Application of eco-compensation to control transboundary water pollution in water diversion projects: The case of the Heihe River transfer project in China

Controlling transboundary water pollution is particularly crucial for the sustainable development of diversion basins, while eco-compensation is an essential incentive for multistakeholder transboundary water pollution control. Considering the dynamics of the various actors' pollution control behavior in the Heihe River water transfer project and utilizing differential game theory, we construct a baseline strategy, a horizontal eco-compensation strategy, and an incentive coordination strategy under scenarios with and without authority incentives. The corresponding equilibrium solutions are then determined, and comparisons are made between the payoffs of the players in the six different structures, thus defining the optimal scenario for the different programs. In the case of the largest ecological water transfer project of the Heihe River in Northwest China, according to the research findings, (1) when eco-compensation is funded through a single source, incentive coordination scenarios can contribute effectively to water pollution control instituted by the main participants in water diversion projects; when multiple financing sources are available, horizontal ecological compensation scenarios are more compatible with the individual interests of local municipalities to improve the water quality environment. (2) Water-receiving cities voluntarily eco-compensate for water-supplying cities, and this incentive structure for eco-compensation facilitates a significant improvement in the effectiveness of water pollution control and therefore the harmonious promotion of sustainable economic and environmental development in eco-fragile areas. (3) Water transfer projects, for which the two participants are at widely. different levels of development and the environment is inherently fragile, can facilitate, via an eco-compensation mechanism that combines horizontal and vertical scenarios, sustainable development-oriented policies for eco-compensation systems in which the authority participates as a third-party game player. The research supports the establishment of policies for the governance of the transboundary water diversion project basins to address conflicts in water pollution management.