CLEAR WATERS and LUSH MOUNTAINS The Value of Water in the Construction of China’s Ecological Civilization CONTENTS i CLEAR WATERS and LUSH MOUNTAINS The Value of Water in the Construction of China’s Ecological Civilization © 2022 International Bank for Reconstruction and Development / The World Bank and the Development Research Center of the State Council, the People’s Republic of China 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org This work is a product of the staff of The World Bank and the Development Research Center of the State Council, the People’s Republic of China. The findings, interpretations, and conclusions expressed in this work are those of the authors and do not necessarily reflect the views of nor imply an official endorsement by The World Bank, its Board of Executive Directors, the governments they represent, or the Government of China. The World Bank and the Development Research Center of the State Council, P. R. 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Cover design: Remy Rossi, remyrossi.design ABOUT THE WORLD BANK ABOUT THE DEVELOPMENT RESEARCH CENTER The World Bank helps countries tackle their most complex The Development Research Center of the State Council (DRC) challenges by bringing together financing, knowledge, and conducts research on the overall, comprehensive, strategic and implementation into one platform. By combining the Bank’s long-term issues related to economic and social development global knowledge with country investments, this model in China, as well as key challenges related to reforms and policy generates transformational solutions to help countries grow options, providing advice to the State Council. sustainably. Please visit us at en.drc.gov.cn. Please visit us at www.worldbank.org or follow us on Twitter at @WorldBank Contents Foreword by Manuela V. Ferro vii Foreword by LONG Guoqiang xiv Acknowledgements xvi Executive Summary xviii Abbreviations xxviii 1 The Value of Water in China: Context and Motivation 1 1.1 China’s Green Transition 3 1.2 Achievements and Challenges in China’s Water Governance 7 1.3 Responding to the Challenges: Current Directions in Water Governance 18 1.4 The Next Generation of Water Policies 22 2 Identifying the Values of Water 29 2.1 Conceptual Framework 30 2.2 Values Held towards Water 34 2.3 Value Typologies 39 2.4 Examples of Values 42 2.5 Identifying Values: Recommendations 48 3 Evaluating the Values of Water 51 3.1 Approaches to Evaluating and Assessing 53 3.1.1 Revealed Preference Approaches 54 3.1.2 Stated Preference Approaches 59 3.1.3 Bringing Values Together: Integrated Valuation 60 3.2 The Foundation for Evaluation: Credible and Plentiful Data 66 3.3 Evaluating Values: Recommendations 67 v 4 Realizing the Values of Water 71 4.1 Underlying Approach 72 4.1.1 A Values-based Foundation 72 4.1.2 Stakeholder Participation 72 4.1.3 Flexible and Differentiated Policy Making 73 4.1.4 Future-Orientated Policy Making 75 4.2 Institutions 78 4.2.1 Adaptive Institutions for Dynamic Value Contexts 78 4.2.2 Institutions for Realizing Environmental Values 79 4.2.3 Institutions for Realizing Cultural Values 81 4.2.4 Coordination and Cooperation between Institutions 83 4.3 Infrastructure 88 4.4 Incentives 91 4.4.1 Prices, Tariffs, and Taxes 91 4.4.2 Transfers 94 4.4.3 Markets 97 4.5 Information, Education, and Communication 101 5 Looking Forward 105 5.1 Safeguarding the Environmental and Cultural Values of Water 107 5.2 Managing Water Infrastructure to Maximize Diverse Values of Water 109 5.3 Adapting Policy Interventions to Match the Values of Water over Time and Space 110 5.4 Reforming and Calibrating the Prices of Water to Reflect its Multiple Values 112 5.5 Transitioning to Values-Driven Water Management through a Structured Process 113 5.6 Establishing Evaluation Systems to Determine the Contribution of Water to the Construction of an Ecological Civilization 114 5.7 Realizing the Construction of an Ecological Civilization and the Role of Water within this Vision 115 References 116 vi CONTENTS | Figures Figure 1.1 China’s Relative Position in Terms of Environmental Performance in 2018 4 Figure 1.2 Evolution of Policy and Law on Ecological Civilization and Green Growth 6 Figure 1.3 Six Historical Periods of Water Governance in China 7 Figure 1.4 Percentage of GDP Spending on Infrastructure, by Country Income Group, 2007–15 9 Figure 1.5 Water Resource Availability in China 10 Figure 1.6 Freshwater Withdrawal as a Percentage of Total Renewable Water Resources Available 13 Figure 1.7 Freshwater Withdrawal per Capita (m³/person) 13 Figure 1.8 Surface Water Quality of Major River Basins in China, 2011–20 14 Figure 1.9 Global Water Productivities, Measured as GDP (US$) per Cubic Meter of Water Withdrawal 16 Figure 1.10 Industrial Water Efficiency among Countries with Water Resources per Capita Similar to China 17 Figure 1.11 The Evolution of Flood Management in China 18 Figure 1.12 Key Water Laws and Policies 2002–21 21 Figure 1.13 “The Great Building of China’s Ecological Civilization”: Artist’s Interpretation 26 Figure 2.1 Transition of Water from a Public to Private Good through the Hydrological Cycle 33 Figure 2.2 Environmental Values in China: 1990–2020 35 Figure 2.3 Extent of Chinese Respondents’ Concern regarding Water and Sanitation Quality, by Income Level 36 Figure 2.4 Environmental Values and Concern across Countries 38 Figure 2.5 Components of the Total Economic Value of Water 39 Figure 2.6 Changes in Water Use by Major Sector 43 Figure 3.1 Valuation Methods and Their Application in Assessing Different Value Categories 54 Figure 4.1 Policy Differentiation across Administrative and Development Levels 75 Figure 4.2 A Conceptual Example of a Continuous Approach to Water Policy Making 76 Figure 4.3 Two Possible Pathways for Institutional Development in Response to Increasing Water Demand 78 Figure B4.2.1 Commonwealth Environmental Water Holdings, Australia 81 Figure B4.5.1 Benefit Shares from the LHWP 84 Figure B4.6.1 The Lancang-Mekong River Basin 86 Figure 4.4 Incremental Capital-output Ratio in Infrastructure, Government, and Housing 88 Figure 4.5 A Comparison of Water Tariffs between Countries (top) and Cities (bottom) Globally 93 Figure 4.6 Growth in Eco-Compensation Programs by Type of Program 95 Figure B5.1.1 Gross Domestic Product and Green Development by Province 111 CONTENTS vii | Boxes Box ES.1 Report Objectives xix Box ES.2 Elements of the Ecological Civilization Concept xx Box 1.1 “Yu the Great Who Controlled the Waters” (大禹治水; Dà Yǔ Zhì Shuǐ) 8 Box 1.2 Water Scarcity and the Economy 12 Box 1.3 China’s River and Lake Chief System 21 Box 1.4 China’s Ecological Civilization Building: Basic Framework, Institutional System and Overall Vision 25 Box 1.5 What Does This Report Mean by “Value”? 27 Box 2.1 The High-Level Panel on Water: Five Principles for Valuing Water 31 Box 2.2 The Economic Cost of the Water Pollution Crisis in Flint, Michigan, United States 41 Box 2.3 The Health and Education Value of China’s Rural Drinking Water Program 43 Box 2.4 Cultural Values of Water in the Murray-Darling Basin in Australia 45 Box 2.5 Valuing Intangibles: Water-Related Cultural Sites in Zhengzhou 46 Box 2.6 Cultural Values of Large Rivers in South Asia—the Ganges and Brahmaputra 47 Box 2.7 Recommendations for Identifying the Value of Water 49 Box 3.1 Water Markets in Australia, the United States, Chile, and China 56 Box 3.2 Valuing Water Quality Improvement: Lake Puzhehei, Yunnan Province 60 Box 3.3 Evaluating the Cultural and Social Values of the Water Sprinkling Festival in Xishuang Banna 62 Box 3.4 Valuation and Management Tools for Stakeholder Participation: Colorado River Basin 63 Box 3.5 Increasing Benefits through Interjurisdictional Investment Planning in the Zambezi River Basin 65 Box 3.6 Recommendations for Evaluating the Values of Water 68 Box 4.1 The EU Water Framework Directive (WFD): Flexibility and Differentiation in Policy Implementation 74 Box 4.2 Recommendations for an Improved Underlying Approach to Water Policy Making 77 Box 4.3 Realizing Environmental Values in the Murray-Darling Basin in Australia 80 Box 4.4 Safeguarding the Cultural Significance of Water in New Zealand 82 Box 4.5 Minimizing Costs and Maximizing Value through Joint Development of the Lesotho Highlands Water Project 84 Box 4.6 Increasing the Value of Water Resources Development in the Lancang-Mekong River 85 Box 4.7 Recommendations for Realizing the Value of Water: Institutions 87 Box 4.8 Unit Reference Value of Water Resources for Infrastructure Planning in South Africa 89 Box 4.9 Recommendations for Realizing the Value of Water: Infrastructure 90 Box 4.10 Water Resource Fee-to-Tax Reform 92 Box 4.11 Valuing Global Environmental Benefits: An Endowment Fund for the Cubango-Okavango Basin 94 Box 4.12 Realizing the Value of Nature-Based Solutions for Urban Flood Management 96 Box 4.13 Potential Application of Water Markets for Value Realization 97 Box 4.14 Emissions Trading to Reduce Water Pollution 99 Box 4.15 Recommendations for Realizing the Value of Water: Incentives 100 Box 4.16 Information, Education, and Communication Interventions for Water Value Realization 102 Box 4.17 Recommendations for Realizing the Value of Water: Information, Education, and Communication 103 Box 5.1 Variations in per Capita Income and Levels of Green Development in China 111 viii CONTENTS x CONTENTS “Clear Waters and Lush Mountains are Invaluable Assets 绿水青山就是金山银山” President Xi Jinping CONTENTS xi Foreword by Manuela V. Ferro Vice President for East Asia and the Pacific, The World Bank “A Water-Secure The world needs a shift in how it understands, values, and manages water. World for All” Current population growth and water management practices are anticipated to lead to growing water scarcity. Preventing the looming water crisis while sustaining economic growth and ensuring the sustainability of ecosystems will require technological innovation, improved financing and service delivery and cross-country cooperation. A new generation of smarter water policies will be central to generating better decision-making, mobilizing investments in modern infrastructure, developing institutions that manage the world’s water sustainably, and ensuring fair and affordable access to water for all as envisioned under the Sustainable Development Goals (SDGs). Underpinning the next generation of water policies are mechanisms for identifying, evaluating, and realizing the value of water. To identify this value, improved data should guide evidence-based decisions. Valuing water means giving full recognition to the diverse benefits that societies derive from water and taking these into account in political and business decisions, including those on pricing of water and sanitation services. Realizing the value of water means pursuing integrated approaches to water resource management across local, national, regional and global levels. The High-Level Panel on Water (HLPW), convened by the United Nations Secretary-General and the President of the World Bank Group, recognized this in its “Principles on Valuing Water” issued in 2018. The HLPW’s principles acknowledge the multiple and diverse values of water and articulate the need for societies to allocate and manage water resources sustainably, efficiently, and inclusively, as well as to deliver and price water services accordingly. Valuing water was also the theme of the United Nations World Water Development Report in 2021. The present report makes a timely contribution to the subject by examining the value of water in the particular context of China. As the world’s largest multilateral source of financing for water, the World Bank works closely with a range of partners to contribute to the SDGs and “A Water-Secure World for All.” The World Bank’s cooperation with China has played a particularly important role in shaping the global water agenda and informing national development. China has been a major partner of the World Bank in the water sector, with a quarter of China’s borrowing from the World Bank over the xii past 40 years related to water. The partnership has included a long and productive collaboration with the Development Research Center of the State Council (DRC). Leveraging the Bank’s global knowledge and China’s implementation experience has contributed to developing China’s framework for the management of water. The present report contributes to China’s efforts in the construction of an ecological civilization, recognizing China’s significant achievements in managing its water resources and identifying remaining and emerging challenges. The report highlights the need for a new generation of SMARTER water policies, encompassing seven priority areas: Safeguarding the environmental and cultural values of water; Managing water infrastructure to maximize diverse values of water; Adapting policy interventions to match the values of water over time and space; Reforming and calibrating the price of water to reflect its values; Transitioning to values-driven water management through a structured process; Establishing evaluation systems to determine the contribution of water toward construction of an ecological civilization; and Realizing ecological civilization and the role of water within this vision. The conceptual framework and practical approaches outlined in this report have broad relevance both in China and internationally. The spatial and temporal variability of water, along with the range of social and economic conditions in China, require differentiated policy responses. China’s decentralized system of policy implementation provides important lessons in developing an evidence- based framework and practical mechanisms for valuing the benefits provided by water, and the costs associated with failing to do so adequately. Just as China’s experience provides insights and lessons for other countries, China’s evolving policy framework can draw on global experiences in water governance, including coordination across regional and national jurisdictions. China is an important user and steward of the world’s water resources. The Qinghai-Tibetan Plateau is known as the water tower of Asia and gives rise to some of the world’s largest rivers. China’s water resources sustain globally significant biodiversity, along with agricultural and industrial activities that influence global patterns of consumption and production. China’s water governance agenda is thus central to several global public goods. The World Bank will continue to support innovation in water policy aligned with the goals of the HLPW and in service of the SDGs. Through SMARTER water policy, underpinned by the identification, evaluation, and realization of the diverse values of water, China offers both lessons and further opportunities to contribute to “A Water-Secure World for All.” FOREWORD BY MANUELA V. FERRO xiii Foreword by LONG Guoqiang Vice Minister, Development Research Center of the State Council of the People’s Republic of China “Evaluating and Realizing Water’s Values in the Construction of an Ecological Civilization in China,” a cooperative venture jointly conducted by the Development Research Center of the State Council of China and the World Bank, follows the successful completion of the “China Water Governance” research collaboration (2016–18). With the strong support of relevant departments of the Chinese government and the joint efforts of Chinese and international experts, under the careful guidance of Mr. Ma Jiantang, Secretary of the Party Group of the Development Research Center of the State Council, and Mr. Wang Yiming, former Deputy Director, the expected tasks under the four phases of the research have been successfully completed. As a key deliverable of this project, this synthesis report is now being published and I would like to express my sincere and warm congratulations to the team! Water has multiple values and meanings, as reflected in its cultural, spiritual, economic, ecological, environmental, and social aspects, which are inherited in the formation of language, behavioral norms, and cultural relics. At the same time, the global and regional pressures on water are becoming increasingly severe and urgent actions are needed. In response, the United Nations and the World Bank convened a High-Level Panel on Water (HLPW) to lead the response to one of the world’s most urgent challenges—the upcoming global water crisis. The HLPW urges new approaches to understanding, evaluating, and managing our valuable water resources to achieve the water-related goals of the 2030 Sustainable Development Agenda. To provide a basis for action, reform, partnership, and international “priority cooperation need to be promoted globally. on water- China is committed to moving from the traditional growth model to high- saving, spatial quality green development, paying increasing attention to resource use efficiency, equilibrium, environmental sustainability, and ecological conservation. This is a very important systematic part of President Xi Jinping’s “Thoughts on Ecological Civilization—Clear Waters and governance, and Lush Mountains are Invaluable Assets.” Water resources play a vital role in China’s the combined transformation and development as well as the construction of an ecological efforts of civilization. As the world’s second-largest economy and the country with the government and largest population, China has only 6 percent of the world’s freshwater resources, the market” and its per capita water availability is only one-quarter of the global average. xiv President Xi Jinping re-affirmed the importance of water in 16 words that emphasize a “priority on water-saving, spatial equilibrium, systematic governance, and the combined efforts of government and the market.” China has carried out a series of important institutional reforms, such as strengthening market mechanisms (e.g., water trading and pollution permit trading) and economic instruments (e.g., water prices and taxes) as the basis for effective utilization and conservation of water resources. However, many of the reforms still need to be further deepened. It is necessary to fully understand the multiple values of water, evaluate those values with appropriate and effective methods, and strengthen the development of innovative policies, systems, and mechanisms to effectively manage our precious water resources. Against this backdrop, the Development Research Center of the State Council of China and the World Bank jointly carried out research on “Evaluating and Realizing Water’s Values in the Construction of an Ecological Civilization in China.” This research provides a theoretical and empirical framework for identifying, evaluating, and realizing the comprehensive values of water from the perspectives of ecology, the environment, economy, society, and culture. This synthesis report not only puts forward water-related policy recommendations to the Chinese government on constructing an ecological civilization but also provides successful experiences and lessons on valuing and realizing water’s values for other developing economies. This research is divided into four phases that have all achieved constructive results: the first phase is to systematically identify the multiple values of water from ecological, environmental, economic, social, cultural, and other related aspects; the second phase is to systematically evaluate those water values using various quantitative and qualitative methods; the third phase proposes policy recommendations to realize water’s multiple values; and the fourth phase is aimed at summarizing, promoting, and disseminating the results, experiences, and modalities achieved in this study and facilitating knowledge exchange and sharing with other countries or regions. I believe these helpful discussions and achievements will play an instrumental role in supporting the effective transformation to an ecological civilization in China and realize the Clear Waters and Lush Mountains as stressed by President Xi Jinping. The identification, evaluation, and realization of water’s values is a highly theoretical but also practical topic for both policy makers and researchers. The practical exploration in this field in both developed and developing countries is still sporadic and unsystematic. For China, how to realize the efficient management of scarce water resources in the process of industrialization and modernization while meeting people’s needs for water, which provides extremely important ecological services, is a new and difficult topic. We need to systematically summarize our experiences, deepen our understandings, and put forward bold and innovative solutions. Let’s work together to study and pay long-term attention to this important topic, keep making progress, and give full play to China’s role as both a participant and a contributor to global water governance. FOREWORD BY LONG GUOQIANG xv Acknowledgements This synthesis report represents the culmination of joint research conducted by the Development Research Center of the State Council of the People’s Republic of China (DRC) and the World Bank. It builds on a long history of cooperation and collaboration in exploring policy trends, opportunities, and needs for water policy in China. The synthesis report draws on background papers prepared as part of the broader initiative on “Evaluating and Realizing the Value of Water in the Construction of an Ecological Civilization for China,” which aims to identify and promote methods for identifying, evaluating, and realizing multiple values of water, within the context of China’s policy needs and current practice. The DRC team was led by Dr. GU Shuzhong (Director General level Senior Research Fellow, Institute for Resources and Environmental Policies) and included LI Weiming (Director of Research Division, Institute for Resources and Environmental Policies), YANG Yan (Associate Research Fellow, Institute for Resources and Environmental Policies) as the team coordinator, and Ms. JIAO Xiaodong (Senior Economist, Institute for Resources and Environmental Policies). The DRC research team also included researchers from other institutions: Dr. JIA Shaofeng (Senior Research Fellow, Institute of Geographical Sciences and Natural Resources Research, Chinese Academy of Sciences), Dr. ZHAO Yong (Senior Research Fellow, China Institute of Water Resources and Hydropower Research), Dr. JIANG Wenlai (Senior Research Fellow, Chinese Academy of Agricultural Sciences), Dr. WANG Yining (Senior Engineer, Development Research Center of the Ministry of Water Resources), Dr. JIANG Nan (General Manager and Senior Research Fellow, China Water Exchange), and Dr. HUANG Wenqing (Associate Professor, Hunan Agricultural University). Dr. CHEN Jianpeng provided valuable suggestions to the research team. The World Bank team was led by Marcus Wishart (Lead Water Resource Specialist) and David Kaczan (Economist), and included Olivia Jensen (Lead Scientist, Institute for the Public Understanding of Risk, National University of Singapore), Xiawei Liao (Water Resource Specialist), Qi Tian (Water Resource Management Specialist), Si Gou (Water Resources Specialist), Liping Jiang (Senior Irrigation Specialist), and Pierre Do (Water Resources Management Consultant). Dan Xie (Program Assistant), Ru Xin Zhao (Team Assistant), and Anqi Li (Team Assistant) provided administrative and research support. Supporting papers were prepared by Sonia Akter (Assistant Professor, Lee Kuan Yew School of Public Policy, National University of Singapore), Dale Whittington (Professor, University of North Carolina at Chapel Hill and the University of Manchester), Hua Wang xvi (Professor, Environmental Economics and Management, Renmin University), the Cooperative Research Center for Water Sensitive Cities, including Ben Furmage (Chief Executive Officer), Tony Wong (Project Director), Jianbin WANG (International Engagement Manager), David Pannell (Professor of Economics and Director, Centre for Environmental Economics and Policy, University of Western Australia), Michael T. Bennett (Environmental Economist and independent consultant), Edward Araral (Assistant Professor, Lee Kuan Yew School of Public Policy, National University of Singapore), Xiaojun YANG (Associate Professor, Xi’an Jiaotong University), and Xiangang ZENG (Environmental Economist, Renmin University). Graphic design of the construction of an ecological civilization was developed by Remy Rossi (https://remyrossi.design). The initiative “Evaluating and Realizing the Value of Water in the Construction of an Ecological Civilization for China” was developed under the leadership of Victoria Kwakwa (Former Vice President for East Asia and Pacific), Martin Raiser (Country Director for China), Benoit Bosquet (Regional Director for Sustainable Development in East Asia and Pacific), and Jennifer Sara (Global Director for Water) from