Ecological Compensation in China: Trends and Opportunities for Incentive-Based Policies Towards a Greener China

China is a global leader in the use of ecological compensation (“eco-compensation”)—fiscal transfers for environmental and natural resources management. China is one of the most fiscally decentralized countries in the world, with 85 percent of government spending occurring at subnational levels. In this context, fiscal transfers are one of the national government’s most important tools for motivating and aligning environmental actions across levels of government and jurisdictional boundaries. The government has signaled a strong interest in expanding eco-compensation as part of reforms towards a higher quality greener growth model. Drawing on a unique dataset built from records across government, academia, and news media, this report traces the rise of eco-compensation, explores its current use, provides recommendations to strengthen impacts, and distills broad lessons from China for similar policies globally.