The effectiveness of eco-compensation in environmental protection -A hybrid of the government and market

The Payments for Ecosystem Services (PES) program has provided policy innovation for global environmental affairs. China, the largest developing country in the world, is also faced with serious environmental problems. China developed a unique environmental policy – ecological compensation (Eco-compensation), which combined the flexibility of the PES mechanism with efficient government management. The paper studies the efficiency of eco-compensation policy in a large-scale region and the stability of policy in a long-time. We use the counterfactual method - Synthetic Control Method (SCM) to analyze the eco-compensation policy. Zhejiang province, China, which is the first province to implement Eco-compensation policy, chose as study case. We run several robustness checks to discuss the influence of other factors, including economy, politics and geology. The result shows that the eco-compensation policy improve the region's environment significantly. And it never has negative impact for the economy of Zhejiang. We discuss some experiences and challenges of this policy. The paper thinks that localization and the hybrid of government and market could provide successful experience for this policy.