the World Bank; and LONG Guoqiang (Vice Minister), GONG Sen (Director General, Department of International Cooperation), GAO Shiji (Director General, Institute for Resources and Environment Policies) from the DRC along with colleagues from the Ministry of Finance, Ministry of Ecology and Environment, Ministry of Natural Resources, Ministry of Water Resources, Subcommittee of Population, Resources and Environment of the National Committee of the Chinese People’s Political Consultative Conference. The joint research team is grateful for the advice provided by the peer reviewers: Sebastian Eckardt (Lead Economist, China), Giovanni Ruta (Lead Environmental Economist), Jason Russ (Senior Economist), and Halla Qaddumi (Senior Water Resource Economist). Valuable guidance was also provided by Richard Damania (Chief Economist for Sustainable Development) and a range of experts within the World Bank, officials from the Government of the People’s Republic of China, along with universities and nongovernmental organizations working on water-resources-related research in China. This report was prepared under the guidance of Sudipto Sarkar (Practice Manager) and Ann Jeannette Glauber (Practice Manager) and made possible with the financial support of the Global Water Security & Sanitation Partnership, which supports client governments to achieve the water-related Sustainable Development Goals through the generation of innovative global knowledge and the provision of country-level support. Special thanks are also given to Professor FU Bojie (Academician, Chinese Academy of Sciences), Professor WANG Hao (Academician, Chinese Academy of Engineering), and Professor XIA Qing (Senior research fellow, Chinese Research Academy of Environmental Sciences) for their comments and suggestions. ACKNOWLEDGEMENTS xvii Executive Summary Understanding the diverse values of water is essential for improved water management. Globally, water is an undervalued and poorly managed resource. Without it, life cannot exist—yet water is commonly taken for granted and regularly wasted. Despite or perhaps because of its essential nature, the management of water for domestic purposes, industry, agriculture, the environment, and culture, is a source of contention and conflict, and affected by inefficiencies and inequities around the world. Conflict between values is central to these challenges. There are multiple ways in which water can be used, some of which are mutually exclusive, and some of which overlap. There are almost always multiple stakeholders with at least partially divergent views on these uses. The values held by different stakeholders—values which could inform trade-offs between competing uses—are often unmeasured or simply not considered at all. Whose values are heard and recognized by those who make water policy decisions defines whose interests are served. Understanding these values is becoming increasingly important in a water- stressed world. The pressure on water resources globally is increasing in the face of climate change, population, and economic growth. This is particularly the case in China. Social aspirations are changing in line with rapidly increasing affluence, with greater consumption as well as greater recognition of non consumptive needs. Navigating the trade-offs between increasingly divergent uses, and satisfying the increasing expectations of society, fundamentally requires identifying and evaluating water’s diverse values and incorporating those values into decision- making processes (box ES.1). xviii Box ES.1 Report Objectives This report aims to identify opportunities the way that measurement of values can inform for improving water policy through the water policy. The challenges assessed in this identification, evaluation, and realization report suggest that a new generation of smarter of water’s diverse and multiple values in water policies will be needed in priority areas. China. The report recognizes China’s significant achievements in water management and This report is a synthesis of research carried identifies remaining and emerging challenges. It out by the World Bank and the Development presents conceptual and practical approaches to Research Center of China’s State Council under eliciting a wide range of economic, social, cultural, the research collaboration, “Evaluating and and environmental values of water. Drawing Realizing the Value of Water in the Construction on examples from China and internationally, of an Ecological Civilization for China.” It draws the report puts forward recommendations for on background papers, inputs, and consultations protecting and realizing these values in the with a range of experts within the World Bank, context of China’s construction of an ecological officials from the Government of the People’s civilization. The report is directed toward both Republic of China, along with universities and Chinese policy makers, and international readers nongovernmental organizations working on interested in understanding water policy and water-resources-related research in China. Source: Authors. China has made immense progress in water management over recent decades, but challenges remain. China has experienced a period of extraordinary economic and social growth in the last 40 years. Market reforms from 1978 onward fueled a roughly thirtyfold increase in per capita output and lifted 850 million people out of poverty. Yet rapid growth—and many of the policy reforms that supported it—has led to equally rapid increases in pressure on the environment and natural resources, and an implied environmental cost associated with the rapid depletion of 2–3 percent of gross domestic product (GDP) annually (Ma et al. 2020a). In 2020, the Yale Environmental Performance Index ranked China above Vietnam and India based on it’s performance across multiple environmental dimensions, but below that of other income-comparable, upper-middle-income countries, such as Turkey, Brazil, Mexico, and Russia. EXECUTIVE SUMMARY xix China is undertaking a transition from a period of rapid infrastructure-led growth toward a more balanced and sustainable development model. This is encapsulated in the broad vision of constructing an ecological civilization1 (box ES.2), which is manifesting in more stringent environmental regulations, improved institutions and incentives for the environment, and redirection of public and private investments toward greener and more equitable outcomes. National government funding of environmental protection and pollution control increased to US$35.7 billion in 2019, a fivefold increase from 2017 (Hu, Tan, and Xu 2019). This transition is driven in part by changing societal values and higher aspirations of the public toward environmental quality. Box ES.2 Elements of the Ecological Civilization Concept Environmental Political Cultural Sustainable Development Social Economic Ecological environment Physical protection and restoration of the environment A resource efficient economy that incorporates the value of Ecological economy ecosystem services A society with heightened environmental awareness and Ecological society social participation Ecological politics A political system that rewards ecological performance and establishes political accountability for environmental impacts Ecological culture A culture that values the environment Source: Authors’ elaboration. 1 The idea of ecological civilization embodies the interconnected nature of ecological systems, human health and well- being, and the decoupling of growth and environmental impact. Ecological civilization was enshrined in the constitution in 2018. See CPC and State Council (2015). xx EXECUTIVE SUMMARY Contributing to this vision, China has made remarkable progress in water management in recent decades. Access to water services and capacity for wastewater treatment has expanded rapidly, accounting for a large portion of the world’s progress toward achieving the Sustainable Development Goals in this sector. Flood management has improved significantly, and there has been sustained growth in irrigated agriculture. These improvements have been achieved largely through public investment in physical infrastructure over a 40-year period. This high level of infrastructure investment is expected to continue, and China is forecast to account for one-third of global infrastructure spending in the 2016–40 period (Feng 2017). Despite these achievements, significant challenges remain for water scarcity and environmental degradation, which in turn, constrain economic development. At the national level, water resource availability per capita is low, at around one-quarter of the global average, unevenly distributed across regions, and highly variable seasonally and interannually. Pollution of ground and surface waters exacerbates water shortages and places further costs on the economy.2 Climate change is contributing to more frequent and severe droughts and to more intense rainfall events. Water use efficiency is comparatively low, with China’s water consumption per unit of industrial added value two to three times greater than the average among upper-middle-income countries. Water scarcity is already constraining economic growth in some parts of China. Water policy is evolving to address some of these challenges. Stringent regulations and the “Three Red Lines” introduced in 2012 set national targets for water withdrawals, water use efficiency, and water quality. Flood management now encompasses land use planning methods and “nature-based solutions” (infrastructure that incorporates a hybrid of natural and built features for more efficient outcomes, such as “sponge cities”, to reduce urban flood risks). Market- based instruments have been piloted for water resources allocation and pollution reduction, and the reform of water resource fees and taxes—to better align the price of water with its economic value—is underway. 2 The estimated economic cost of water pollution was estimated at US$ 141 billion nationwide in 2017 (Ma et al. 2020a). EXECUTIVE SUMMARY xxi Ministerial reforms in 2018 established a more coherent structure for water management. At the subnational level, the establishment of the River and Lake Chief System nationwide in 2016 gave officials at local, county, and provincial levels responsibility for overseeing designated sections of major waterways, and for coordinating among relevant government agencies. The system links water outcomes to career progression, creating strong incentives that have been shown to deliver (Zhou et al. 2021). Further reforms are underway, including the Yangtze River Protection Law, passed in 2021 after 20 years of discussion, which provides a legal framework for basin-wide water management and coordination across jurisdictions and levels of government. Understanding the varied and diverse values of water will underpin the next generation of water policy. China will require continued water reforms to achieve the objectives of ecological civilization. The challenges assessed in this report suggest that a new generation of SMARTER water policies will be needed, encompassing seven priority areas: S 1. Safeguarding the environmental and cultural values of water. M 2. Managing water infrastructure to maximize diverse values of water. A 3. Adapting policy interventions to match the values of water over time and space. R 4. Reforming and calibrating the prices of water to reflect its values. T 5. Transitioning to values-driven water management through a structured process. E 6. Establishing evaluation systems to determine the contribution of water toward construction of an ecological civilization. R 7. Realizing ecological civilization and the role of water within this vision. xxii EXECUTIVE SUMMARY This report argues that the foundation for delivering SMARTER water policies lies in identifying and evaluating values of water, and incorporating those values into policy and investment decisions. Each of the SMARTER policy priorities has a value question at its core: What spaces to protect? What infrastructure to prioritize? What prices to set? What trade-offs are acceptable between competing uses? How to measure progress? All are questions whose answers should draw on the views and values of stakeholders. Fundamentally, China’s development will be determined by the ability of policy to respond to the values, aspirations, and expectations of society. The vision of an ecological civilization goes beyond maximizing economic value; a broader set of values must be incorporated into water policy if it is to contribute to this national development vision. Identifying the values of water. People’s perceptions of the value of water evolve constantly and vary across individuals, communities, and countries. While detailed measures of public opinion concerning water issues and values are rarely available, measurements of general levels of concern about water pollution and the environment provide useful insights. Survey data show a shift toward greater concern about the environment in China. In 2020, more than two-thirds of a nationally representative sample (Haerpfer et al. 2020) held the view that protecting the environment should be a policy priority, even if it implies slower economic growth and some loss of jobs. This represents an increase of 20 percentage points over 25 years. Additionally, the proportion of people who believe water pollution is a problem increased significantly, by 10 percentage points from 2008 to 2016. The value of water is a function of context, and what it delivers in that specific context. Given the highly localized differences in water availability, usability, and risk, and given that water is relatively difficult to transport, the values of water vary widely by locality. Local prices almost never reflect the full value of water, in part due to externalities of collection, subsidies, and price controls. The relative values of water also vary between sectors. For example, the value of water in agriculture is economic, with cultural, food security, and ecological elements, while the value of water in industry is primarily economic with secondary values depending on context. Developing an understanding of water’s values in ways useful for policy and price setting requires localized consideration of its contribution to people and nature. EXECUTIVE SUMMARY xxiii Identifying values across disparate contexts requires extensive stakeholder consultation. For such consultation to function effectively, the stakeholders involved must have sufficiently detailed background information on the issues at hand. Some consultation exercises internationally use participatory models to provide this background, but more often simply provide background information for a common grounding in context among participants. Approaches for stakeholder consultation may target individuals (e.g., questionnaires) or groups (e.g., collective discussions and ranking exercises). Management authorities in large basins—including the Colorado River in the United States and Murray-Darling Basin in Australia—often appoint standing advisory bodies to regularly consult communities, continually updating authorities’ view of what aspects of water management are most important and to whom. Evaluating and assessing the values of water Building on values identification, methods for evaluating and quantifying those values have become increasingly well established. Water rights markets, like those in Australia, the United States, and Chile, can provide a useful measure of value if the market is structured and operated in a way that recognizes resource scarcity (for example, through the use of a cap on water abstraction). In nonmarket situations— important for ecological or sociocultural values—values may be assessed using stated preference methods, or by inferring people’s values for water by observing their behavior in related markets (e.g., purchasing real estate near water). Different approaches are suited to different values of water, with each typically only estimating part of the total set of values. Multiple methods are thus needed. The results from multiple analyses can be brought together within consistent evaluation frameworks, such as those of benefit-cost analysis (BCA), multicriteria analysis, integrated assessment models, and hydro-economic models. While BCA is widely applied, it is not yet common (in China or elsewhere) for it to include diverse non-market values—despite the growing importance of doing so. Improving data quality and access will be necessary for widespread evaluation and quantification of values. Robust water measurement, modeling, and accounting provide the foundation for evaluation: these methods have high data needs due to water’s spatial and temporal variability, and thus high-quality and detailed data are essential. This is not only a matter of technical analysis; the availability of data shapes how people understand their water environment, and thus influences values held over time. xxiv EXECUTIVE SUMMARY Realizing the values of water Realizing the values of water means applying policies and tools to ensure that as many people as possible benefit from water’s diverse values. In practice, this may require changes to the underlying approach to water policy making, including explicit articulation of the values of water during the policy design process; strengthening requirements for consultation and public participation; providing for local flexibility to innovate within the context of national objectives (supported by basin-level modeling); and applying adaptive policies with a scope for regular review and adjustment to take account of the rapid pace of social, economic, and environmental change in China. Beyond the policy making approach, institutional and infrastructure choices can be used to realize water’s values. Institutional and legal tools are critical for balancing environmental and cultural values with economic uses. Examples include the Commonwealth Environmental Water Holder in Australia, an agency that buys and sells water on behalf of the environment, and legal tools such as New Zealand’s 1991 Resource Management Act, which requires authorities to recognize and protect the relationship between the Maori people and sites of cultural and traditional significance, and to give indigenous people a voice in decision-making (Jacobson et al. 2016). Meanwhile, infrastructure planning and management can be optimized with a “values-based” lens, for example, reservoir operating rules that recognize ecological and recreational benefits. This can help minimize the trade-offs inherent in the heavy “footprint” that water infrastructure often has. Fundamentally, the economic and spatial structure of society is profoundly affected by major water infrastructure projects. Infrastructure will “lock in” water development trajectories—and thus the impact on and values obtained from water—for decades or centuries. Incentives such as prices, and information-based approaches further help realize water’s diverse values. Prices in China tend not to reflect water’s scarcity, and rarely cover the cost of provision (the price of water in the wealthiest Chinese cities is well below the average urban water tariff of US$0.82 for upper-middle-income countries). Reforms over the past decade have begun to price water in ways that incentivize conservation, but continued efforts are needed. Ecological fiscal transfers (eco-compensation) and water markets hold great potential to realize efficiency gains and ecological values through price incentives. Meanwhile, information, education, and communication interventions improve water policy by deepening public understanding of the value of water, easing acceptance of trade-offs, and encouraging conservation behaviors. Examples include public campaigns, the incorporation of water topics in school curricula, and behavioral nudges to drive domestic water conservation (e.g., billing that highlights an individual’s water use in relation to neighbors). EXECUTIVE SUMMARY xxv SMA R T E R Safeguarding Managing Adapting Reforming Transitioning These tools—for identifying, evaluating, and realizing the value of water— Establishing Realizing underpin SMARTER water policy priorities, and through them, the goals of ecological civilization: S 1 Safeguard the environmental and cultural values of water. The protection of water bodies from headwaters to the lower catchment is currently undervalued in water management decisions. The cultural, social, and ecological values of water bodies are not sufficiently or systematically incorporated into decisions, which has led to the depletion and degradation of resources. Participatory methods can help to identify the range of values of a natural water resource. Broad values-based evaluation processes, such as collaborative modeling (employed in the Colorado River Basin) and collective visioning (such as that used in the Murray-Darling River Basin), can help to prioritize M water and ecological resources for protection. 2 Manage the use of water infrastructure to maximize diverse values of water. China has built the world’s largest stock of water infrastructure. Changes to operations and management regimes will help ensure that their utilization contributes to multiple environmental and social goals. A more targeted approach to investment in infrastructure will be needed as basic service provision reaches completion. A values-based approach to investment planning and management can guide these decisions. This will require a mix of methods, including integrated modelling, revealed preference and stated preference approaches, and systematic inclusion of their results A in broad-based BCA. 3 Adapt policy interventions to match the values of water over time and space. Water policies need to allow for great diversity in the values held by stakeholders. Consultative approaches such as stakeholder councils, and collaborative modeling and mapping, help reveal locally held values and develop a shared vision within communities, while evaluation techniques can focus specifically on the values identified in a specific location, and match tool choices with local capacity. These approaches provide the knowledge base for policy decisions calibrated to local context. xxvi EXECUTIVE SUMMARY R 4 Reform and calibrate the prices of water to reflect its values. Water prices in China are currently well below a level that would reflect the full value of water. While the diversity of values (including those values that are unquantifiable) means that perfectly pricing water is not possible, gradual upward adjustment in tariffs will help ensure that prices reflect scarcity—encouraging efficient use and water conservation, T while helping to cover the increasing costs of water supply. 5 Transition to values-driven water management through a structured process. Higher prices have distributional consequences. To maintain the support of stakeholders during transition toward a price-based water policy, compensating rebates can be directed toward poor households. Consultation mechanisms, and public access to data (to build trust), will be essential to guide the policy process. Information, education, and communication interventions such as public awareness campaigns, conservation-oriented billing information, and information provision at water-related recreational and tourism sites, will help smooth the way for policies that E can drive efficiency in an increasingly water-constrained country. 6 Establish evaluation systems to determine the contribution of water to the construction of an ecological civilization. Water-related data in China remain distributed across multiple agencies at different levels of government and are often published in disparate and hard-to-access forms. Reasons range from misaligned incentives for officials in the reporting of data, to incompatible data systems, to deficiencies in trust and transparency in the institutional culture. Strengthened monitoring and statistical systems, with increased integration across sectors and jurisdictions, and drawing on citizen participation, would allow for a values-sensitive R water policy aligned with the vision of an ecological civilization. 