital investment with involvement of private sectors, which could be shared with other projects in the PRC and other developing member countries, such as Central Asia countries and Mongolia. Officials of the Finance Department and the IMFGA expressed their strong willingness to support the project and appreciated ADB's support. The TA consultant team from the Chinese Academy of Environmental Planning organized the inception workshop. Prof. Robert Costanza of the Australian National University as the deputy team leader introduced international experiences on ecological services valuation and sustainable well-being, which are supported by social capital (including human and built capital); and natural capital, which provide ecological services. Prof. Ouyang Zhiyun of the Research Center for Eco-Environmental Sciences as the team leader, will be responsible for ecological valuation and ecological services which are supposed to be valued in spatial and presented within grids. He will support the design of the eco-compensation mechanism, such as a land use right trading system among provinces. Prof. Ma Jun of the Institute of Finance and Sustainability as the co-team leader, proposed that the overall eco-compensation policy be divided into three aspects: government-led eco-compensation, market-based eco-compensation, and industry-based eco-compensation. During a study trip from 7 to 8 July 2021, the TA consultant team confirmed that Prof. Zhu Wenquan will closely work with local officials of the IMFGA to integrate ecological baseline data into a geographic information system map and, together with Prof. Ouyang, develop a desktop-based ecological valuation system. Ms. Li Yingchun will focus on a carbon neutrality roadmap and relevant policy implications and recommendations, with consideration of the Kubuqi Desert's carbon sequestration to increase carbon credit for trading. The TA consultant team reached an agreement with the IMFGA to publish relevant data which are available only in 2000, 2010, and 2020. Water shortages and the wetland carbon protection should be paid great attention. Because of the delayed implementation of the planned TA activities because of the significant impact of the COVID-19 pandemic and related travel restrictions implemented in alignment with the health and safety protocols, the virtual interim review workshop was held on 19-20 May 2022; and a training workshop on Ecological Services Valuation and Compensation Mechanism in the Kubuqi Desert was held on 2628 July 2022 at Ordos City, Inner Mongolia Autonomous Region (IMAR), People's Republic of China. The training introduced frameworks, methodologies, and tools of gross ecological products (GEP) accounting, ecological compensation policy, financial instruments, and local governor's performance assessment. More than 60 trainees of event came from the IMAR Finance Department (IMFD), Forestry and Grassland Administration (IMFGA) and Ecology and Environment Department, as well key institutes of IMAR. IMFGA's Director General Dong Shuhua and the IMFD's Director Wu Bing delivered the welcome remarks and expressed their gratitude to ADB for sponsoring the workshop and appreciated the Natural Capital Lab framework. The interim report was shared with the loan project team on Inner Mongolia Sustainable Cross-border Development Investment Program Tranche 2 for economic analysis including Economic Research Cooperation Department of ADB.

Next steps: (i) submit the revised interim report and the draft final report, (ii) support the investment in the deserts; (iii) submit the local technical guideline of GEP; (iv) conduct the virtual final review mission/workshop and (v) publicize a knowledge product.

The local government and private sector are involved as key stakeholders. The local survey was mainly focused on the Yili group.