Zhejiang's Forest Ecological Benefit Compensation Fund — Provincial Payments for Public Welfare Forest

Zhejiang piloted a provincial forest ecological compensation fund in 2001 and implemented it province-wide in 2004, making it one of China's earliest sub-national payment-for-ecosystem-services mechanisms. It is jointly administered by the Zhejiang Provincial Department of Finance and Provincial Forestry Bureau under management measures first issued in 2005 and revised in 2011 and 2019, and it operates alongside, but separately from, China's national forest compensation programme.

Forest land the province classifies as "public welfare forest" — managed primarily for water conservation, soil retention and other ecological functions rather than timber production — is compensated annually on a per-mu basis, paid from the provincial fiscal budget with central co-funding for nationally designated public welfare forest. Forest owners, collectives and local governments responsible for maintaining these forests accept restrictions on commercial logging in exchange for the payment, with tiered rates giving higher compensation to forest inside national parks, nature reserves and watershed-source counties.

The per-mu compensation standard has been raised eleven times since the initial 8 yuan/mu set in 2004, reaching a provincial minimum in the low-to-mid 30s yuan per mu in recent years. The fund now covers roughly 3.04 million hectares — about 45% of the province's forest land — and has cumulatively disbursed more than 20.2 billion yuan, reaching an estimated 2.55 million forest-owning households. A 2024 peer-reviewed household-level study found the compensation policy significantly reduced energy-poverty risk among participating forest communities.

National-level reviews of China's forest compensation funds, applicable to Zhejiang's programme, note that financing remains overwhelmingly (cited at roughly 87%) government fiscal transfers rather than market-based instruments, and that compensation standards are not always judged to fully reflect either the ecological contribution of protected forest or landholders' opportunity costs. As with most area-based forest PES schemes, payments are tied to forest classification and area rather than measured ecological performance, which limits the programme's ability to demonstrate additionality directly.

Read the full analysis: http://czt.zj.gov.cn/art/2023/1/9/art_1229135607_2454365.html