7 Realize an ecological civilization and the role of water within it. For China to progress toward its vision for an ecological civilization, socio-cultural and ecological values will need to play an increasingly prominent role in water policy. The diversity of China’s water resources, geographies, and water users inevitably gives rise to competing interests, underlining the need for institutions and processes that can reveal and reconcile different values to generate durable solutions. The tools presented in this report—techniques and recommendations for identifying, evaluating, and realizing these values—are the practical means toward this vision. EXECUTIVE SUMMARY xxvii Abbreviations ABC Active Beautiful Clean BCA benefit-cost analysis BCE before common era CGE computable general equilibrium CNY Chinese Yuan Renminbi CORB Cubango-Okavango River Basin DRC Development Research Center of the State Council HLPW High-Level Panel on Water GDP gross domestic product HEM hydro-economic model IBT increasing block tariff IEC information, education, and communication LMRB Lancang-Mekong River Basin RDM robust decision-making SDG Sustainable Development Goal WFD Water Framework Directive WSRA Wild and Scenic Rivers Act BCM billion cubic meters MCM million cubic meters xxviii Chapter 1 | The Value of Water in China: Context and Motivation Objective: This chapter presents China’s challenges and achievements in water management in the context of rapid economic development over the past four decades. It outlines present and emerging water challenges as China looks toward a future defined by “ecological civilization.” The chapter sets the scene for how tools to identify, evaluate, and realize broadly defined values of water can support the goals of an ecological civilization through SMARTER policy reforms. Key Points: • China is undergoing a development • To address these challenges, China will transition from a period of rapid require a new generation of SMARTER infrastructure-led growth toward a more water policy priorities that: (1) Safeguard balanced and sustainable development the environmental and cultural values of model. water, (2) Manage water infrastructure to maximize diverse values of water, (3) Adapt • China’s achievements in water provision, policy interventions to match the values of use, and management are substantial, with water over time and space, (4) Reform and significantly improved flood management, calibrate the prices of water to reflect its greatly expanded access to water services values, (5) Transition to values-driven water and wastewater treatment, and sustained management through a structured process, growth in irrigated agriculture over the past (6) Establish evaluation systems to determine 40 years. the contribution of water to the construction • Remaining and emerging challenges of an ecological civilization, and (7) Realize include limited water resources availability the construction of an ecological civilization at the national level, water pollution that and the role of water within this vision. is exacerbating water shortages, degraded • Achieving these priorities will require tools freshwater ecosystems, and risks of flood and and approaches that identify the diverse drought that will rise under climate change. values of water, evaluate and quantify those values, and realize those values. These tools are the focus of chapters 2, 3, and 4. 1 China is transitioning from a period of rapid policies in a way that accounts for distributional infrastructure-led growth toward a more impacts; (6) Monitoring and evaluating water use balanced and sustainable development and policy impacts; and through these measures, model. This transition provides an opportunity to (7) Realizing the construction of an ecological recognize the full range of values linked to water— civilization and the role of water within this vision. socio-cultural, environmental, and economic—and These are what this report terms SMARTER water to reflect on how these values can be incorporated policy priorities. Achieving these priorities will into public policy and water management require tools for the identification, evaluation, and decisions. The more sustainable growth model realization of water, which are presented in the envisioned will require water policies that recognize next three chapters of this report in turn. water’s multiple and diverse values, and realize the benefits associated with these values. It will also China’s transition also provides valuable require policies that adapt as society’s values and experience in water policy and management China’s water circumstances change over time. for other countries along the development continuum. The wide variation in socio-cultural, In this context, the World Bank and environmental, and economic characteristics Development Research Center of the State found across China’s regions provides a wealth of Council (DRC) have conducted a joint research experience relevant to a broad range of countries. program on the values of water in China. The Many of the findings in this report are relevant objective of this report is to provide a synthesis to other countries seeking to learn from China of the research findings and put forward policy regarding the design of institutional arrangements recommendations for Chinese governments. and policies that will allow them to recognize Analysis and recommendations are presented and balance the values of water to achieve social, in three themes: (1) concepts for identifying the environmental, and economic objectives in a just multiple and diverse values of water; (2) methods and sustainable way. for evaluating and quantifying those values; and (3) new or strengthened policies for realizing those values. “The greatest virtue is like water. The premise of this research is that only Water nourishes everything but through an understanding of the broad contends for nothing. It retires to conceptions of value of water can the goals of undesirable places. Thus it is near China’s sustainable growth model be achieved. to Tao— Specifically, this growth model will require 上善若水，水善利万物而 (1) safeguarding the environmental and cultural 不争。处众人之所恶， values of water; (2) Managing water infrastructure 故几于道。 - 老子， in ways that maximize diverse water values; 道家思想家” (3) Adapting water interventions for varied contexts; —Lao Zi (600 BCE - 501 BCE), (4) Reforming water prices; (5) Transitioning water Daoist Philosopher 2 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION 1.1 | China’s Green Transition China’s development transition aims to balance in the number of petition letters and visits relating economic growth with sustainable utilization of to environmental issues received by the central natural resources and restoration of ecological government between 1996 and 2018 (Ministry of systems. Since the introduction of reforms that Ecology and Environment 2019). shifted the country to a market-based economy, China has experienced an extraordinary period These environmental challenges are partially of sustained social development and gross reflected in China’s global environmental domestic product (GDP) growth, averaging almost performance evaluation. The Environmental 10 percent a year. Income per capita increased Performance Index—which scores countries and 35-fold from US$300 in 1978 to US$10,276 in 2019 regions on 24 environmental indicators across and more than 850 million people have been lifted 10 themes1— indicates that China ranks below out of poverty. This has been coupled with a period expectations for a rapidly ascending, upper middle of rapid urbanization. In 2020, over 60 percent of income country. While ranked above Vietnam the population were living in cities, compared and India, it is lower than other countries with to less than 20 percent in the 1970s, bringing comparable per capita income such as Turkey, significant shifts in the structure and expectations Brazil, Mexico, and Russia (figure 1.1) (World Bank of society. 2020; Yale University 2020). While environmental performance was lower than other countries with Rapid growth has led to equally rapid increases similar per capita income in 2018, there is increasing in pressure on the environment and natural awareness of the importance of improving resources, with impacts on the economy and environmental quality. The “People’s Livelihood human health. The implied environmental cost Survey in China” (DRC, 2020) shows that satisfaction has been estimated at 2–3 percent of GDP annually with environmental quality continued to improve between 2004 and 2017 (Ma et al. 2020a). These from 2015 to 2020 following China’s “declaration of costs are evident in China’s widespread air, soil, war” on pollution in 2013. This is further reflected and water pollution, and diminishing biodiversity in changing values and an increasing recognition levels (Ouyang et al. 2016). Community concern of the need to protect the environment, even if this about environmental degradation, meanwhile, has results in slower economic growth and impacts risen in tandem with the decline in environmental employment opportunities (see section 2.2). quality. This is exemplified by a shift in values shown in national surveys, and a 16-fold increase 1 The ten themes are air quality, water and sanitation, heavy metals, biodiversity and habitat, forests, fisheries, climate and energy, air pollution, water resources, and agriculture, with multiple indicators for each theme (Yale University 2020). THE VALUE OF WATER IN CHINA: CONTEXT AND MOTIVATION 3 Figure 1.1 China’s Relative Position in Terms of Environmental Performance in 2018 2018 Environmental Performance Index (EPI) 70 Bulgeria Costa Rica Albania Colombia Turkmenistan 65 Russia Belarus Romania Brazil 60 Malaysia Argentina Mexico 55 Turkey Mauritius Maldives 50 China Grenada South Africa 45 Gabon 40 4,000 6,000 8,000 10,000 12,000 GNI per capita (Atlas method, 2018 US$) 100 2018 Environmental Performance Index (EPI) France Switzerland Spain Sweden Denmark Iceland Belgium Norway 80 U.S.A Luxembourg Italy Canada Mexico Kuwait Qatar 60 Chile Korea, Rep. Singapore Turkey Oman UAE China OECD Countries 40 High Income Economies Upper Middle Income Economies 20 Lower Middle Income Economies Low Income Economies 0 12,000 32,000 52,000 72,000 Gross National Income (GNI) per capita (Atlas method, 2018 US$) 55 Kazakhstan 2018 Environmental Performance Index (EPI) Nigeria Samoa Ukraine El Salvador Turkey 52.5 Maldives Sudan Oman Tanzania Zambia Grenada 50 Thailand China Libya South Africa 47.5 Bhutan Vietnam Indonesia Myanmar Gabon 45 0 1,000 4,000 12,000 GNI per capita (Atlas method, 2018 US$) Source: Authors’ analysis based on data from the Environmental Performance Index (2019) and World Bank DataBank (2020). 4 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Acknowledging the challenges associated with economic, and ecological value of nature. The the country’s rapid economic ascendancy, the conception also aims to promote cultural and central government has been giving greater national continuity by drawing on elements of priority to environmental and ecological the Chinese philosophical tradition based on sustainability. This is being pursued through Confucian ideals. It is increasingly presented as a productivity and innovation-driven development, vision for other countries and a means for China to rebalancing growth toward consumption and demonstrate environmental leadership (Hansen, services, along with increasingly stringent Li, and Svarverud 2018). environmental regulations and the redirection of central government funding toward “green” This ongoing transition reflects the increasing investments. These commitments are reflected in prominence of social and environmental values, increases in annual expenditures on environmental based on recognition of the environmental protection from CNY 99.58 billion (US$15.64 costs of recent growth. The political vision of billion) in 2007 to CNY 853.81 billion (US$134.08 an ecological civilization is driven in part by billion) in 2018 (World Bank 2022), equivalent to recognition of a transition in values at the level an increase from 2 to 3.9 percent of total national of society and the aspirations of an increasingly fiscal expenditure (Xu and Wang 2020). However, prosperous population. Historical, cultural, and realization of sustainability objectives will require spiritual values—while present throughout China’s further institutional and policy actions, along rich history—are gaining increased visibility and with feedback mechanisms to take account of prominence in public demands alongside material the increasing public demand for improved values. Similarly, there is greater recognition of environmental quality. the intrinsic value of ecology and environment. Furthermore, changes in law and policy— China’s ambition toward greener and more exemplified by the incorporation of ecological sustainable development is encapsulated in the civilization into the constitution—itself influences ideology and strategy of ecological civilization the societal value transition, by validating construction (figure 1.2). This concept, which has and promoting these values among citizens. become a key contemporary political and cultural Understanding this evolving values landscape, ideology, embodies the interconnected nature of through tools and polices that can identify, ecological systems, human health and well-being, evaluate, and realize these values, is fundamental and the decoupling of growth and environmental to the construction of an ecological civilization. impact. It goes beyond the traditional definition of sustainable development built around environmental, social, and economic elements, to incorporate political and cultural dimensions. Ecological civilization was enshrined in the constitution in 2018 (Hansen, Li, and Svarverud 2018), and is portrayed in the widely used phrase “Clear Waters and Lush Mountains Are Invaluable Assets,” a reference to the interconnected social, THE VALUE OF WATER IN CHINA: CONTEXT AND MOTIVATION 5 Figure 1.2 Evolution of Policy and Law on Ecological Civilization and Green Growth 1973 1973 First National Environmental Protection Working Conference Proposed policies for environmental protection 1994 China’s White Paper on population, resources, the environment and development Incorporated sustainable development strategy into long-term planning for social and economic development 1997 15th CPC National Congress Defined sustainable development as a strategy for national development 2007 17th CPC National Congress Proposed Ecological Civilization Construction for the first time 1994 1997 2012 18th CPC National Congress Elevated ecological civilization as a national strategy 2015 State Council Opinions on Accelerating the Promotion of Ecological Civilization and Overal Plan for the Reform of Ecological Civilization System Defined the overal design and roadmap for ecological civilization construction in the future 2016 The 13rd Fiver-Year Plan for National Economic and Social Development Proposed the concept of green development and incorporated ecological civilization as an important part 2007 of the plan 2017 19th CPC National Congress Called for a “Beautiful China” founded in a new era of ecological civilization 2012 2018 Amendment to the Constitution of the People’s Republic of China 2015 Ecological Civilization was written into the Chinese 2016 constitution 2017 Eighth National Ecological and 2018 Environmental Protection Conference President Xi Jinping laid out the six principles for Ecological Civilization Construction Source: Authors’ elaboration. 6 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION 1.2 | Achievements and Challenges in China’s Water Governance Throughout history, Chinese civilization has over the centuries to reflect the changing nature attached significant importance to water of society and the economy. Six broad periods of resources and their management. This can be water governance can be identified through China’s traced back more than 4,000 years to Yu the Great history reflecting processes of social change (figure (Da Yu), a legendary ruler in ancient China famed for 1.3), from a focus on disaster risk management, his introduction of flood control and establishment through agricultural and then domestic water use, of the Xia dynasty (box 1.1). Since then, the to environmental considerations and wastewater regulation of water for productive purposes has treatment, toward integrated water resources continued to be a principal concern of the state. management. China’s approach to water governance has evolved Figure 1.3 Six Historical Periods of Water Governance in China Integrated Water Disaster Irrigation Water Water Supply Water Environment Water in an Water Management & Agricultural Domestic & & Wastewater Ecological Resource (Flood and Drought) Productivity Industrial Treatment Civilization Management Source: Authors’ elaboration. China has made impressive strides in improving over 95 percent in 2020. Drawing on one of the access to water services. Between 1990 and 2015, world’s largest total renewable water resources China accounted for 20 percent of the world’s 2.6 for extensive irrigation development, China’s billion people who gained access to improved agricultural sector has grown at over 5 percent drinking water, and over one-quarter of the 2.1 annually on average since 1978 (Wang et al. 2020). billion people who gained access to improved sanitation (WHO and UNICEF 2015). Wastewater “Wastewater collection and collection and treatment capacity expanded more treatment capacity expanded rapidly than in any other country over the same more rapidly than in any other period, with the urban wastewater treatment rate country” increasing from around 15 percent in 1991 to THE VALUE OF WATER IN CHINA: CONTEXT AND MOTIVATION 7 Box 1.1 “Yu the Great Who Controlled the Waters” (大禹治水; Dà Yǔ Zhì Shuǐ) Yu the Great (Da Yu) is a historic figure sections and dig channels at narrow points in the credited with taming the floods along the river, to allow water to flow unimpeded toward Yellow River. He was a political leader who the sea. After 13 years of fighting floodwaters, he established the Xia Dynasty (21st–17th century finally had the floods under control. BCE), the first dynasty in Chinese history that followed the hereditary system. Yu organized his people to rebuild their homes and develop agriculture by fully In historic times, flooding along the Yellow utilizing water and soil. Fish, ducks, and geese River was a major hazard to life and well- were bred under Yu’s guidance, and people being. Yu’s father, Gun, found a way to control were taught how to plant rice and other crops, the impacts of floods by building earth facilitated by the construction of irrigation embankments. Yet powerful floodwaters canals. Because of his contribution he is one eventually breached these dikes and brought of the few Chinese monarchs posthumously disaster once again. Yu drew on his father’s honored with the epithet “Great.” experience and led his people to dredge river Significant investments in hydraulic China’s rapid infrastructure development infrastructure have reduced disaster risks has driven many of these achievements to and related damages. Floods traditionally and date. China today has the world’s largest stock regularly devastated lives and livelihoods. Over the of public infrastructure, including water-related past 70 years, more than 413,000 kilometers (km) infrastructure. Between 2007 and 2015, China of flood control structures have been built across spent more than 7 percent of GDP on infrastructure all major river basins. China has more dams today investment, higher than any other country, and than any other country in the world, storing over significantly more than the global average of 3 800 billion cubic meters (BCM) of water. Investment percent (figure 1.4). This investment is expected to in flood control infrastructure has accelerated, continue, with a forecast for investment of US$26 increasing more than four times through the trillion between 2016 and 2040, one-third of global 1990s and the early 2000s. Disaster management infrastructure spending in this period (Global through infrastructure has been complemented Infrastructure Hub 2017). by land remediation investments: large-scale reforestation programs, for example, stabilized marginal and sloping agricultural lands, reducing flood-inducing runoff (World Bank 2021). 8 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Figure 1.4 Percentage of GDP Spending on Infrastructure, by Country Income Groups, 2007-15. 8% 7% 6% 5% 4% 3% 2% 1% 0% Low and Lower Upper Middle High Income Upper Middle China World Middle Income Income Economies Economies Income Economies Economies excluding China including China Source: Authors’ compilation with data from Global Infrastructure Hub (2017). Note: Based on an analysis of 50 countries and 7 sectors, including electricity, road, telecoms, rail, water, port, and airports. Despite these achievements, there are China faces continued and emerging challenges opportunities to further improve resource in relation to water shortages. While large in and economic efficiency. While infrastructure absolute terms, water resource availability at the has been central to China’s water management national level is low in per capita terms, at around achievements, some infrastructure has one-quarter of the global average. High variation paradoxically exacerbated water management in the spatial distribution of supply and demand problems. Extensive irrigation infrastructure in (figure 1.5) and natural climatic variability lead the upper reaches of the Yellow River led to excess to periodic shortfalls. Climate change is likely to water diversion, resulting in waterlogging and exacerbate these conditions: from 1961 to 2011, salinity across wide areas, and to water shortages river runoff has declined in 60 percent of the downstream (Gonçalves et al. 2007). The rise in country’s large river basins, primarily in the north industrial and urban demand made possible (Wang et al. 2017). by investment in water supply infrastructure outstripped reductions in agricultural water demand in some areas, contributing to overall scarcity (Zhang et al. 2019). Some poorly planned investments in dams in the Yangtze and Pearl River systems have impacted transportation, with over 19,000 square kilometers of navigable waterways cut off due to a lack of locks on some dams (Aritua et al. 2020). THE VALUE OF WATER IN CHINA: CONTEXT AND MOTIVATION 9 Billion m3 (2020) 10 0 1 2 3 4 5 6 7 0 50 100 150 200 250 300 350 Beijing Beijing Tianjin Tianjin Hebei Hebei Liaoning Liaoning Shanghai Shanghai Jiangsu Jiangsu Zhejiang Eastern Region (a) Water Resources Zhejiang Eastern Region Fujian Fujian Shandong Total Water Resources (2020) Shandong Guangdong Water Resources per Capita (2020) Guangdong Hainan Hainan Shanxi (b) Water Use to Availability Ratio Total Water Use / Total Water Resources Jilin Shanxi Heilongjiang Jilin Anhui Heilongjiang Figure 1.5 Water Resource Availability in China Jiangxi Anhui Middle Region Henan Jiangxi Middle Region Hubei Henan Hunan Hubei Inner Mongolia Hunan Guangxi Inner Mongolia Chongqing Guangxi THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Sichuan Chongqing Guizhou Sichuan Yunnan Guizhou Tibet Shaanxi Yunnan Western Region Western Region Gansu Shaanxi Qinghai Gansu Ningxia Ningxia Xinjiang Xinjiang 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 m3 (2020) Total water withdrawals are among the highest in the world, and high as a proportion of available water resources. China’s rapid growth has created high demand for China’s limited water resources. Withdrawals2 in 2014 were estimated at just over 600 BCM per year, compared to around 480–490 BCM per year in the United States. In percentage terms, China’s extraction is equivalent to around 24 percent of the country’s total renewable water resources, above the global average of 8.6 percent for upper-middle-income countries, although per capita withdrawals are lower than the upper- middle-income country average and the global average (figure 1.6 and figure 1.7). Typically, water withdrawals show a decline in high- income countries as the structure of the economy transitions away from a reliance on agricultural production and labor-intensive manufacturing toward one led by domestic consumption and services, although water consumption per capita continues to rise with income. Box 1.2 outlines how water scarcity intersects with China’s economy. 