Eco-compensation, known as payment for ecosystem services, is defined in China as an institutional arrangement for regulating the relationship of economic interests among ecological protectors, beneficiaries and destructors in order to protect ecological service function and foster harmony between people and nature with non-market and market tools including transfer payment, taxes and fees. Reasonable compensation to ecological service providers significantly contributes to the protection of ecological assets and effective supply of ecological services by adopting transfer payments or market transactions on the basis of comprehensively considering the costs of ecological protection, costs of development opportunity and ecological service values. It is helpful for implementing a strategy for main functional areas. The building of eco-compensation mechanisms is therefore highly valued as the most important institutional guarantee for promoting the ecological civilization. Existing eco-compensation mechanisms mainly fall into three categories: exchequer based transfer payment, vertical and horizontal, and market based compensation in China. The institutional framework has been primarily established, inclusive of a forest ecological benefit compensation fund system, grassland eco-compensation system and transfer payment system of national key ecological function areas. Under the framework, various areas and departments have actively explored the building of an eco-compensation system and achieved important progress for forests, grassland, wetlands, river basins and water resources, exploitation of mineral resources, oceans and national key ecological functions areas. However, the eco-compensation system dominated by vertical transfer payments is still far from perfect in China. The interest regulation pattern of “developer to protect and beneficiary to compensate” has not been formed. Its role in the protection of the ecological environment has not been brought into full play. China should improve eco-compensation systems by intensifying eco-compensation inputs, strengthening government responsibility, diversifying eco-compensation tools, and establishing institutional systems.

At the end of the 1990s China started to construct an ecological compensation system for national key ecological function areas. An eco-compensation system focusing on the “Transfer Payment of National Key Ecological Function Areas” has been established. The current eco-compensation system has played a positive role in improving the ecological environment of national key ecological function areas; but the ecological effect is weakening due to existing problems in the eco-compensation system such as unreasonable calculation of compensation standards, poor expression of rights and interests of stakeholders, simple sources of capital and modes of compensation. For better development, the eco-compensation system should be improved by (i) adhering to the combination of vertical compensation (oriented) and horizontal compensation (auxiliary) on the whole and establishing a transfer payment system of eco-compensation at national scale; (ii) defining the compensation standard according to ecological protection costs, development opportunity costs and ecological service values and adding indicators that reflect economic green transformation to evaluate compensation effects; (iii) gradually building a utilization system of eco-compensation funds in which multi-stakeholders participate and establishing a green development-oriented system to evaluate the performance of local governments; and (iv) cultivating a new business pattern where ecological services are the product, to grow the ecological service industry.

Evaluation of the ecological effects of eco-compensation policies helps analyze policy rationality and feasibility and provides scientific and practical bases for perfecting eco-compensation systems. Taking the key ecological function area of the Loess Plateau, China as a case study, we have evaluated ecosystem responses to the Grain-for-Green Project that commenced in 1999. Six indicators were selected to assess changes in ecosystem structure, quality and function. The results showed that implementation of the Grain-for-Green Project has reduced sloping cropland by 1571 km² and increased ecological land by 1337 km². The increase in ecological land alters ecosystem structures across the study area and the decline in sloping cropland reduces farming activity interference; both of these are conducive to the restoration of natural vegetation. From 2000 to 2010, the vegetation cover of grassland, desert and forest ecosystems increased 10.89%, 8.34% and 4.24% respectively and average NPP rose 51%, with an average annual growth rate of around 5%. This indicates that eco-compensation has promoted the improvement of ecosystem quality. Total biomass of ecosystems increased two times on average from 2000 to 2010, meaning that the carbon sequestration capacity of ecosystems also increased. The reduction in the area of water loss and soil erosion and the increase in retained runoff by forests indicate an improvement in ecosystem function and services on the Loess Plateau.

Ecosystem services are transferred from the service-providing area to the service-benefiting area to satisfy human needs through some substance, energy or information. Most studies focus on the provision of ecosystem services and few focus on the demands on ecosystem services and their spatial distribution. Here, on the basis of the flow of water conservation services from the providing area to the benefiting area, the benefits produced by water conservation service are investigated and the benefiting areas are identified. The results indicate that in 2010 the water conservation service of key ecological function areas provided irrigation water for 1.67×10⁵ km² of paddy fields and 1.01×10⁵ km² irrigated fields, domestic water to urban residents and industrial water to factories, mines and enterprises of 2.64×10⁴ km² urban construction land and domestic water to rural residents across 3.73×10⁴ km² of rural settlements and formed 6.64×10⁴ km² of inland water which can be used for freshwater aquaculture, downstream regions comprise 1.31×10⁴ km of navigable river, which can be used for inland shipping. The benefit areas of the key function areas located in the upper and middle reaches of the Yangtze River are greater and more influential benefit areas. To protect these key function areas, more attention should be paid to the maintenance and improvement of water conservation. Some benefit areas have access to the benefits produced by water conservation of nine key ecological function areas and cover 17% of the overall benefit area and the length of their channels benefited accounts for 7%. Multiple key ecological function areas should be taken into account equally in the formulation of ecological compensation policies. These research findings can serve as a scientific basis for the compensated use of and ecological compensation for ecosystem services provided by key ecological function areas.

