Joint-Financing Framework for Water Services in the Thousand Island Lake Water Distribution Project in Eastern China

Valuing water is difficult and contentious owing to water’s physical, political, and economic characteristics. Combining household-level and county-level data at the county level could clarify the responsibilities of both the government and users. In the Thousand Island Lake Water Distribution Project (TILWDP), the upstream ecosystem services provider, Chunan County, is assumed to sustain a tremendous opportunity cost due to the extremely strict environmental protection requirements of the project. To estimate the opportunity cost of supplying fresh water that meets the standards of the National Primary Drinking Water Regulations, a synthetic control model is introduced, and county-level macroeconomic data are used. A funding gap was estimated in the current government-financed situation. Meanwhile, willingness to pay is calculated based on household-level data collected in the downstream area. The estimate indicates that the combination of ecological compensation payments from governments and downstream stakeholders’ willingness to pay for water services could completely cover the upstream service provider’s opportunity cost. Specifically, the related central and downstream governments would need to take on approximately 1/3 of the total cost, while the users from the downstream area would take on the rest. The proposed policies include adopting government–user joint-financing payment for ecosystem services (PES) schemes for regional ecological and environmental cooperation in China, implementing diversified payment vehicles, launching additional environmental education projects, etc.