2 Defined as the quantity of freshwater taken from groundwater or surface water sources (such as lakes or rivers) for agricultural, industrial, or domestic purposes. THE VALUE OF WATER IN CHINA: CONTEXT AND MOTIVATION 11 Box 1.2 Water Scarcity and the Economy China’s rapid growth and structural Research focused on China’s water-scarce transformation have placed strong demand north supports these global findings. The pressures on China’s limited water resources, Beijing-Tianjin-Hebei region is one of China’s which in turn constrain growth. Despite most important economic centers, with around progress, pressures on water resources are 8 percent of the nation’s population, and compounded by remaining inefficiencies, with responsible for over 9 percent of China’s GDP climate change likely to further restrict supply. in 2017. The past two decades have seen rapid This is far from unique to China: World Bank economic growth and population expansion, analysis of the impact of climate change on despite the region’s severe water shortages with a water resources globally suggests that arid resource of only 0.63 percent of the nation’s total. regions experiencing water shortages under Economic modelling suggests that the restrictive climate change could see their growth rates impacts of water scarcity on economic growth decline by as much as 6 percent of gross domestic already amounts to a 4.95 percent reduction in product (GDP) by 2050. Better water resources GDP in Beijing, 2.59 percent reduction in Tianjin, management can substantially alleviate these and 5.53 percent reduction for southern Hebei. challenges. Water efficiencies in agriculture and intersectoral transfers, facilitated by scarcity-reflective water prices, could help alleviate these constraints on growth. Source: Li, Zhang, and Shi 2019; World Bank 2016. 12 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Figure 1.6 Freshwater Withdrawal as Percentage of Total Renewable Water Resources Available 45 Iraq Maximum Korea, Rep. Third Quartile Lebanon 40 Average Armenia Azerbaijan 35 First Quartile Morocco Freshwater withdrawal as % of total India Belgium Minimum South Africa Singapore renewable water resources 30 Spain Bulgaria Cyprus 25 China’s Three Red Line 2030 Target: 24.0 China: 20.9 20 Mexico 15 Brazil Haiti 11.5 10.7 10.0 10 Malawi Ethiopia 5 2.9 Russia 0 Low Income Lower Middle Upper Middle High Income Economies Income Economies Income Economies Economies Figure 1.7 Freshwater Withdrawal per Capita (m³ / person) 1,400 U.S.A Maximum Estonia Azerbaijan Third Quartile Finland 1,200 Average Suriname Kazakhstan Japan Timor-Leste First Quartile Freshwater withdrawal per capita 1,000 Minimum Pakistan (cubiic meter/person/year) 800 India Australia Mexico 600 Russia China’s Three Red Line 2030 target: 483 520 464 400 China: 415 372 South Africa Brazil 200 Haiti Tanzania Malawi 63 0 Low Income Lower Middle Upper Middle High Income Economies Income Economies Income Economies Economies Source: Authors’ compilation with data from AQUASTAT 2020. Note: Figures exclude outliners (e.g., Middle East countries with water utilization rates). Water withdrawal per capita in China under the Three Red Line policy is calculated by the total water withdrawal cap in 2030 divided by the population projected for 2030 (1.45 billion) by China’s National Population Development Plan (2016–30). THE VALUE OF WATER IN CHINA: CONTEXT AND MOTIVATION 13 Water quality has been improving but continues reservoirs in the Yangtze River Basin are subject to to impose costs and exacerbate water shortages eutrophication (Tang et al. 2020). Plastic waste also in some areas. Pollution reduces the usability of contributes to water pollution, with an estimated water, exacerbating supply shortages in water- 1.32–3.53 million tons of plastic entering China’s insecure regions, even in those areas considered oceans annually, primarily via rivers (Lebreton relatively well endowed (Ma et al. 2020b). Around and Andrady 2019). Overall, the estimated 86 percent of monitored groundwater sites in economic cost of water pollution was estimated at China were reported to be polluted. While quality US$141 billion nationwide in 2017 (Ma et al. has been improving, 16 percent of major rivers 2020a), with impacts on health, labor productivity, failed to meet basic quality standards (Grades I– food safety, and non-consumptive sectors such as III) in 2020 (figure 1.8) (Ministry of Ecology and tourism, real estate, aquaculture, and fisheries. Environment 2020). Over 40 percent of lakes and Figure 1.8 Surface Water Quality of Major River Basins in China, 2011–20 100% 80% 60% Grade V+ Grade IV-V 40% Grade I-III 20% 0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Authors’ compilation with data from Ministry of Ecology and Environment (2020). Note: The Ministry of Ecology and Environment classifies water quality into six classes, depending on the concentration of the worst individual pollutant in the water sample. These are: Class I—suitable for drinking without treatment; Class II—suitable for use as a Class A water source for centralized drinking water supply, sanctuaries for rare species of fish, and spawning grounds for fish and crustaceans; Class III—suitable for use as a Class B water source for centralized drinking water supply, sanctuaries for common species of fish, and for swimming; Class IV—suitable for use as a general industrial water supply and for recreational use involving no direct human contact with the water; Class V—only suitable for agricultural water supply and general landscaping use; and Class V+—unsuitable for any use. 14 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Future improvements in water quality will and 10 years shifting toward return periods of 20, need greater efforts, particularly on nonpoint 10, and 5 years, respectively, by the end of the source pollution. Significant investments in century. Extreme drought is rising in the east of the addressing point source pollution have yielded country (Liang et al. 2019). quick returns, but persistent challenges associated with nonpoint source pollution, particularly Meanwhile, the water sector makes a significant through use of chemical fertilizers, remain more contribution to China’s greenhouse gas difficult to address. China’s chemical fertilizer use, emissions. Wastewater treatment accounts for at around 393 kilograms per hectare (kg/ha), is around 6 percent of total methane emissions, higher than the average for East Asia and Pacific paddy fields a further 19 percent, and wetlands countries (293 kg/ha), and almost three times the 7 percent (specifically, methane emissions from global average (137 kg/ha). Average applications 3 water management in reservoirs as well as from far exceed the maximum safe amount of fertilizer polluted water bodies) (Gong and Shi 2021). use (225 kg/ha) usually considered necessary Ecological restoration and protection, water to prevent contamination of water bodies, with resource and wastewater management, and additional impacts felt in terms of soil condition nutrient pollution control, will be an important and air quality. element of China’s mitigation efforts toward its target of net zero emissions by 2060. Studies of Although natural disaster risks have been policy options to address emissions in the water significantly mitigated through infrastructure, sector have been limited, and the relevance of exposure to floods and droughts are increasing, integrated water management for mitigation does and is likely to be further exacerbated by not feature prominently in water policies to date. climate change. Water has long posed a threat The embodied carbon in dams and other large to human life and livelihoods in key river basins water infrastructure assets will also need to be such as the Yangtze and Yellow. A 1997 drought considered in future investment planning. in the Yellow River Basin prevented waterflow to the sea for 267 days, while one year later, Aquatic ecosystems have suffered considerable catastrophic floods along the Yangtze, Songhua, degradation but are benefiting from restoration and Nen rivers claimed more than 4,000 lives efforts. Inland and coastal water bodies have been and caused an estimated CNY 255.1 billion encroached upon by rapid urban and industrial (US$37.2 billion) in direct economic losses (Xu development: urban areas have increased by 40 and Cao 2001; Xu et al. 2010). Climate change percent in the Yangtze River Basin with many lakes is expected to increase the variability of rainfall within the central basin lost to land reclamation. and increase the inherent risk and the cost of In the Hai River Basin, major wetland areas are mitigation, with extreme precipitation in most estimated to have decreased by approximately 83 areas trending upward. The frequency of flooding percent. About half of China’s vertebrates and one- in the Yangtze River Basin is projected to increase, third of its vascular plant species are threatened with flood events with return periods of 50, 20, according to Red List assessments (Jiang et al. 3 FAO (2018) data. THE VALUE OF WATER IN CHINA: CONTEXT AND MOTIVATION 15 2016), with freshwater vertebrate populations upper-middle-income countries. The effective falling more than twice as quickly as terrestrial utilization factor of irrigation water4 is 0.52, much populations (Grooten and Almond 2018). Recently, lower than the 0.7 to 0.8 average among upper- greater attention has been given to conserving middle-income countries (World Bank 2019). The and restoring aquatic ecosystems, and trends in average water productivity (across all sectors) in ecological degradation are being reversed in many China of US$13.71 per cubic meter is below the lakes and rivers across the country. average for low-income (US$17.26 per cubic meter) and lower-middle-income countries (US$19.66 per Water use efficiency is comparatively low across cubic meter), and nearly three times lower than sectors, but the trend is improving. Domestic that of other upper-middle-income countries per capita water use is rising across China, linked to (US$37.36 per cubic meter) (figure 1.9). While water increased urbanization and affluence, with limited use efficiency targets such as the 2030 Water Red efforts to manage domestic demand. China’s water Line provide clear guidance, they are set at levels consumption per unit of industrial added value is below comparator countries (figure 1.10). two to three times greater than the average among Figure 1.9 Global Water Productivities, Measured as GDP (US$) per Cubic Meter of Water Withdrawal 600 Economies with water resource per capita between 1,000 m3 and 3,000 m3 (Water resource per capita of China: 1,952 m3) 500 High Income Economies (98.21) 400 High Income Economies (105.11) Upper Middle Income Economies (37.36) GDP per cubic meters water withdrawal Upper Middle Income Economies (17.56) 300 Lower Middle Income Economies (22.49) Lower Middle Income Economies (19.66) 400 Low Income Economies (9.78) Low Income Economies (17.26) (constant 2015 US$) 200 300 100 0 4,000 12,000 20,000 28,000 200 100 China 0 4,000 12,000 20,000 28,000 36,000 GDP per capita (2018 US$) Source: Authors’ compilation with data from FAO AQUASTAT data, World Bank and OECD GDP estimates. Note: Excludes Luxembourg, and Monaco, whose water productivities are over US$1,000 per cubic meter. 4 The “effective utilization coefficient of irrigation water” is defined as the water applied in the field which can be absorbed by the crops divided by the water intake. 16 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Figure 1.10 Industrial Water Efficiency among Countries with Water Resources per Capita Similar to China 600 Maximum China 2018: 35.10 Third Quartile China’s Three Red Line 2030 Target: 34.97 Denmark Average 500 Industrial value added (US$) per cubic meters First Quartile UK Minimum 400 of industrial waste use 200 Togo Iran 147.05 Rwanda Mauritius Korea, Rep. Ethiopia Ghana 100 Uganda 88.60 Spain Nigeria Benin Turkey Niger 63.62 49.78 Belgium Afghanistan India Burundi Pakistan Germany Armenia Iraq 0 Low Income Lower Middle Upper Middle High Income Economies Income Economies Income Economies Economies Source: Authors’ compilation with data from FAO AQUASTAT data, World Bank and OECD GDP estimates. Note: Efficiency measured as industrial value added (US$) per cubic meter of industrial water use. Excludes some OPEC countries. THE VALUE OF WATER IN CHINA: CONTEXT AND MOTIVATION 17 1.3 | Responding to the Challenges: Current Directions in Water Governance Recognizing these challenges, China is control infrastructure toward a broader portfolio transitioning from economically oriented of interventions, including integrated land use water resources development policies to planning and resilience measures that incorporate ecologically oriented water management and contribute to ecosystems services (figure 1.11). policies. While investment in new physical Local governments have invested in “nature-based infrastructure remains large, and will continue to solutions” in the form of “Sponge Cities”—urban be important, infrastructure design increasingly areas that incorporate natural features to allow embodies a wider range of community and for water permeation and purification—with the environmental considerations including multiuse goal of having 80 percent of urban areas across the functions. This can be seen in the evolution of country “sponge like” by 2030.5 flood management practices from traditional flood Figure 11: The evolution of flood management in China Great flood of the Huai Yangtze and other major South China floods River in 1975 rivers flood in 1998 (summer of 2010) Flood risk Integrated planning Flood Comprehensive flood management and for sustainable city protection management community resilience development (1950s to mid- 1970s) (mid-1970s to 1998) (1998 to 2010) (2010 to present day) Harnessing nature Broad portfolio of Flood risk management Integrated land use through large- measures combinng improving community planning through scale flood control engineering and capacity to live with introduction of Sponge infrastructure institutional (planning floods City concept and and management) practice solutions 1950s 1975 1998 2010 2021 Source: Wishart, et al. 2021. 5 Sponge cities have features that encourage natural accumulation, infiltration, and purification of water. These include urban green spaces and urban water bodies—constructed wetlands, rain gardens, roof greening, recessed green spaces, grass ditches, and ecological parks that mitigate flood risks, increase livability, and reduce impact on water sources. The goal of creating sponge cities is aligned with SDG 11: “Make cities and human settlements inclusive, safe, resilient, and sustainable.” 18 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION The focus of urban water services is shifting development: the Ecological Red Lines (生态保护 to quality improvements and financial 红线), the Environmental Quality Baseline (环境质 sustainability. Having reached near-universal 量底线), and the Resource Utilization Threshold (资 coverage in urban areas, the quality of service and 源利用上线). The 2015 “Water Ten Plan” provided a the financial sustainability of the sector, along with range of measures to strengthen water pollution extending access in remaining underserved rural control and ecosystems protection. In addition, the areas, are key areas of policy focus. Most cities National Sustainable Agricultural Development have continuous supply, and most connections are Plan (2015–30) targets zero growth of fertilizer and metered at the building or unit level. Nonrevenue pesticide use as part of efforts to combat nonpoint water data are not available at the utility level, 6 source pollution. The waste management sector but rates at the municipal level may be above 25 is also evolving quickly as part of broader efforts percent. Drinking water standards and monitoring toward a circular economy. regimes are increasingly stringent, although no city consistently provides potable water. Ecological flows are increasingly being used National guidelines stipulate an increasing block to safeguard water for the environment. tariff structure for tap water to incentivize water Ecological flows are essential to protect and restore conservation by end users and to raise cost- freshwater-dependent aquatic ecosystems, and recovery rates of water utilities. Although tariff to deliver important and wide-ranging ecological adjustments are underway in many cities, few water services that, in turn, support cultures, economies, utilities achieve full cost recovery. Wastewater sustainable livelihoods, and well-being (Global tariffs have been introduced in larger urban areas Action Agenda on Environmental Flows 2018). The and are gradually being rolled out in other areas, use of ecological flows in China has expanded over but wastewater services remain heavily subsidized the past decades, with the first official guidance by local governments. Reforms of fees into more for ecological flow management published in comprehensive volumetric taxes are underway. 2006 setting maintenance of base flow at 10 percent of annual average flow (Chen and Wu China is using water and ecological benchmarks 2019; State Environmental Protection Agency to define limits to natural resource use and 2006). Higher rates (20–30 percent of annual protect ecosystems. The “Most Stringent System average flow) are typically applied during special for Water Resource Management”, or the Three Red periods, such as the fish spawning period, or for Lines, was introduced in 2012 to set national targets river segments with sensitive ecological values for water withdrawals, water use efficiency, and (Chen et al. 2019). The use of ecological flows has water quality. These have been complemented 7 become widespread in major rivers and is now by further “red line” policies promoting green being extended to smaller tributaries. However, 6 Nonrevenue water is the difference between the amount of water a utility supplies to the distribution system and the amount of water billed. 7 The Three Red Lines stipulate that by 2030: (1) cap national annual water use to 700 BCM; (2) reduce water ruse to 40 cubic meters per US$1,450 industrial added value and increase irrigation efficiency to 60 percent; and (3) ensure 95 percent of major water function zones comply with water quality standards, and ensure all sources of drinking water meet national standards. THE VALUE OF WATER IN CHINA: CONTEXT AND MOTIVATION 19 there are opportunities to go beyond minimum Policy changes have been accompanied by flow requirements to incorporate inter- and intra- institutional changes (figure 1.12). The ministerial annual flow variability, along with various water reforms of 2018 reflect the government’s flow, velocity, temperature, and quality targets that commitment to more holistic management of are critical for supporting ecosystem protection, natural resources. These focused on “taming the restoration, and functioning. nine dragons” (九龙治水), an expression that refers to the challenges of cross-sectoral coordination While command-and-control instruments and interjurisdictional cooperation among the remain central to water policy, incentive- ministries and commissions responsible for based instruments are being introduced to managing various aspects of water in China. drive efficiency. These include markets for water These include administrative issues spread across resource allocation, pollution trading, and pricing national ministries, provincial departments, and reforms. While prices in most locations remain urban bureaus; river basin commissions spanning low by international standards, pricing reforms provinces; and functional considerations, with are increasing cost recovery as well as providing different government departments in charge greater incentives for efficient water use. Reforms of specific issues such as water pollution, water underway since 2016 are shifting pricing systems resource management, and development. from water resource fees to water resource taxes, increasing enforcement and coverage across The 2018 reforms redefined the responsibilities users, and setting minimum rates. Select activities, for water resource management to establish a including golf courses, car washes, and commercial more coherent structure. This included shifting washing attract higher rates, as do businesses many of the responsibilities for water pollution in regions with groundwater overexploitation. control to the Ministry of Ecology and Environment, More broadly, pricing reform is progressing in establishing the Ministry of Natural Resources, and municipal, agricultural, and industrial sectors, with consolidating responsibilities within the Ministry differentiation of rates at local and province levels of Water Resources. Meanwhile, responsibilities within a national-level framework. Pilot water have been passed to designated officials within trading systems have also shown potential. Building the River and Lake Chief System, introduced to on local-level pilots, the China Water Exchange, a create a network of individuals at local, county, and national water rights trading platform launched by provincial levels responsible for overseeing each the Ministry of Water Resources in 2016, is seeing section of major waterways, creating a platform for growing trading volumes and helping identify collaboration (along with a set of career incentives needed legal and regulatory changes to increase for officials) that has proven useful in coordinating market efficiency (Jiang et al. 2021). interjurisdictional issues and enhancing citizen engagement in basin management (box 1.3). 20 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Box 1.3 China’s River and Lake Chief System The river chief system was introduced in The “Opinions on Fully Promoting the River 2007 when the Vice Mayor of Wuxi City was Chief Mechanism” were released by the State appointed to solve the problem of blue- Council and the Communist Party of China’s green algae in Lake Tai that was endangering (CPC) Central Committee in 2016, and since the city’s drinking water. The “Targets and then, more than 1.2 million river and lake Assessment Measures of Water Quality Control chiefs have been appointed. The main tasks for River Cross-sections in Wuxi” stipulated that of the chiefs include water resources protection, the results of water quality testing be included shoreline management, water pollution in the administrative assessment of officials prevention and control, water environment in charge. This incentive and accountability management, restoration of water ecology, and mechanism obtained improvements in water law enforcement. Each part of a river and lake quality after only two months and has since is assigned to a particular official to address been referred to as the origin of the river chief coordination and responsibility challenges mechanism. between departments and regions. Source: Li, Tong, and Wang 2020. Further reforms to address interjurisdictional protection and improved water quality in the cooperation and cross-sectoral coordination Basin. The law calls for local governments to are underway. The Water Law was amended in develop laws and regulations to establish water July 2016 to support integrated planning and quality baselines, reduce pollutant discharge, coordinated basin development. The Yangtze River promote ecological restoration (including through Protection Law (People’s Republic of China 2020) ecological flows), protect biodiversity, and improve entered into force in March 2021, recognizing the systems for information sharing. The law also need for a coordination mechanism and inferring institutes regular inventories of natural resources obligations on the national line agencies and and biodiversity and includes systems for disaster provinces to align with its goals of ecological prevention and mitigation. Figure 1.12 Key Water Laws and Policies 2002-2021 2002 2012 2015 2016 2018 2002 2012 2015 2016 2018 Water Law Three Red Lines Ten Action Plans Water Law Ministerial Prevention and control Amendment reorganization of water pollution River Chiefs system Source: Authors’ elaboration. THE VALUE OF WATER IN CHINA: CONTEXT AND MOTIVATION 21 1.4 | The Next Generation of Water Policies While these directions have delivered perspectives, through tools that help identify substantial improvements in water outcomes and evaluate the values as held by stakeholders. to date, China will require continued reforms Innovations in policy are helping to realize those to deliver on the vision of an ecological values, through incentives and pricing, information civilization. The challenges explored in this and communication, institutional changes, and chapter suggest that reforms could focus on a more targeted strategy toward infrastructure. seven SMARTER policy priorities: (1) Safeguarding These steps of identification, evaluation, and the environmental and cultural values of water, realization of water’s diverse values will underpin (2) Maximizing the use of water infrastructure for the next generation of water policy in China and multiple values, (3) Adapting policy interventions internationally. to match the values of water over time and space, (4) Reforming and calibrating the prices of water to Specifically, there is a need to: reflect its values, (5) Transitioning to values-driven S water management through a structured process, (6) Establishing an evaluation system to determine the contribution of water toward construction of an 1. Safeguard the environmental and ecological civilization, and (7) Realizing ecological cultural values of water. This priority is civilization and the role of water within this vision. embodied in the Red Line Policies for water These priorities encompass key themes reflected in and ecological protection, as well as the national strategies and laws. 8 Yangtze River Protection Law and other recent high-level strategies. While China Supporting each of these SMARTER priorities has made significant progress, challenges recognizes the diverse and multiple values of remain around water quality (Ma et al. water. Water has, of course, always held multiple 2020b) and water availability for human values in China, from ecological and sociocultural use, as well as ecological degradation values, to economic values. Yet in China and in valuable water environments (WWF internationally, policies and investments have 2020). Protection is motivated by an ignored some values at the expense of others, understanding of values, with the design leading to outcomes that do not deliver on the of policies to realize protection further full potential of water resources. New approaches informed by that understanding. to water policy are incorporating more diverse 8 For example, the Yangtze River Protection Law (2020), the Opinions on Innovation and Improvement of the Price Mechanism for Promoting Green Development (2018), the Special Action Plan for the Environmental Protection of National Drinking Water Sources (2018), and the Opinions on Full Implementation of the River Chief System across the Country (2016). 