Water-related ecosystem services is a hot topic in ecological research. Water supply services are crucial to regional water cycles and water quantity balance. The Dongjiang Lake basin is a national priority river basin in China where ecological compensation pilot programs concerning water resources and water supply services are top priorities for ecosystem service protection. We analyzed spatial and temporal patterns associated with generation and use of water supply services in the Dongjiang Lake basin using the InVEST model, socio-economic data and water resource data. We found that between 1995 and 2010, water yield in the Dongjiang Lake basin and its beneficiary areas increased before declining, varying 9350–12 400 m³ ha^-1 y^-1; average water yield peaked in 2000. The spatial distribution patterns of water yield during these years are similar, progressively decreasing from upstream to downstream with a remarkable reduction in surrounding areas of city clusters. Average water consumption of the basin and its beneficiary areas ranged from 2900–4450 m³ ha^-1 y^-1 between 1995 and 2010; the spatial distribution patterns of water consumption during these years are similar, dropping gradually from urban construction land to its surroundings with a stronger gradient between urban and rural areas. More water was consumed on both banks and surroundings of the lake. From 1995 to 2010, water supply fell short of demand for urban construction land and its proximity as well as areas along the lake. Water supply services were able to satisfy needs in other regions. The Changsha-Zhuzhou-Xiangtan city cluster suffers from the most strained water supply.

Soil erosion is a significant factor in the deterioration of the ecological environment and soil conservation is an important ecological service of National Key Ecological Function Areas in China. Here, climate, terrain, soil and vegetation cover, soil erosion and soil conservation spatial data in 25 National Key Ecological Function Areas in 2010 were analyzed using the Universal Soil Loss Equation by ArcGIS tool. We found that soil conservation effects due to vegetation cover and soil conservation measures are obvious and that micro and slight erosion areas in National Key Ecological Function Areas have increased by 26.2%. The area of intensive erosion decreased by 25.1%, and the soil conservation amount in southern National Key Ecological Function Areas is high. The conservation amount of soil nutrients within National Key Ecological Function Areas is related to amount of soil conservation and content of each nutrient element in soil. The sequence of nutrient conservation amounts from high to low is soil organic carbon, total K, total N and total P in soil. The conservation amount of various soil nutrient elements in the Alkin Grassland function area and Yunnan and Sichuan function area was highest. Based on our findings, we recommend the strengthening of vegetation protection and management in the areas with high per unit area soil erosion, enhancement of vegetation cover and improvement of soil conservation measures in order to improve soil conservation functions and reduce soil nutrient losses. Vegetation protection and soil conservation measures should be consolidated in the areas with high potential erosion to prevent further deterioration.

Evaluations connect ecosystem and human welfare to achieve restoration. There have been an increasing number of studies conducted on various ecosystem service assessments, but little research has focused on inland river basins playing a critical role in development in northwestern China. The distinct differences in natural endowment, socioeconomic characteristics among the upper, middle and downstream inland river basin require heterogeneity during evaluation. The objective of this study was to verify the existence of population preference heterogeneity and examine impact factors using choice experiment surveys in the Shiyang River Basin, China. A mixed logit model using data from 714 households across the entire basin estimated mean willingness to pay and the standard deviation for ecological attributes. Ordinary least squares (OLS) was employed to estimate the effects of exogenous variables on all willingness to pay estimations. The results demonstrate that ecosystem service values are heterogeneous among people. Willingness to pay is affected by personal and regional characteristics. Government involvement will be required to seek differentiated ecosystem services values among populations and facilitate public support.

The fact that ecosystem services have values that can be quantified has been widely accepted in recent years. Part of the economic values of ecosystem services have been realized partly by ecological compensation of fiscal transfer payments at different levels, trade and consumption of leisure tourism and ecological products, and carbon sequestration forest funds sponsored by non-governmental capital. However, it remains difficult to realize the economic value of ecosystem services as industrial products and support the coordinated and sustainable development of nature, economy and society. To reveal the role of ecological compensation, consumption of biological products, leisure tourism and ecosystem services trading in realizing the economic values of ecosystem services, we analyzed the composition, transfer and consumption pattern of ecosystem services. In order to provide theoretical and technological support for inter-regional ecological compensation, ecosystem service industry development and ecosystem services trade, the concept of ecosystem services credit and key problems with ecosystem services trading are proposed.

Payment for ecosystem services is a concept of environmental protection and method of environmental management that has “purchasing conservation” as a major feature and has grown around the world since the 1990s. It is stressed by the school of environmental economics that as a voluntary mechanism of exchange between ecological service providers and demanders, payments for ecosystem services can help to increase inputs and improve efficiency. Ecological economics holds that the ecological system and the complexity of the policy environment restrict the functional space of market mechanisms. The negative influence of the objective of giving priority to efficiency on environmental protection and social fairness cannot be neglected; therefore, the exchange mechanism is just one type of eco-compensation models. Here, we posit that payments for ecosystem services is a good tool for environmental protection and increases inputs and efficiency. Although payment for ecosystem services is confronted with challenges in application, it is playing an increasingly important role in the field of ecological services with a relatively high degree of commodification. Payments for ecosystem services can also increase the cost effectiveness of publicly managed environmental projects with the cooperation of other policy tools.