This Pilot and Demonstration Activities (PDA) will determine the

  • Feasibility of an effective point-nonpoint source nutrient trading program could be established in the Lake Chao Basin
  • Program’s potential benefits
    • Framework and necessary elements for such a program


Project site Lake Chao, People’s Republic of China
Cost $50,000
Status Completed
Approval date January 2012
Completion date November 2012
Category Basin
ADB officer Yi Jiang
Partner World Resources Institute

Report card

Completed in February 2013, this PDA

  • Determined that the feasibility of a nutrient trading program between point and nonpoint sources in the Chao Lake basin
  • Identified institutional, policy, and capacity challenges
  • Developed recommendations to bridge these gaps to cultivate the water quality trading market while enhancing pollution control in the Chao Lake basin.

Read the final report.


Lake Chao, the 5th largest freshwater lake in the People’s Republic of China (PRC), is a major source of water for public, domestic, agricultural, and industrial use. Like many other freshwater lakes in the PRC, population growth, agricultural intensification and rapid urbanization have caused the lake’s environmental quality to deteriorate. An over-enrichment of nitrogen and phosphorus in the lake, contributed largely by the agriculture sector, has been affecting the water supply of the surrounding municipalities.

The government’s past effort has mostly been concentrated on controlling industrial and municipal wastewater discharge, cleaning river courses, and dredging the lake beds, resulting in insufficient resources being devoted to controlling agricultural nonpoint source pollution. There is little evidence of any significant improvement in the lake’s water quality however, raising concerns about the cost-effectiveness of past and current pollution control strategies.

Market-based instruments such as nutrient trading between municipal and industrial point sources and agricultural nonpoint sources could potentially help Lake Chao municipalities meet the targets for nitrogen and phosphorus reductions. An environmental market for nutrient discharge reductions could have other benefits as well, including creating financial incentives for farmers to decrease nutrient runoff, increasing farmer income, achieving the nutrient reduction targets at lower costs, and improving the lake’s water quality. It could become part of a new, more cost-effective and efficient strategy for improving the water quality of Lake Chao.

Expected outcomes


  • Report on the findings of the feasibility study, including recommendations for a trading demonstration project in a small portion of the Lake Chao catchment.


  • The feasibility of point source-nonpoint source nutrient trading in the Lake Chao basin is demonstrated.

Effects and Impacts

The proposed project can generate positive economic, social and environmental impacts that will improve water quality, enhance ecosystem services, and promote sustainable development in the Lake Chao watershed.  Specifically, the project can:

  • Demonstrate the use of market-based instruments in pollution control
  • Enable cost-effectiveness analyses for available nutrient pollution reduction options