22 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION M held by people toward the environment change over time and differ as a function 2. Manage water infrastructure to of cultural context. As incomes grow, maximize diverse values of water. the weight placed on environmental, China has built the world’s largest stock recreational, and amenity value is seen of infrastructure and some of the most in many countries to increase, including heavily engineered waterways of any in China (Ma, Zhang, and Zheng 2017). country. As described throughout this In addition, the physical characteristics chapter, achievements in engineering of water assets are highly diverse, have underpinned China’s success in leading to equally diverse ecological, delivering water services, expanding cultural, and economic values. This agriculture, and reducing flood damages, implies first that localized identification among others. Yet as basic infrastructure and evaluation of value, including the needs for storage, treatment, and water stakeholders directly affected, is critical; connections are met, incremental returns and second, that polices must reflect local on further investment will decline. The economic considerations (differentiated focus in advanced economies, which affordability in water pricing efforts, for increasingly include China, is turning instance). R to efficient management of existing assets and a targeted approach to future investment. An understanding 4. Reform and calibrate the prices of of values underpins such an approach, water to reflect its values. Water pricing with assessment of costs and benefits of policies have been implemented in alternative infrastructure management China since the 1960s but remain low approaches used to minimize trade-offs by international standards.9 Agricultural between stakeholders and sectors, and water attracts minimal charges that are ensure that future investments repay often linked to land area rather than water their costs. use. Prices for industrial and domestic A users are below levels required for covering the operation and maintenance 3. Adapt policy interventions to match cost of water supply, and do not permit the values of water over time and space. increases in quality. Block tariffs are used As will be explored in chapters 2 and 3, in many cities for domestic users, but are the values of water vary greatly across not structured to drive efficiency or ensure space and time. The values and attitudes affordability for low-income households. 9 The ratio of water expenditure to disposable income is far below 1.2 percent on average, an international benchmark for water affordability, with combined water and wastewater tariffs as a percent of income at 0.6 percent in Tianjin, 0.37 percent in Beijing, 0.29 percent in Shenzhen, and 0.29 percent in Guangzhou (GWI 2020). THE VALUE OF WATER IN CHINA: CONTEXT AND MOTIVATION 23 Prices can never fully reflect the diverse to values is built on the foundation of and multiple values of water—not least credible and transparent data. Yet water- because some aspects of value cannot be related data in China remain distributed monetized. However, prices can reflect a across multiple agencies at different much greater portion of water’s economic levels of government and are often value than is currently the case, serving as published in disparate and hard-to-access critical drivers of efficient use. forms. Reasons range from misaligned T incentives for officials in the reporting of data, to incompatible data systems, 5. Transition to values-driven water to deficiencies in trust and transparency management through a structured in institutional culture. Strengthened process. As explored throughout this monitoring and statistical systems, with report, the expectations of societies increased integration across sectors and are changing. Environmental values are jurisdictions, and drawing on citizen becoming more prominent, along with participation, will allow for values- citizens’ willingness and ability to pay sensitive water policy aligned with the for the policies that reflect those values. vision of an ecological civilization. R Policy makers must look to adapt policies in line with changing values, and must be cognizant of how their policies feed back 7. Realize the construction of an eco- into the formation of values. There is a logical civilization and the role of need for participatory and consultative water within it. For China to progress processes that can build consensus, and a toward its vision for an ecological need for adaptive processes that update civilization, sociocultural and ecological polices in line with changing conditions. values will need to play an increasingly There is also a need to consider the equity prominent role in water policy. The implications of pricing water. Maintaining diversity of China’s water resources, the support of stakeholders during a geographies, and water users inevitably transition toward a price-based water give rise to competing interests, policy may require compensation and underlining the need for institutions and rebates to poorer households. processes that can reveal and reconcile E different values to generate durable solutions. The tools and approaches 6. Establish evaluation systems to presented in this report are the practical determine the contribution of water means toward this vision. to the construction of an ecological civilization. Water policy that is sensitive 24 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Fundamentally, China’s development trajectory establish a policy framework grounded in society’s will be determined by the ability of policy to evolving values that can alleviate these constraints. respond to the changing values, aspirations, and expectations of society. China’s rapid growth The following chapters will present approaches has led to growing pressures on China’s limited that identify, evaluate, and realize the diverse water resources, pressures that are compounded values of water toward construction of an by remaining inefficiencies and climate change. ecological civilization. The vision of an ecological In turn, these constraints will become a constraint civilization (box 1.4 and figure 1.13) is based on on growth unless China finds ways to enhance value concepts that transcend simple economic use efficiency, maximize the synergies, and manage of resources, and includes ecological value, and the trade-offs. Historic symbolism, combined with cultural and spiritual benefits of people’s relationship contemporary water management approaches, with nature. Those same value concepts must be provides a foundation for such water policy in China. incorporated into water policy if it is to contribute to As this chapter outlines, more remains to be done to the ecological civilization vision (box 1.5). Box 1.4 China’s Ecological Civilization Building: Basic Framework, Institutional System and Overall Vision China’s commitment to building an ecological cycle of ecosystems and the effective control of civilization is focused on improving institutions environmental risks). According to the Overall and establishing systems that contribute to Plan for the Institutional Reform of Ecological the continuous process of building a beautiful Civilization, the eight systems include institutions country by the 100th anniversary of the for: (i) property rights for natural resources, founding of the People’s Republic of China. (ii) spatial development and protection, (iii) There are five systems that provided the basic spatial planning, (iv) resource management framework for building China’s ecological and conservation, (v) compensated resource civilization and eight systems that ultimately use and eco-compensation, (vi) environmental drive it’s construction. According to the governance, (vii) market for environmental speech of President Xi Jinping at the national governance; and, (viii) ecological protection, and ecological environment protection conference ecological civilization performance evaluation on May 18, 2018, the five systems include: (i) and accountability. The overall vision for the ecological culture (guided by ecological values), building of an ecological civilization is a beautiful (ii) ecological economic (based on industrial China, which, according to the Evaluation ecologization and ecological industrialization), Indicator System and Implementation Plan for (iii) targeted responsibility (focused on Building a Beautiful China promulgated and improving ecological quality), (iv) institutions for implemented by the National Development and ecological civilization (supported by governance Reform Commission, includes elements such system and capacity modernization), and (v) as clean air, quality water, soil safety, ecological ecological security (focused on the virtuous soundness and residence tidiness. Source: Compiled by the project team based on relevant documents of the Chinese government THE VALUE OF WATER IN CHINA: CONTEXT AND MOTIVATION 25 Figure 1.13 “The Great Building of China’s Ecological Civilization”: Artist’s Interpretation. 26 Source: THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S Prepared ECOLOGICAL by Remy Rossi for the World Bank and DRC. CIVILIZATION Box 1.5 What Does this Report Mean by “Value”? “Value” has multiple meanings in different remotely capture the extent to which someone contexts. It may be: (1) a principle associated may wish to protect it (a preference). This report with a world view or cultural context, (2) a distinguishes between the meanings of value preference someone has for something or for a explicitly where not obvious via context. particular state of the world, (3) the importance of something for itself or for others, or (4) a Different parts of this report address different simple measure (Pascual et al. 2017). meanings of value. Chapter 2 considers the values held by Chinese and international These definitions of value are not citizens toward water (i.e., their principles and independent. For example, one’s set of preferences). It then goes on to consider the principles will influence one’s preference for types of values of water (i.e., water’s importance). how the world should be, and the measure of Chapter 3 considers how these values can be something partially explains its importance. quantified (i.e., value as a measure). Chapter Yet consider how these differences materialize 4 brings these together: how to make policy in an example, the value of water in a wetland. choices that ensure the values of water are The quantity of habitat provided by the wetland realized to reflect the preferences of society. (a biophysical measure) does not fully describe its value (i.e., its importance as an ecosystem to either humans or to nature), nor does it Source: Authors’ elaboration. The remainder of this report is structured as follows. Chapter 2 considers types of values and methods for their identification. It focuses on those not revealed in economic behavior and that are thus often overlooked. Chapter 3 discusses how these values can be evaluated and, in many cases, quantified to support their inclusion in the policy process. Chapter 4 presents policy tools and approaches that realize these values and shows how doing so can contribute to more effective and holistic water policy. The final chapter returns to the seven priority policy areas—indicating the links between them and the identification, evaluation, and realization approaches present, as well as key lessons for other countries. THE VALUE OF WATER IN CHINA: CONTEXT AND MOTIVATION 27 28 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Chapter 2 | Identifying the Values of Water Objective: This chapter aims to introduce concepts for describing and categorizing water’s values, present evidence on how attitudes and values toward water and the environment are changing over time, and provide recommendations for values identification. Key Points: • Some of water’s values represent direct • Water’s value is partially a function of people’s and obvious benefits to people; others are attitudes and world views. In recent decades, indirect, intangible, or intrinsic. It is common there has been an increase in priority placed for only direct and obvious values to be on the importance of the environmental considered in water policy decisions. quality in China. • Just as there is not one single value of water, • Water’s value is also a function of local context. there is not one way of thinking about the Stakeholder consultation mechanisms have value of water, or of classifying the values of been adopted successfully in river basins water. around the world to assist in the process of values identification within a specific • Water may have public-good values or context. The process can be extended to private-good values—depending on its the development of a collective vision for position within the hydrological cycle, and the future of water and the environment, depending on the social and environmental recognizing the range of values identified. context. Public-good values of water are most often overlooked, yet often form a large component of water’s total value. 29 2.1 | Conceptual framework Water is a fundamental input to economic development, integral to the natural environment, and interwoven with cultural “We know the worth of water traditions, norms, and beliefs. Its value goes when the well is dry.” well beyond economic considerations to include —Benjamin Franklin, US statesman, cultural, environmental, and social elements that Poor Richard’s Almanack, 1746 may be equally or more important, depending on context. Some of these values represent direct and obvious benefits to people, while others are indirect and intangible (box 2.1), or intrinsic. This report argues that it is all too common for only direct and obvious values to be considered in water policy decisions. Those considered are typically economic benefits; indirect benefits such ecosystem services are less commonly considered, and intrinsic values are even rarer in policy decisions. This results in decisions that favor consumptive use of water over other uses, including nonhuman uses. Despite the conceptual and practical difficulties involved, identifying diverse values is essential for holistic water policy, such as that within the vision of ecological civilization. This report aims to present a diversity of views on water values. Just as there is not one single value of water, there is not one way to think about the value of water, or to classify the values of water. This report places an emphasis on the contribution that water makes to people’s lives (including in noneconomic terms)—given that the goal of public policy is usually to improve people’s lives. The tools presented in chapters 3 and 4 consequently emphasize utilitarian objectives. Yet it also recognizes that intrinsic value, inherent to nature, independent of human judgement— should not be ignored. 30 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Box 2.1 The High-Level Panel on Water: Five Principles for Valuing Water International recognition of the multiple 3. Protect the sources: Include watersheds, values of water is demonstrated in the work rivers, aquifers, associated ecosystems, and of the High-Level Panel on Water (HLPW). used water flows for current and future The HLPW, a group of sitting heads of state generations. There is growing urgency and government, was convened by the United to protect sources, control and prevent Nations and World Bank in 2016 to identify pollution, and address other pressures across ways to accelerate progress toward Sustainable multiple scales. Development Goal 6, the availability and 4. Educate to empower: Promote education sustainable management of water and sanitation and awareness among all stakeholders about for all. The panel identified five principles for the intrinsic value of water and its essential valuing water: role in all aspects of life. 1. Recognize and embrace water’s multiple 5. Invest and innovate: Ensure adequate values: Identify and consider the multiple investment in institutions, infrastructure, and diverse values of water to different information, and innovation to realize the groups and interests in all decisions affecting many benefits derived from water and water. There are deep interconnections reduce risks. between human needs, social and economic well-being, spiritual beliefs, and the viability These principles will enable broader of ecosystems that need to be considered. participation, water-wise decisions and 2. Reconcile values and build trust: Conduct sustainable practices in areas such as spatial all processes to reconcile values in ways that planning, development of infrastructure, city are equitable, transparent, and inclusive. management, industrial development, farming, Trade-offs will be inevitable, especially protection of ecosystems, and domestic use. when water is scarce, and these call for sharing benefits among all those affected. Inaction may also have costs that involve steeper trade-offs. These processes need to be adaptive in the face of local and global changes. IDENTIFYING THE VALUES OF WATER 31 Efforts to identify the multiple and diverse across the basin or society benefit. Even if the values of water start with recognition of water’s value to an individual is small, aggregation across public and private values. Water may have public- all individuals2 rapidly multiplies the total value good values or private-good values—depending derived. This contrasts to the private benefits on its position within the hydrological cycle, of water (such as irrigation and household use), and depending on the social and environmental which may be large for a particular user, but accrue context. Water is a public good when it delivers only to that user and thus do not scale across the benefits that are nonexcludable (i.e., benefits that population at the same rate. are available to all) and nonrival (when water use by one person does not constrain use by another).1 Water retains public values even when it is a Examples include ecosystem services such as private good, complicating the identification biodiversity or microclimatic benefits. As water of water’s values further. Because it is essential moves from its source into pipes and canals, public to life, water must be considered a merit good—a water becomes a private good—one controlled good to which people have a right as a necessity and consumed by specific households, firms, or for life and health. “Safety net” policies are thus farms (figure 2.1). A range of policies is needed required to safeguard this essential access and to capture the value of these different types of promote public health and well-being outcomes. benefits, from protection of source catchments, efficient infrastructure decisions, and demand management, to pollution control (such policies are the focus of section 4 of this report). Public-good values of water are most often overlooked, yet often form a large component of water’s total value. While some public values are relatively simple to identify—the value of water within the Yangtze for transporting goods, for example—many public values of water are intangible or indirect. The benefit of water for the amenity of the landscape (a beautiful China), or the value of water for wetlands that support microclimate or nutrient retention services, are less obvious. Yet it is these public values that are often the largest in quantitative terms: because public benefits are nonexclusive, many people 1 Water is also often a common pool resource when it delivers benefits that are nonexcludable but are still rival, such as an aquifer or river that is accessible to all and thus vulnerable to overexploitation by some to the detriment of others. This is a frequent outcome for tangible assets susceptible to degradation and that cannot be privatized (such as the environment), and lies at the heart of many environmental and social dilemmas. 2 In economic terms this is represented by vertical summation of the demand curves held by each actor. 32 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Figure 2.1 Transition of Water from a Public to Private Good through the Hydrological Cycle WATER SOURCE FARMS Protect the source Manage demand to of water supplies address deepening water stress Water infrastructure for delivery Transform water from public to a private good FIRMS Regulate water utilities for reliable access to safe water and sanitation FAMILIES Safety nets to protect the vulnerable since water is a merit good Environmental policies to reduce water pollution and degradation Source: Damania et al. 2017. IDENTIFYING THE VALUES OF WATER 33 2.2 | Values Held Towards Water The dual private and public nature of water In 2020, 68 percent of respondents in China is an important concept, but one that tells said they believed protecting the environment us little about how water and water-related should be the priority, even if this causes slower phenomena are perceived by specific people in economic growth and some loss of jobs (figure a specific time and place. To understand people’s 2.2). This represents an increase of almost 20 relationships and attitudes toward water, it is percentage points over the past 25 years. Young necessary to understand people’s value framework, people are especially likely to hold this view: in including their attitudes toward water itself, the 2018, 71 percent of those under 30 years agreed, environment, the economy, and to government compared to 65 percent of those over 50. The and the policy-making process. Such values proportion of people who have confidence in the evolve constantly and vary across individuals, environmental protection movement has also communities, and countries; the perceived value of increased slightly. Meanwhile, the proportion of water’s benefits varies with them. people who believe water pollution is a problem increased by 10 percentage points from 2008 to Values related to water take many forms, 2016. This suggests a concordant rise in awareness but beliefs and level of concern about the and concern regarding the environmental and environment constitute one overarching health values of water. This is consistent with proxy. In recent decades, there has been an an uptick of awareness due to growing media increase in priority placed on the importance of coverage of environmental issues over the past the environment over material goods in many decade (Shao 2017). countries, including in China. Such changes can be seen in data from the World Values Survey, which Environmental and social values are complex, have captured public attitudes, behaviors, and and there are countertrends among these values across countries for over 25 years (Haerpfer patterns. These include the proportion of et al. 2020). The survey tracks the relative priority respondents in China who are members of given to the economy, environment, community, an environmental organization, which shows along with trust in science and the government, a slight decrease (from an already low base). and other factors. Further evidence can be drawn Environmental taxes and government intervention from the Pew Global Attitudes Surveys, which track for environmental issues also became less popular agreement with the statement “water pollution is up to 2007, the last year of data for this question a problem” for the period 2008–16 (Pew Research (it should be noted that these earlier time series Center 2021). miss potentially important social changes in China during more recent years of very high economic growth). 