Forest Ecosystem Services and Eco-Compensation Mechanisms in China

Forests are a major terrestrial ecosystem providing multiple ecosystem services. However, the importance of forests is frequently underestimated from an economic perspective because of the externalities and public good properties of these services. Forest eco-compensation is a transfer mechanism that serves to internalize the externalities of forest ecosystem services by compensating individuals or companies for the losses or costs resulting from the provision of these services. China’s current forest eco-compensation system is centered mainly on noncommercial forest. The primary measures associated with ecosystem services are (1) a charge on destructive activities, such as indiscriminate logging, and (2) compensation for individual or local activities and investments in forest conservation. The Compensation Fund System for Forest Ecological Benefits was first listed in the Forest Law of the People’s Republic of China in 1998. In 2004, the Central Government Financial Compensation Fund, an important source for the Compensation Fund for Forest Ecological Benefits, was formally established. To improve the forest eco-compensation system, it is crucial to design and establish compensation criteria for noncommercial forests. These criteria should take both theoretical and practical concerns into account, and they should be based on the quantitative valuation of ecosystem services. Although some initial headway has been made on this task, the implementation of an effective forest eco-compensation system in China still has deficiencies and still faces problems. Implementing classification-based and dynamic management for key noncommercial forests and establishing an eco-compensation mechanism with multiple funding sources in the market economy are the key measures needed to conquer these problems and improve the forest eco-compensation system and China’s forestry development in sequence.