A growing number of Payments for Ecosystem Services (PES) schemes are being implemented in developing and developed countries alike in order to effect some internalisation of environmental costs. In China schemes under the name of ‘eco-compensation’ are often considered to be similar to PES. Neither the term eco-compensation itself, nor the projects that are supposedly examples of eco-compensation have been subject to scrutiny. This thesis therefore aims to investigate eco-compensation in China, with particular emphasis on water-related programmes.

The thesis begins with a comprehensive review of PES literature in order to establish the definition and essential characteristics of such schemes, and to enable an examination of how China’s eco-compensation differs from PES. The analysis of PES provides a framework for focusing on eco-compensation by examining voluntariness, project types, payment, actors, and scales. A broad-scale analysis of 19 Chinese schemes is then undertaken, and this reveals that eco-compensation projects predominantly involve government agents, often with different levels of government as service sellers and buyers; in China individual land users are only directly involved in a few cases. Literature suggests that PES schemes are not simply technical solutions, but are inherently political. Having undertaken this general survey, the political dimension of eco-compensation is then examined in two case studies in great detail, based on semi-structured interviews and project documents.

The first case study is of the Xin’an River eco-compensation scheme in which an upstream provincial government is paid to protect water quality to benefit the downstream province. Drawing from studies of “scale”, this case explores the power relationships of central-provincial governments and intra-provincial governments in transboundary river water quality management, especially in the negotiation process of the eco-compensation scheme. It finds that the upstream government mobilises the concept of “eco-compensation” to persuade the downstream government to share the costs of protecting the river and to gain favourable terms in setting the water quality target, using the narrative of “climate change”. The central government adopts a tough stance on the issue of environment protection by the upstream government by setting water quality targets and by introducing basin management planning. This case suggests that eco-compensation is shaped by struggles and conflicts among different actors concerning their strategies in defining eco-compensation rules, and that eco-compensation can also reconfigure power dynamics among these actors.

The second case study is of the Miyun Reservoir watershed scheme, in which farmers in the upstream of the contributing watersheds are paid to convert from growing paddy rice to less water-intensive crops, and to reduce fertiliser use. The declared purpose is to increase the water supply to Beijing city, and improve water quality. Applying a political ecology approach, the case examines the history of water provision to China’s capital city, showing that Beijing has been extracting water from its territory and beyond by using its political power. This eco-compensation scheme is just a part of this story. The case also shows that the eco-compensation is justified by framing the upstream agricultural water consumption as the cause of decreasing water flow, while ignoring that large-scale afforestation has significantly contributed to water shortages through the excessive consumption of water. Meanwhile, Beijing has ignored its own huge environmental impact on water quality. This case provides useful insights into how eco-compensation is shaped and framed according to certain priorities and interests, and that it can lead to control over access to water resources amongst the less powerful farmers in order to support water uses in the politically-dominant urban centre.

This thesis suggests that although eco-compensation in some instances can be similar to PES, more often than not it is a mechanism used to adjust the relationships between different governments. It includes both incentive-based and regulatory components. That makes it a potentially effective arrangement for river basin water quality management, in spite of contested negotiations. But caution must be exercised, as it can also be used under the market logic by powerful actors to control water resources.