34 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Figure 2.2 Environmental Values in China: 1990–2020 The proportion of people who: 100% Believe water pollution is a problem 90% Have confidence in the 80% environmental protection movement 70% Believe in protecting environment over economic growth 60% Are a member of an environmental organization 50% Give money for the environment 40% Support an increase in taxes if used to prevent 30% environmental pollution 20% Support trying to make our cities and countryside more beautiful 10% Have confidence in the government 0% 1990 1995 2000 2005 2010 2015 2020 Source: Authors’ elaboration based on World Values Survey Data and Pew Global Attitudes & Trends Question Database (2021). Values toward policy makers have also access to information about environmental issues changed in China, with implications for water among these groups. Younger individuals are more policy interventions; trust in government on likely to regard water pollution as a big problem environmental issues rose from 52 percent (Shao 2017). to 68 percent between 1995 and 2020. The proportion of those who believe making cities and Previous research also outlines spatial the countryside more beautiful should be a top disparities in levels of concern in China. Residents priority has also risen. of northern provinces (except for Heilongjiang) display moderate levels of concern for water Higher-income groups generally show greater pollution, while residents in Sichuan, Jiangsu, concern for environmental issues including and Guangdong are more likely to perceive water water quality (figure 2.3). Respondents in pollution with high levels of concern compared China are concerned about poor water quality to urban residents elsewhere. On a more localized with around 20 percent of all income groups level, urban environmental quality is thought to nominating it as a very serious issue. Income and play an important role in affecting an individual’s education are the most consistent positive factors willingness to pay for environmental improvements determining perceptions of water pollution and (Shao, Tian, and Fan 2018). global climate change, which may reflect better IDENTIFYING THE VALUES OF WATER 35 Figure 2.3 Extent of Chinese Respondents’ Concern regarding Water and Sanitation Quality, by Income Level Environmental problems in your community: Poor water quality 40 30 20 10 0 Very serious Somewhat Not very Not serious serious serious at all Environmental problems in your community: Poor sewage and sanitation 40 30 Income tercile: 20 Low 10 Medium 0 High Very serious Somewhat Not very Not serious serious serious at all Environmental problems in the world: Pollution of rivers, lakes and oceans 40 30 20 10 0 Very serious Somewhat Not very Not serious serious serious at all Source: Authors’ elaboration based on World Values Survey Data (2021). 36 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Comparison between China and other countries than those of more conventional goods and shows increasing global concern about the services (Young and Loomis 2014).4 Developing environment and water internationally, but an understanding of water’s values specific to some divergent trends (figure 2.4). Confidence a context requires localized assessment of its in the environmental protection movement has contribution to people and nature, and is explored increased in China in the last five years, consistent in the next section. with the prioritization of the concept of an ecological civilization, while remaining relatively constant in Japan, the United States, and large emerging economies. Growth in willingness to protect the environment even at a cost to economic growth has increased faster in China than in the high income comparators which may reflect China’s sustained high rates of economic growth during this period, combined with increasing public awareness of the ecological costs this has imposed. Membership in environmental groups in China has fallen as the state has taken a leading role in addressing environmental issues. Overall, support for environmental values is increasing in China and now exceeds or is similar to these comparison groups. Confidence in the government in general is higher in China than elsewhere. These data provide insights into the values people hold towards the environment, water, and governance, but say little regarding specific values of water in a specific place. The value of water is a function of society’s perspectives and priorities (i.e., people’s water-related values) as well as a function of water’s contributions to people and nature (i.e., its instrumental and intrinsic importance).3 The latter is a function of context and of what water offers in that context. Given highly localized differences in availably, usability, and risk, the values of water vary more widely 3 See box 1.5 in chapter 1 for a brief discussion of the different elements of value. 4 An implication of this variation is that using “benefit transfer” methods for water—that is, estimating the value of water in one context based on research findings in another context—is more difficult than it is for other natural resources. We return to methods for evaluating and assessing values in the next section. IDENTIFYING THE VALUES OF WATER 37 Figure 2.4 Environmental Values and Concern across Countries Confidence in the environmental The importance of protecting the environment protection movement even at the expense of economic growth 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 98 04 09 14 20 98 04 09 14 20 -19 -20 -20 -20 -20 -19 -20 -20 -20 -20 94 99 05 10 17 94 99 05 10 17 19 19 20 20 20 19 19 20 20 20 Member of an environmental organization 25 20 China 15 Japan United States 10 Emerging economies 5 Europe 0 84 98 09 14 20 -19 -19 -20 -20 -20 81 94 05 10 17 19 19 20 20 20 Source: Authors’ elaboration based on World Values Survey Data (2021). Note: Emerging economies is the average of results for Brazil, India, Indonesia, Malaysia, Russia, Vietnam, South Africa, Thailand, and Turkey. Europe is the average of results for Bulgaria, Finland, Germany, Hungary, Norway, Poland, Romania, Slovenia, Spain, Sweden, and Great Britain. 38 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION 2.3 | Value Typologies Just as there are many values of water, there are This framework is “economic” in the sense that many ways to think about the value of water. the values of water included are those perceived There is no one typology of values that captures and acted upon by people (i.e., it is an utilitarian everything that water offers. One common framework), however, it may include ecological, framework that provides the basis for many social, and cultural values that are typically not commonly used evaluation tools (the subject of considered in standard economic decision-making chapter 3), is the total economic value framework. (figure 2.5). Figure 2.5 Components of the Total Economic Value of Water TOTAL ECONOMIC VALUE USE VALUE NON-USE VALUE NEGATIVE VALUE OPTION BEQUEST EXISTENCE FLOOD DROUGHT POLLUTION DIRECT USE VALUE INDIRECT USE VALUE VALUE VALUE IMPACTS IMPACTS IMPACTS Consumptive Non-Consumptive Ecological Possible Use by Inherent Use Use Services future future Value use generation Domestic/ Hydropower Water commercial/ purification urban Waterways transport Nutrient Industrial cycling Tourism/ Irrigation/ recreation/ Food agricultural cultural/ prevention amenity USE VALUE NON-USE VALUE NEGATIVE VALUE Source: Adapted by authors from De Groot et al. (2006, p. 23). IDENTIFYING THE VALUES OF WATER 39 Use value is the utility derived from water in In addition to these values, there are also costs satisfying some human requirement, want, or associated with the risks that water imposes. For need. It can accrue from direct uses and indirect example, water scarcity can result in restrictions on uses. Direct use values are those benefits derived access and impacts on food prices, while an excess from direct use of or contact with water, and of water can impose flood damages and require include consumptive and non-consumptive uses: significant investment to manage. The quality of water can also impose significant direct and • Direct consumptive uses are when water is indirect costs due to impacts of pollution (box 2.2). removed from available supplies for human purposes, and not returned to the system (at least not in the same form). This includes domestic uses, irrigated agriculture, and industrial processes. • Direct non-consumptive uses provide benefits without the consumption of water, or if water is withdrawn, almost all of it returns to the system. This includes waterways transport and fisheries. Indirect use values are those benefits derived from regulation, support, and protection services provided by water. For example, nutrient cycling from wetlands, flood regulation (flow and sediment), waste assimilation (dilution, purification, transport), or microclimate benefits. People derive some tangible benefit from water but do not use it directly. Nonuse values are derived from the mere existence of water. For example, the existence value of a wetland centers on the benefits derived from the knowledge that the wetland exists, even if the holder of that knowledge has no physical connection to that water, and will never see or use the wetland in person. 40 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Box 2.2 The Economic Cost of the Water Pollution Crisis in Flint, Michigan, United States In 2013, the manufacturing city of Flint, bottled water program alone was estimated Michigan, approved a plan to switch its to be US$22,000 per day. The state allocated water supply from the Detroit Water and US$97 million to excavate and inspect over Sewer Department to the Karegnondi Water 18,000 service lines and replace those made Authority (KWA) to reduce supply costs. The from lead. In total, the state of Michigan provided city faced a one-year gap between the end around US$350 million to help deal with the of its contract with the department and the crisis, in addition to US$100 million provided by completion of the KWA pipeline project, which the Environmental Protection Agency to help the city filled by temporarily treating water the city with drinking water upgrades. from the Flint River. The Flint River water was more corrosive and caused toxic lead in pipes to Further health and economic costs were also contaminate the city’s water supply. On October incurred. Children’s blood lead levels in Flint 1, 2015, a public health emergency was declared. increased by about 0.5 microgram per deciliter (μg/dL), with estimated long-term social costs Substantial resources were needed to of around US$65 million. Average home values mitigate the immediate public health risks. decreased 9–25 percent after the switch of State and federal governments provided free water source, and a further 13–20 percent after bottled water and water filters to residents for the declaration of emergency, a total loss of nearly two and a half years. The cost of the free US$345–497 million. Source: Christensen et al. 2019; Zahran et al. 2017. IDENTIFYING THE VALUES OF WATER 41 2.4 | Examples of Values There is a need to identify specific values of water • The value of water in industry is similarly in each context to design policies that protect and economic, but again provides secondary enhance those values. These values can take a values depending on context. While the variety of forms: ecological, economic, cultural, and initial increase in China’s water use over the health values, among others. past 70 years was directed toward agriculture, water was later increasingly used for industrial • The value of water in agriculture is an purposes. Agriculture water use peaked in the economic value, with cultural, food security, late 1990s and later stabilized between 350 and ecological elements. Agriculture is the and 400 BCM per year. Industrial water use largest water user in China, accounting for over peaked at a much later stage, at 146.2 BCM 60 percent of total water withdrawals (figure in 2011. The value of industrial production 2.6). This has increased almost fourfold over this water facilitated has underpinned China’s the past six decades, from around 96 BCM in rise as the global center of manufacturing. 1950 to 369 BCM in 2018. Over the same period, Industrial water is typically consumptive in the irrigated land area more than tripled from quality, if not in quantity (i.e., a use value), but 0.16 million square kilometers to 0.68 million produces cultural values in some contexts also. square kilometers. Today, China’s irrigated areas make up more than 20 percent of the • The value of water in domestic contexts global total. The use of water in agriculture includes economic, health, and cultural delivers substantial economic value (including values (both use and nonuse). China’s use for food security), but it further contributes to of domestic water has not yet reached a rural cultural value associated with farming turning point, increasing steadily from around traditions and landscape amenity, ecological 52 BCM per year in 1997 to 86 BCM per value associated with nature on agricultural year in 2018. Urban water supply capacity land, and others (indirect use, or nonuse in China increased by over 12-fold from values). around 25 to 304 million cubic meters (MCM) per day from 1978 to 2017. By the end of 2018, more than 11 million water supply projects had been completed to serve a rural population of 940 million people, with a penetration rate of rural tap water reaching 81 percent. The health benefits of water in the domestic context have been substantial (box 2.3). 42 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Figure 2.6 Changes in Water Use by Major Sector 700 Total Water Use Irrigation Industries Domestic 600 Ecology 500 BCM per year (1949-2019) 400 300 200 100 0 1949 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2019 Source: DRC (2021). Box 2.3 The Health and education value of the Rural Drinking Water Program in China The Rural Drinking Water Program in China This program has also generated educational invests in water plants and pipelines to benefits. Based on data from the China Health provide rural residents with treated drinking and Nutrition Survey, from 1989 to 2011, water. Over the past two decades the program young people in villages with access to treated has made investments of US$8.8 billion, reaching water completed an additional 1.08 years of 300 million people at a cost per capita of US$30. education, with the likelihood of graduating This program has generated substantial health from middle and high school increasing by benefits, with the illness incidence of adults 19.8 and 89.6 percent, respectively. The impact decreasing by 11 percent and weight-for-height on girls schooling attainment was particularly scores increasing by 0.835 kilogram per meter. pronounced. In addition, young people with Children’s weight-for-height and height scores access to treated plant water in early childhood rose by 0.446 kilograms per meter and 0.962 (i.e., 0–2 years of age) experienced significantly centimeters, respectively, as a result of the higher gains in education than those who were program. exposed to treated water later during childhood. Source: Zhang 2012; Xu and Zhang 2014. IDENTIFYING THE VALUES OF WATER 43 • The value of water for hydropower soil water movement, and affects the growth production (a non-consumptive use and distribution of ecosystems. Variation in value). China has the second-largest gross water drives much of the ecological diversity hydropower potential (total energy of natural seen in China, with gradual reduction of discharge falling to its lowest level) in the precipitation from east to west giving rise to world, next to Russia. By 2018, China had forests, meadow grasslands, typical grasslands, installed 352 gigawatts of hydropower, the desert grasslands, grassland deserts, and largest generating capacity in the world. deserts. Water (or lack of ) drives the key Hydropower contributes between 15 and 20 ecological features and thus values of each. percent of China’s entire electricity portfolio, These ecological values also influence (or are with the amount of hydropower production drivers of ) cultural values. Some cultures see having increased from just above 200 terawatt- ecological and cultural values as entwined, hours in 2000 to just below 1,200 terawatt- implying that failure to identify these values hours in 2017. in policy processes inflicts disproportionate losses on those groups (box 2.4). • The value of water for navigation (a non- consumptive use value). China has 125,000 • The value of water for cultural practices km of navigable inland waterways, the most (an indirect use value, or non-use value). extensive system of any country globally. The China’s ancient civilization boasts diversified distribution of waterways is chiefly within cultures and traditions around water with a central and south China. From 1949 to 2017, the long history. Water’s social and cultural values freight volumes of China’s inland waterways are reflected in landscapes with water features increased from 7 million tons to 3.7 billion tons. of cultural significance (box 2.5), culturally Passenger traffic decreased between 1987 significant towns along waterways, and and 2003 as road and bridge infrastructure famous water features such as the Qiantang improved, but increased in recent years, River tide and the Huangguoshu Waterfalls. driven by recreation, pointing to an important They also include tangible water conservancy additional value of water in these contexts projects such as the Grand Canal from Beijing to (and a consideration for water management Hangzhou, and artistic works involving water, and infrastructure development). In 2018, the such as works of art, literature, manuscripts, number of passenger trips was approximately books, and other representative material 280 million. objects as well as other water-related poems, myths, epics, stories, tales, and proverbs. In • The value of water for ecological services many contexts internationally, deep spiritual (an indirect use value, or nonuse value). and cultural significance is often attached Water provides various ecological services, to water resources. Identifying these values including provision, regulating, cultural, and through surveys and consultation exercises is supporting services. The water cycle provides necessary if they are to be considered in water water to the ecosystem through processes policy decisions (box 2.6). such as precipitation, infiltration, runoff, and 44 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Box 2.4 Cultural Values of Water in the Murray-Darling Basin in Australia Australia is made up of hundreds of distinct The knowledge and beliefs held around Aboriginal and Torres Strait Islander groups, important water sites, and the resulting with their own culture, language, and beliefs. cultural values, motivate practices of natural In the Murray-Darling Basin, one of Australia’s resource management. Aboriginal Australians major river systems, there are at least 48 are renowned for their custodianship and care Aboriginal nations. Those nations have inhabited for country, providing excellent environmental the basin for at least 40,000 years, over 230 years outcomes in water-related activities as part of an since European colonization, and 120 years original environmental ethic. since the federation of the Commonwealth of Australia in 1901. These values have not always been identified or incorporated into policy decisions. In the Aboriginal world view, people and Appointment of Aboriginal individuals to country (which includes lands, waterways, decision-making roles has increased the and seas) are interdependent entities that are recognition of the cultural value of water within intrinsically linked in the landscape through government and the wider community. These cultural and spiritual significance. This means concepts have also gained some recognition in that there cannot be a separation of nature and high-level policy documents such as the Murray- culture: the cultural well-being of Aboriginal Darling Basin Plan (2012). However, there is a people is directly influenced by the health need for deeper recognition, along with financial of the natural environment. This “connection resources to ensure independent and informed to country” is a fundamental value of many participation in water policy decisions. Aboriginal people. Water is an essential element of Aboriginal peoples’ view of country, implying that it should not be managed in isolation. Aboriginal philosophy—the Dreaming—is based on this interrelatedness of all people and things. Source: Australian Water Partnership and World Bank 2022a. IDENTIFYING THE VALUES OF WATER 45 Box 2.5 Valuing Intangibles: Water-Related Cultural Sites in Zhengzhou The Yellow River is considered the cradle of and technological values refer to the embodied Chinese civilization. Located in the middle knowledge and technology in the engineering reaches of the Yellow River, Zhengzhou City in and planning that can be useful for today’s water Henan Province embodies a long history of water management; social values include those related governance for economic uses and flood control. to the well-being of people, while artistic values More than 4,000 years of water conservancy has refer to aesthetic values and values in other left varied and numerous sites of water-related artistic aspects. cultural heritage. The irrigation systems, flood control projects, water supply and sewage works, This analysis was part of an effort by the and canals, as well as water-related architectures, Water Conservancy Bureau of Zhengzhou relics, literature, and natural landscapes, are to recognize and evaluate the local water significant both to China and the world’s cultural cultural heritage of the city. The framework heritage. for assessment, part of a guideline developed by the bureau, provides standards that are applied In 2018, the Water Conservancy Bureau of systematically to the major cultural heritage sites Zhengzhou conducted a survey of the water- of the city, helping to guide protection efforts. related cultural heritage in the city. A local The final unitless score for each site summarizes Standard and Guideline for the Recognition values across disparate value types, helping and Evaluation of Water Cultural Heritage was comparability and prioritization. developed, to provide an evaluation framework for water cultural heritage combining input Based on such guidelines, the Water from different stakeholders. The framework is Conservancy Bureau of Zhengzhou plans to constructed with indicators representing four launch an identification process for water- categories, including historical value, scientific related cultural heritage, to identify and and technological value, social value, and certify the most valuable sites. The bureau is artistic value. The historical values include the further planning an institutional framework for length of history, relevance to historical figures, the protection and inheritance of certified water- the rareness of design, and so on; the scientific related cultural heritage. Source: Authors’ elaboration. 