Market-based instruments for ecosystem services: framework and case study in Lishui City, China

Figures & data

Table 1. Critical criteria for market creation

No	Criteria	Description
1	Definable	Unclear definition of property rights is the main influencing factor of externalities. The nature and extent of property rights need to be defined by law and confirmed through registration. The carbon emission rights, water rights, and pollution emission rights associated with land use also need to be defined.
2	Veriable	Property rights arrangements need to establish correlations with ecosystem services. Quantification of indicators can achieve comparable results and reduce transaction costs. For example, carbon emission trading, Stormwater Retention Credits.
3	Transferable	Property rights related to ecosystem services are valuable. Reasonable entry barriers and a certain number of participants contribute to full competition. Transactions related to property rights require the government to establish a platform for review and supervision to reduce transaction costs. For example, Wetland Mitigation Credits, water rights trading.
4	Enforable	Enforcement of property rights is mandatory. Compulsory realization requires supporting measures, such as fines, security deposits, etc. For example, Wetland Mitigation Credits and Stormwater Retention Credits.
5	Policy continuity	The market creation of ecosystem services is the result of government intervention, and the expected value of its property rights depends heavily on policies. The authority of government is related to policy continuity.

Table 2. Characteristics of market-based instruments for ecosystem services

No	Characteristics	Description
1	Ecosystem services	Ecosystem services are the benefits that humans obtain from ecosystems. Most ecosystem services are public goods. Public goods can be divided into market goods, pure public goods, toll or club goods, and common-pool resources based on non-rivalry, non-exclusive, and intervention policies. The choices of different policy tools needs to be based on product characteristics.
2	Stakeholders	Beneficiaries. The beneficiaries involve users, governments, NGOs, etc., and they have different effects on the implementation of the market-based instruments. Supplier. Potential ES sellers are those who are committed to ensuring the normal supply of ES, including collective land or government land owners, and farmers with use rights or management rights.
3	Trading mechanisms	The trading mechanisms are directly related to the types of transaction. Market-based instruments can generally be divided into four categories: price-based instruments (I), price-based instruments (II), market friction instruments and quantity-based instruments. Effectiveness evaluation requires the establishment of a new baseline as much as possible to prove whether there is additional ES, transaction cost reduction or efficiency improvement. Many existing cases face problems such as high evaluation costs, insufficient evaluation methods, difficulty in monitoring, and data lag.
4	Guarantee mechanisms	ES stakeholders or any third parties related to MBIs may have a profound and extensive influence on the form of the project. Policy tools are the means of policy intervention and require government decision support. The United States has introduced relevant laws and regulations in areas such as promoting the Stormwater Retention Credits, the Wetland Mitigation Bank, and carbon emission trading. China is actively promoting the construction of ecological civilization, and the ecological compensation regulations have entered the legislative process.

Figure 1. The study area is Lishui City in the Zhejiang Province, China

Figure 2. The pledge financing of the right of the ecological public welfare forest in Lishui City, China