46 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Box 2.6 Cultural Values of Large Rivers in South Asia— the Ganges and Brahmaputra As the longest river in India, the Ganges, Cultural and social rights associated with the or Ganga, is one of the most sacred rivers Brahmaputra river system influence patterns for Hindus. The river receives millions of of resource use. In the river section of Siang, pilgrims each year, making it a powerful center stretches of the river are customarily allocated of religious and cultural activity. Ceremonies to different households. The tribal settlement or marking births, deaths, and religious events are clan subcontracts out parts of the river through a held along its banks. It is accepted that a sacred process of clear bidding to one household, which plunge (punya/pavitra snan) in the river cleanses then receives the right to oversee activities. The one’s spirit. The very special faith and respect bid money is retained by the village council, and for the River Ganges in India are as old as Hindu rights are assured through a written contract for culture itself, and part of the cultural identity for a period of one year, after which the process of many Indians. tendering starts again. There is a strong sense of ownership of the river among the different tribal Winding its way through China, India, and groups. Bangladesh, the Brahmaputra has religious significance for both Buddhists and Hindus. Water bodies and rituals associated with The river has many names—Yarlung Tsangpo them have been accorded legal status in India in China, Lohit or Brahmaputra in India, and to protect the cultural values of water. In Jamuna in Bangladesh—testifying to the diverse December 2016, in a landmark decision, courts cultures that have sprung up along its course. The in Uttar Pradesh and Uttarakhand in India passed people of Tibet believe that long before human orders to preserve the rivers Ganga and Yamuna. occupation, the Chang Tan plateau was covered The rivers and their tributaries were declared by the waters of a great lake. A Bodhisattva (an legal living entities, with the rights, duties, and enlightened being) decided that the waters liabilities of a living person. The courts observed had to flow in order to help the people in the that doing so was important to preserve the faith region, and cut an outlet through the Himalayas. of millions of Indians who identify these rivers The mountains, gorges, and jungles through with cultural and religious values. which the Tsangpo flows are sacred, and Tibetan scrolls speak of sanctuaries or beyuls deep in the Himalayas. Here, aging is conceived to slow, and animals and plants have miraculous powers. Many believe that in this area, perhaps through one of the waterfalls at the bottom of the world’s deepest gorge, is the doorway to paradise on Earth, Shangri-la. Source: Authors’ elaboration adapted from Kumar (2017). IDENTIFYING THE VALUES OF WATER 47 2.5 | Identifying Values: Recommendations The integration of values into water policy The quality and accessibility of the evidence begins with the process of collectively base that is used to support stakeholder envisioning the desired future state of deliberation is critical. All stakeholders must water and the environment, and surveying have access to sufficient, reliable data regarding stakeholders’ views and values of water which the current quantity and quality of resources, the undergird the vision. This process is most useful demand of each sector, ecological requirements, if it can involve a diverse range of stakeholders as well as projections of future demand based on linked to the management and allocation of water plausible, transparent assumptions. The sensitivity sources, including surface water, groundwater, and of the projections to these assumptions should be treated water. It may involve stakeholders from a analyzed and supplemented where appropriate range of sectors (industry, agriculture, fisheries, with analysis of alternative scenarios. It should also transportation), and consider users whose interest be noted that not all values of water are grounded in water goes beyond economic considerations in quantitative evidence, and those values put (e.g., cultural and ecological significance). forward by stakeholders based on more intangible relationships with water remain important. Stakeholder consultation mechanisms have been adopted successfully in river basins Inevitably, the delineation of the desired around the world to assist in this process future state will involve trade-offs among of values identification. A range of models is the identified values of water. As it will not be available to fit different physical scales and the possible to satisfy all stakeholders completely, it number of stakeholder groups involved. The is vital that the process followed to arrive at the criteria for eligibility and the allocation of authority vision is regarded as fair by participants and they for recruiting stakeholders must be clearly defined are all committed to respecting and implementing and perceived as fair, if the policy decisions which the policy decisions that are derived from the result from the process are to be accepted and shared vision. This requires recognition of all values implemented. Similarly, the individuals selected to identified, even if those values are subsequently represent stakeholder groups must be recognized subsumed in service of other competing values. by these groups as legitimate and competent. These principles are summarized in a set of framework recommendations (box 2.7). 48 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Box 2.7 Recommendations for Identifying the Value of Water 1. Information collection and consultation: • Involve all stakeholders in consultation to establish a collective vision of the desired future state of the water environment. This should involve water managers, users, and others with an indirect interest or connection to the water resource. • Mainstream multi-stakeholder consultation at multiple levels. At the basin level, this could be based on an expanded and enhanced stakeholder consultation forum for the Yangtze River Ba- sin—a scientific and technical advisory committee established in 2020—that could be replicated in other basins based on experience. • Develop standing consultation bodies. Rather than identifying values in relation to specific and new developments, build advisory and citizens bodies from interested stakeholders and seek frequent input as part of regular management and the refinement of existing policies. 2. Information provision and use: • Provide a high-quality evidence base as the foundation for joint deliberation around values. However, recognize values based on intangible connections and perceptions in addition to those based on physical relationships that can be captured in data. • Give explicit recognition to nonmonetary values, such as ecological and cultural values. These may be elicited via survey methods and interviews. • Develop a set of indicators built around the identified values to measure the broad impacts of water policy. While it is unlikely that any one set of indicators can fully reflect the range of values identified among stakeholders and society, a diverse range (including qualitative measures) is possible. Civil society organizations have a role to play in monitoring compliance and environmental outcomes. • Establish a national water information sharing platform. Develop shared information platforms at basin level to facilitate system-level visioning, planning, and management between provinces and user groups. This could be part of current efforts to standardize and integrate information from the River and Lake Chief System into a shared information platform. 3. Accountability and accessibility: • Ensure public access to environmental monitoring data to enable meaningful participation by stakeholders. Enhance data transparency for academic research and civil society participation and comment. Values data could also be provided for public consideration and research (i.e., results of surveys and consultations). • Ensure transparency and accessibility of decisions on water allocation and protection. Decisions should follow clear and consistent procedures and be justified with reference to evidence, including the documented views and values of stakeholders. • Establish decision review and dispute resolution mechanisms. River basin management authorities should have the authority to enforce decisions when necessary. IDENTIFYING THE VALUES OF WATER 49 50 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Chapter 3 | Evaluating the Values of Water Objective: Building on the identification of values presented in chapter 2, this chapter presents methods for quantitatively or qualitatively evaluating those values. It presents methods for bringing those values together in consistent frameworks, as well as the data required, to help evaluate policy situations that touch upon multiple values of water. Key Points: • Evaluating multiple values of water is critical • Different approaches are suited to different for informed water decisions. Evaluation values of water. The results from these that allows for comparison of varied values analyses can be brought together in consistent helps inform the allocation of water among evaluation frameworks, such as benefit-cost competing uses. analysis and multicriteria analysis, and at the basin level using systems assessments and • Methods for evaluating water’s value in hydro-economic models. an economic framework include revealed preference methods, where people’s behavior • Evaluation relies on credible and easily in markets signals water’s importance. accessible data that captures local context. Automatic monitoring systems, real-time • In nonmarket situations—important for data-sharing platforms, and institutions ecological or socio-cultural values—values supportive of data access can contribute to may be assessed using stated preference, or more thorough and frequent evaluation. subjective methods. 51 Identifying values of water is a necessary but Evaluating water’s diverse values provides a insufficient step on the pathway to realizing quantitative evidence base for decisions, but those values. Quantifying values, where possible, trade-offs are inevitable, and decisions remain or ranking and assessing qualitatively, where it political. Water policy decisions involve trade- is not, is critical for informed water decisions. offs between users (agriculture, industry, urban, Evaluation helps allocation of water among and the environment itself ) and between value competing uses in a way that maximizes its value. domains (social, cultural, spiritual, environmental, It helps ensure efficient infrastructure choices: that and economic). Even where it is possible to fully is, that supply is only increased when the economic identify values and assign comparable estimates and social value of new water justifies the capital of costs and benefits, trade-offs are revealed, not investments required, and when it outweighs any resolved. Decisions surrounding distributional losses in environmental value due to increased issues and the extent to which trade-offs across water withdrawals. It further informs the calibration sources of value are acceptable are societal choices. of water quality protection measures. Stronger However, recognition and accounting through standards, restrictions, or pollution taxes may be the evaluation process helps decision-makers by justified if the economic value of cleaner water—as improving transparency and raising perceptions measured by reduced treatment costs downstream, of fairness, thus bolstering acceptance of policy or improved environmental outcomes—outweighs choices among those who will have to bear the the cost of those restrictions. Fundamentally, the costs of those trade-offs. evaluation and assessment of diverse values is an integral step toward efficient and equitable water policy, encompassed by the priority policy areas (SMARTER) introduced in chapter 1. 52 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION 3.1 | Approaches to Evaluating and Assessing The diverse benefits and costs associated or satisfaction from it, then it has no value in this with water can be measured with different framework (Rea and Munns Jr 2017). This report techniques, explored in this chapter. Increasingly turns to methods for exploring intrinsic values later sophisticated methods are available to quantify in this chapter. and monetize values, supporting comparisons across value classes and across alternative water Utilitarian valuation methods include stated policies and projects. These include hydrological preference methods and revealed preference and economic models, statistical techniques, and methods (figure 3.1). Revealed preference participatory processes (Young and Loomis 2014; methods, or “objective” methods, are used to Kenter et al. 2016). No technique can determine evaluate water values from what human choices the total value of water—instead, each reveals reveal about their desire for water, such as their use different, partial components of water’s value, of water in production processes, or their choice sometimes overlapping, and sometimes distinct. of where to live and to pursue recreation. Stated Multiple techniques can be used to explore preference methods, or “subjective” methods, go different angles of the valuation problem. beyond market revelation to capture non-use values that leave no signal of people’s market Many techniques are based on a utilitarian behavior. These can quantify existence values, outlook (i.e., the value of water as recognized those reflecting people’s appreciation for an asset’s and received by people); these aim to provide existence (and their willingness to pay for it via a quantifiable and comparable assessment higher taxes or product prices) even though they of value. The utilitarian framework is powerful do not directly or indirectly make use of it. Valuation because it allows for conceptually comparable methods of both types are described below. estimates of diverse values. For example, a utilitarian framework allows for the economic value of a wetland ecosystem (such as the wetland’s filtration of pollutants, or the amenity value it offers to nearby residents) to be compared with the economic benefits of extraction of that wetland’s water for agricultural production. But this is a clearly limited comparison: certain important conceptions of value, such as intrinsic value, are excluded. If humans are not aware of the wetland, or derive some direct or indirect benefit EVALUATING THE VALUES OF WATER 53 Figure 3.1 Valuation Methods and Their Application in Assessing Different Value Categories Residual value method Direct Supply and demand pricing method market Use values assessment Production function method CGE modeling Revealed preference Replacement cost method Indirect Indirect use, market Hedonic pricing method direct use Valuation assessment values method Travel cost method Contingent valuation Non-use, use, Stated preference and option Choice experiments values Source: Authors’ elaboration. 3.1.1 | Revealed Preference Approaches A. Direct Market Assessment In a direct market assessment, water is taken demand changes in response to price changes to be a factor of production of a marketable in water markets), and the production function good. Changes in the quantity and quality of water method (statistical assessment of the relationship induce changes in productivity and production between production inputs [including water] and costs. These change goods’ prices or production outputs [such as agricultural products]). These levels, which signal the market value of water. approaches demonstrate how water contributes Prominent examples of direct assessment include to economic output and thus indicate one type of the residual value method (a statistical measure economic value. of the contribution of water to the value of given outputs),1 the supply and demand pricing method (statistical assessment or direct observation of 1 The costs of all non-water inputs are subtracted from the price of outputs, leaving the value of water as the residual. 54 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Such direct market assessment can help inform The price of these shares provides a convenient intersectoral water reallocation in water- indication of the economic (use) value of water, scarce regions. This is seen in Ningxia and Inner which fluctuates with supply and demand.2 Mongolia, two provinces that rely heavily on the However, water markets are not yet common Yellow River for their water supply and face strong globally beyond the long-standing schemes in the constraints. Annual excess water consumption (i.e., Murray-Darling Basin in Australia, in Chile, in the consumption above the provincial allocations) is western states of the United States, and some pilot around 1.7 BCM in Ningxia, and 0.8 BCM in Inner programs in China (box 3.1). Mongolia. The agricultural sector is the largest water consumer, accounting for over 90 percent While revealing, these direct assessment of the total across these provinces. However, approaches are limited in important respects: assessment of the per-unit value of water based on exclusion of non-market values and linkages a production function approach indicated a value throughout the broader economy. We return to 60–110 times higher in the industrial sector than non-market values in the next section. With regard in the agricultural sector, driven primarily by the to economic linkages, the production function very high value of mining and chemical production approach applied to a single firm, or a single uses. The provincial governments have conducted industry, indicates how economic output will 19 pilot water right transfers, in which investment increase due to transferred water within that firm in irrigation efficiency (with no loss in agricultural or sector (partial equilibrium impacts). In reality, production) freed water resources for diversion the activities of that firm or sector will have flow- to industrial uses. The economic value of these on economic impacts on others, just as there will transfers, net of investment costs, is estimated by be negative flow-on effects from the firm or sector the DRC at over CNY 13.15 billion (US$2.03 billion) deprived from the transfer, with businesses that to date. serve those businesses directly impacted feeling the indirect consequences. These ripples through Water’s value can be directly revealed by water the economy can be substantially greater than the markets, where they exist. The value realized original impact. from the water transfers in Ningxia and Inner Mongolia are examples of the kind of value that An expansion of the production function method water markets attempt to create on a continued is thus necessary to consider these impacts; a basis, by moving water from lower- to higher- computable general equilibrium (CGE) model is productivity uses. A typical approach to markets is a common approach for doing so. A CGE model to divide available water resources into shares, and is typically constructed at the national or regional allow for the trading of those shares among users level, and quantifies relationships between inputs such as irrigators within a basin, or (less commonly) and outputs in an economy based on a series of between agricultural and industrial sectors. production functions representing assumptions 2 There are limitations on the ability to infer value from the price in water markets, even where they exist. Prices are dependent on the market’s overall cap on allocation (which controls scarcity of the resource). Water reserves for environmental purposes and license conditions, which may exist alongside the cap (thus influencing the water price) help to define and protect broader values of water, but are only sometimes applied. This report returns to these institutional elements in chapter 4. EVALUATING THE VALUES OF WATER 55 about how inputs (capital, labor, and raw materials attempts to reduce this gap between price and such as water) combine to create value. Unlike the value is a policy priority in China, and is a topic that other approaches described above, a CGE model this report returns to in chapters 4 and 5. can be dynamic, showing economic changes over time. CGE models can be integrated with a water By necessity, these direct market assessments resources model to estimate the economic impacts make strong assumptions, and are a relatively of water allocation decisions, or supply constraints. narrow way of evaluating water’s value. They make assumptions about how water enters the A CGE model can indicate the “shadow price” production function (i.e., the way in which water of water—the price which represents the is combined with other inputs such as capital and economywide marginal value of water. This labor), and thus the extent to which water can be price reflects the contribution of water resources substituted for these other factors. In the case of the to economic production under conditions of CGE model, additional strong assumptions include optimized allocation across sectors and over time. markets at equilibrium and no surplus supply or Comparisons by the DRC, between CGE shadow demand. More fundamentally, these approaches prices and raw water and tap water prices across do not capture ecological, socio-cultural, or other China, indicated that water prices tend to be values that are not “priced” by the market economy. substantially lower than this measure of potential Additional approaches are needed for these values, economic value. Water pricing reform that explored below. Box 3.1 Water Markets in Australia, the United States, Chile, and China Water markets allocate water resources based China also has growing examples of water on supply and demand, leading (in principle) markets. to economically efficient outcomes. Individual users negotiate with each other (directly, or via Australia’s water market in the Murray- intermediaries such as a trading platform) for the Darling River Basin is one of the largest and right to use defined water shares or allocations. most sophisticated. The market developed Basic requirements for successful water markets gradually with reforms over time. In 1994, include: (1) a cap on total water use, (2) clear statutory water rights were separated from land and secure water rights, (3) effective market ownership basin-wide, allowing for trading. A regulation, (4) information about the state of cap on total water extractions was imposed in the market (i.e., transparency), (5) monitoring 1997, setting the bounds on the market, ensuring and enforcement (including water metering), scarcity and thus value (while also aiming to and (6) a water entitlement and trade register. protect the system from overallocation). Both Prominent examples of water markets include temporary water (a right to a specific allocation those in Australia, the United States, and Chile. in each season) and permanent water (right to 56 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION a share of the total water available, or water Chile has a more free-market approach, entitlement) could be traded. The market has with a formal water market established at driven water use efficiency and helped reduce the national level in 1981. Water rights are economic losses during drought by allowing separated from land ownership and defined as water to flow toward its highest value uses private property that can be bought and sold, (such as horticultural crops) and away from and may also be leased and inherited. New and low-value pasture. The market has also allowed unallocated water rights are sold at auctions. for the purchase of water for the environment Unlike in some US jurisdictions, water rights in through “buybacks” by the government, made in Chile are not forfeited if not used. The system response to increasing environmental concerns. has faced equity challenges in that some users acquire more water rights than needed, leading The United States has a mixed water rights to monopolies across basins in some cases. In system with a history dating back to the 2005, a fee for non-use was imposed to prevent 19th century. While eastern states typically speculation and monopoly holding of rights. have “riparian rights” linking water with land adjacent to rivers, some western states have China’s first water trading scheme was “appropriative rights” separating water from established between Yiwu City and Dongyang landownership. Water markets are thus well City, Zhejiang Province, in 2000. Further established in some water-scarce regions, such pilots have been established since, including as Arizona, California, Colorado, New Mexico, in Ningxia, Inner Mongolia, Gansu, Xinjiang, and Texas. The water market in California is one and Guangdong. Water trading between the of the most developed. Key to its functioning agricultural and industrial sectors in Ningxia was a modification to the “forfeiture rule,” that and Inner Mongolia is one of the oldest, in otherwise required water rights holders to “use operation since 2003. New industrial projects it or lose it.” By modifying this rule, conserved are required to obtain water abstraction rights, water could be traded, providing an incentive which they can do by paying for water savings for efficiency. An important feature of the in the agricultural sector (e.g., through reduced California system is the distinction between canal leakage). The “saved” water is transferred consumptive and non-consumptive water to the new industry, leading to substantial value rights. Only consumptive rights are tradable, realization. One remaining challenge, however, while non-consumptive use (return flows) must is the issue of return flows, which are reduced be discharged. If a market allowed upstream by the efficiency measures. As seen in the other users to sell more than they consumed (i.e., examples presented here, reduced return flows by selling the return flow component of their reduce water availability for downstream parties, water rights), it would reduce water availability ecological flows, and groundwater recharge. for downstream users, the environment, and groundwater recharge. Sources: DRC 2019; Ministry of Water Resources 2016; Yellow River Conservancy Commission n.d.; Australian Water Partnership and World Bank 2022b; Endo et al. 2018; Donoso 2013; Hanemann and Young 2020. EVALUATING THE VALUES OF WATER 57 B. Indirect Market Assessment An indirect market assessment is conducted The hedonic pricing method is used to measure when there is no direct and observable the value of water through its impact on relationship between water and market property prices. The property market is used output. Indirect approaches evaluate water’s as a “surrogate” market in the absence of a direct values through related markets, in which people’s market for water amenity. The method exploits behavior indicates the value of water even without the fact that real estate is often more valuable in directly using or trading in water. They are therefore locations close to water due to its amenity and able to capture non-consumptive use values. scenic value, and statistically disentangles the property’s value arising from proximity to water, The replacement cost approach is a type of from that of the property’s other characteristics indirect market assessment based on the (such as its size and quality). Again, this method principle of ecosystem services provision. 3 misses many important values of water that It is used to estimate the value of water assets may not be appreciated by property buyers (e.g., based on the cost of replacing the asset with an aquatic biodiversity), but does help fill important alternative technology. For example, a partial gaps left by direct market assessments. estimate of watershed purification services can be derived from the cost of a water treatment plant. The travel cost method is used to estimate the Clearly, the replacement of a wetland with a water value of water-related recreational sites by how treatment plant misses substantial values of water much people pay to visit. This method is based and the environment—including the biodiversity on the premise that people value a water resource or amenity value—but at least captures more at least as much as the amount it costs them to than a direct market assessment (which would not visit (i.e., a lower bound). Despite widespread recognize the ecosystem service of water filtration). use internationally, this technique has seen less Appreciation for ecosystem services is becoming application in China. Examples include a valuation increasingly prominent in China and globally, with of the Baiyun Mountain scenic area in Guangzhou natural capital (such as soil, forests, and water (Lin et al. 2015), and of the West Lake Cultural resources) now seen as a critical complement to Landscape of Hangzhou (which was inscribed physical and social capital for sustainable economic on the United Nations Educational, Scientific and growth. Cultural Organization’s World Heritage List in 2011) (Zha and Qui 2015), both indicating substantial domestic recreation benefits from water assets and natural scenery that might have otherwise gone unquantified and unrecognized. 3 Ecosystem services are the benefits that a healthy and functional natural environment provides to humans, and include services such as the pollination of crops, clean air, resilience to floods and droughts, the provision of clean water, and human mental and physical well-being. This concept has been expanded in recent years to the more holistic idea of “nature’s contribution to people,” which includes non-instrumental relational and cultural values (Kadykalo et al. 2019; Pascual et al. 2017). 58 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION 3.1.2 | Stated Preference Approaches Stated preference methods capture some of the least tangible types of value: non-use values that leave no trace in market behavior. These values include existence value (e.g., the satisfaction people receive from knowing that a rare ecosystem is intact) or option value (the value people receive from knowing they could benefit from a water resource in the future), and bequest value (the utility derived from preserving a water resource for future generations). These values are characterized by a general absence of observable behavior from which values could be inferred. Stated preference methods such as contingent valuation and choice experiments present a sample of the population with carefully constructed hypothetical scenarios via a questionnaire. Respondents indicate if they would be willing to pay for water attributes, such as aesthetic quality or biodiversity, a new service such as a water connection, or to avoid pollution, via a hypothetical tax increase or similar such payment vehicles (see box 3.2). While such methods are prone to bias (payments are hypothetical, so respondents may overstate their willingness to pay), studies have demonstrated validity of the values obtained using such methods under careful study design. EVALUATING THE VALUES OF WATER 59 Box 3.2 Valuing Water Quality Improvement: Lake Puzhehei, Yunnan Province Stated preference non-market valuation The average household in Qiubei County was techniques were used to inform investment estimated to be willing to pay CNY 30 per decisions to improve water quality in Lake month for five years for this improvement. Puzhehei in Qiubei County. At the time of the Wealthier respondents were willing to pay study, water quality had been deteriorating due to more, with a 1 percent increase in household limited water treatment infrastructure, with much income increasing willingness to pay by of the waterbody classified as Grade III or Grade 0.21 percent. Aggregating over the population IV. The provincial government was considering an of the country, this evaluation implied that investment to improve water quality by building the total benefits would outweigh the costs artificial wetlands, collecting and treating of the needed investment, and deliver a social wastewater and solid waste from nearby villages, rate of return on the project of 18 percent. The and replanting lakeside vegetation. study also demonstrated the importance of knowledge about water quality issues, with A contingent valuation method was used to those with better baseline knowledge willing to quantify the benefits of these investments, in pay greater amounts. The project—the Yunnan which a hypothetical scenario was presented Urban Environment Project—proceeded over to randomly selected participants from Qiubei subsequent years and by 2018 had connected County. The study design utilized a multiple over 470,000 households to wastewater treatment bounded discrete choice approach, in which services across the project area. participants were repeatedly questioned on whether they would pay a given amount (through higher utility bills) for a project that would improve water quality in the lake by one grade level. Source: Wang et al. 2013; Richardson et al. 2015; World Bank 2018a. 3.1.3 | Bringing Values Together: Integrated Valuation Each of these valuation approaches has its limits, Given that applying even one of these valuation and typically, the estimated value is only part of methods requires significant effort, transferring the value of a water resource. Valuation exercises value estimates from studies elsewhere (benefit that quantify the economic value (use value) of transfers) can make assessment practical— agricultural irrigation, industrial production, or with significant caveats. Benefit transfers take household consumption, do not usually consider existing nonmarket valuation studies from other external impacts (positive or negative) on other areas and apply them to the area of interest, rather stakeholders or on the environment. Multiple than undertaking new empirical studies. Given methods are typically needed. differences between the original site and the site 60 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION of interest, the transferred values must be adjusted studies drawing on the methods described above, to take into consideration local context (often by benefit-cost assessments of irrigation, hydropower, constructing a benefits function, a regression fitted and flood protection projects often take a narrow to multiple existing studies to build a statistical view of the value of water, with limited attention, relationship between observed benefits and if any, paid to non-market use values, non-use site characteristics). While such adjustments are values, and distributional issues. The integration of themselves challenging, a rough benefit-transfer assessed values of water within decision-making value may help improve decision-making over an frameworks is as important as their identification absence of the value entirely (Richardson et al. and quantification in the first place. 2015). 4 Integration of values in monetary terms is not Multiple values of water—if determined in a always possible or desirable; techniques such common monetary metric—can be integrated as multi-criteria analysis (MCA) can be used within benefit-cost analysis (BCA). BCA— instead in such cases. MCA describes a structured which in many countries is routinely applied to approach to determine overall preferences among almost every type of policy and project—was alternative policies that each have characteristics first developed for water resources management. measured in non-comparable ways. The The US Federal Water Development Department characteristics of each option are scored, ranked, applied the method for evaluation of its water and weighted across a potentially wide range of infrastructure investments. BCA combines the qualitative impact categories and criteria (see investment cost of a policy or project, the cost of box 3.3 for an example). Environmental and social subsequent management and maintenance, the indicators may be developed side by side with cost of precluded activities (opportunity cost), economic costs and benefits. A degree of expert and the subsequent negative or positive impacts judgement for the selection of indicators and on society and the environment, determined by scores for each option is often needed, and may be the evaluation techniques described above. BCA a useful participatory exercise in which the views of compares sets of benefits and costs expressed stakeholders can be canvassed. in consistent terms to provide a clear decision- making metric. An emerging body of research also points to the importance of collective evaluation of values While BCA is employed in most countries (Kenter et al. 2016). Some of the approaches (Ministry of Water Resources, 1996; Risako described above directly collect information from and Hope 2004), broad-based BCA, which stakeholders, such as contingent valuation and includes the diverse values of water discussed scoring processes within MCA, yet in most cases in this report, is less common (Garrick et al. these remain methods for determining individuals’ 2017). Despite decades of non-market valuation values, even when aggregated across stakeholders. 4 Benefit transfer is more difficult for water than for many other natural resources, given that water values are highly spatially and temporally diverse. Given changes in scarcity and water demand across geographies, combined with the relative difficulty in transporting water, water’s value varies more widely than that of more conventional goods and services (Young and Loomis 2014). On a temporal level, scarcity value fluctuates with seasonal availability. EVALUATING THE VALUES OF WATER 61 Box 3.3 Evaluating the Cultural and Social Values of the Water Sprinkling Festival in Xishuang Banna The Water Sprinkling Festival, held in A systematic expert analysis was performed Xishuang Banna, Yunnan Province, is a to evaluate the cultural and social values of traditional festival of the Dai ethnic minority the festival. A measurement framework with six that marks the solar new year. Attracting primary values and a set of secondary indicators tourists from home and abroad, the celebrations was applied, to systematically consider disparate include dragon boat races, holiday markets, elements of value. Seven experts were invited Kongming lanterns, firecrackers, and water to score each indicator. The exercise nominated sprinkling as a blessing. The predominant spiritual values as most important, followed religion of the Dai is Theravada Buddhism and by artistic value, historical value, jobs creation, religious activities are frequent. As a water- educational value, and technological value related cultural and social event, the Water in turn, and provided an overall score for the Sprinkling Festival in Xishuang Banna attracts festival. high publicity and public participation. Source: DRC Staff Emerging research suggests that there is also a independently) and are more likely to capture need to consider shared values, those that convey individualistic values. The collective process can jointly held conceptions of the common good also help make the evaluation process more robust and are formed and expressed through social and enhance its legitimacy. This need not be limited interactions. In other words, people often value to a research process—the evaluation of water a resource differently when they discuss that may be undertaken as part of ongoing adaptive resource with their community of fellow users. policy making, helping to build consensus and acceptance of the decisions reached (see box 3.4). Collective evaluation helps to identify values that people may find difficult to articulate individually (e.g., values related to group identity). It helps to draw out other communal values (i.e., people’s concern for others), recognizing that some values cannot be traded without discussion and negotiation with others (e.g., the intrinsic values of other species, or resource rights associated with identity). This contrasts with valuation techniques that approach stakeholders as individuals (i.e., 62 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Box 3.4 Valuation and Management Tools for Stakeholder Participation: Colorado River Basin Valuation and management tools can help to run their own allocation decision scenarios build understanding and consensus among and better understand the economic values stakeholders, making politically challenging derived from alternative policy options. Sharing decisions over scarce resource allocation the tool openly provided a common framework more acceptable. In the Colorado River Basin, for understanding the collective challenges the for example, the United States Bureau of basin’s stakeholders faced, and the trade-offs Reclamation developed a water resource model entailed in different choices. As stakeholder to inform the operation of the basin’s dams and familiarity increased, the model evolved from a reservoirs, and to inform allocations of surplus narrow technical tool to become a platform for water among states. The bureau shared the exploring, sharing, and testing ideas for river model with basin stakeholders, allowing them management in a contested space. Source: Wheeler et al. (2019) adapted by authors. At a jurisdictional level, whole-of-basin agriculture, and industry (box 3.5). Information modelling can be used to integrate values for on likely outcomes under different water planning purposes, or to encourage cooperation management scenarios can promote sharing of across boundaries. Integrated assessment costs and coordination of actions by jurisdictions models demonstrate the interdependencies who may otherwise act competitively. between infrastructure investments within a basin, the impacts of hydrological changes on A subset of integrated assessment models these assets, and more broadly, the value of water are hydro-economic models (HEMs), which management at a basin scale. They can inform represent spatially distributed water resource the operations of infrastructure within its basin systems, infrastructure, management options, context, helping to optimize basin-wide benefits, and economic values in an integrated manner. while providing a means of understanding HEMs combine economic models of behavior outcomes under alternative scenarios. When with hydrological models of river basins. In the operated collaboratively, these models can provide model, water allocations and management a common knowledge base for negotiations decisions are driven by the economic value of and agreement across jurisdictions, highlighting water and hydrological conditions, and can trade-offs and synergies between different types account for uncertainty (such as climate change of values or across sectors such as hydropower, projections)5 and different objectives of modelled 5 Tools exist that can help decision-makers in situations of deep uncertainty. Historical trends are not always predictors of the future, particularly in contexts of great social or environmental change such as China. Hydro-economic models can project interval uncertainties without making probabilistic commitments about the sample distribution. Uncertainty implies that the probabilities of various outcomes are unknown and cannot be estimated, requiring some subjective judgment. The types of adaptive policies needed in situations of such uncertainty are returned to in chapter 4. EVALUATING THE VALUES OF WATER 63 actors. HEMs are often applied to explore the value of incremental changes in infrastructure (construction, removal, or a different operating approach), across interrelated sectors, such as hydropower generation, irrigation, and fisheries, under different plausible hydrological scenarios. These models can be refined to compare cooperative with non-cooperative behavior, and thus be used to reveal the benefits associated with common pool resources. System techniques enable the interdependences of common pool resources to be more accurately incorporated into the decision-making process. Economists recognized early on that transboundary river basins shared many characteristics of noncooperative games, and soon applied game theory techniques to model the behavior of state actors sharing water resources (Rogers 1969; Dufournaud 1982). Instead of multiple objectives for a single decision-maker, game theorists asked how the outcome realized by multiple decision-makers, each potentially motivated by different goals or at least different weights for the multi-objectives, would compare with the efficient choice. This is particularly important in the context of China’s distributed responsibilities across jurisdictions, and challenges facing the next generation of investments. 64 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Box 3.5 Increasing Benefits through Inter-jurisdictional Investment Planning in the Zambezi River Basin The Zambezi River Basin contains some of the Results highlighted trade-offs and synergies most diverse and valuable water resources across borders and sectors. Scenarios showed in Africa. Its waters are critical to sustainable that implementation of all identified national economic growth and poverty reduction, irrigation projects would expand irrigated area with improved management and cooperative by some 184 percent (including double cropping development having the potential to significantly in some areas), but would reduce hydropower increase agricultural yields, hydropower outputs, generation of firm energy by 21 percent and of and economic opportunities. average energy by 9 percent. Notwithstanding the complexities associated with food security To explore the benefits of cooperation and self-sufficiency, cooperative development, among the riparian countries in the Zambezi such as moving approximately 30,000 hectares River Basin, a multi-sector investment of planned irrigation infrastructure downstream, opportunity analysis was undertaken. This could increase firm energy generation by 2 evaluated water resources development and percent, with a net present value of US$140 management options from national and basin- million. Similarly, coordinated operation of wide perspectives, to determine possibilities hydropower projects envisaged in the regional for mutually beneficial economic gains generation plan could provide an additional while meeting essential water supplies and 23 percent in firm energy generation over requirements for environmental sustainability. uncoordinated (unilateral) operation. This The approach informed decision-makers on increase is more than sufficient to offset investment opportunities, financing, and the the 9 percent reduction in total firm energy distribution of benefits and allocation of risks. generation annually predicted to result from the The analysis assisted the Zambezi Watercourse introduction of ecological flows. Other benefits Commission, the Southern African Development are predicted to be realized through improved Community, and the individual riparian countries economic resilience and growth benefits due in formulating a basin-level strategic plan by to reduced exposure to floods (with more than providing insights into the available options for US$1 billion in avoided losses on average per joint and/or cooperative development. year), improvements in regional transport costs and travel times, and environmental restoration of key ecosystems, such as the Zambezi Delta and improved fisheries production through environmental flows. Source: World Bank 2010a. EVALUATING THE VALUES OF WATER 65 3.2 | The Foundation for Evaluation: Credible and Plentiful Data Adequate and credible data are fundamental websites. The Beijing-based environmental non- to the evaluation techniques explored in this governmental organization, the Institute for Public chapter. Data on water availability, variability, and and Environmental Affairs, demonstrates one quality, as well as various socio-economic indicators, solution to this problem, by scraping data from are key to evaluating water’s multiple values disparate online sources with the aid of artificial within different socio-economic contexts and intelligence, and consolidating them to improve under climate uncertainties. They are the building public access. Nevertheless, challenges remain, blocks of the techniques described above, and including due to divisions in institutional mandates: particularly key for basin-level integrated methods water departments and environment departments such as HEMs. The lack of such widely available often have different monitoring stations for water data in the China context often poses a barrier quantity and quality, leading to delayed or limited to applying these evaluation tools. Furthermore, data sharing between sectors. with increasing pressure on government officials to deliver improved environmental performance, Opportunities exist to improve data quality, incentives for less-than-strictly accurate reporting accessibility, and transparency, including of data grow, as reported by inspections on through new technologies. Monitoring systems ecological and environmental protection (Qi utilizing remote sensing, and greater investment 2019). Enhanced data quality and transparency, in automated sensors for both water quantity and improved public access and participation, are and quality, could add credibility and coverage. necessary for accountability and well-informed The World Bank–financed Xinjiang Turpan policy decisions. Water Conservation Project (World Bank 2010b) successfully employed advanced remote-sensing Although China has made substantial progress technology to implement improved water with data quality and accessibility, various management and allocation based on water challenges remain. In 2018, the Ministry of consumption. Other new technologies, such as Ecology and Environment established the National blockchain, could also increase data transparency Surface Water Quality real-time automatic and veracity, with the use of blockchain-based monitoring platform, disclosing real-time water smart contracts in water trading (quality and quality monitoring data from over 2,000 stations quantity) increasing. The 2030 Water Resources across the country. However, accessibility to data Group at the World Bank has piloted such a from non-automatic stations, which account mechanism in Maharashtra, India (Damania et al. for the majority, remains difficult, with data 2019), which could be adopted in growing water often published in hardcopy or on disparate quality trading markets in China. 66 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION 3.3 | Evaluating Values: Recommendations Evaluation is a critical step toward realizing Evaluation processes should be extended water’s diverse values. It helps to make diverse and refined to include diverse values and valuables quantifiable and tangible, thus guiding methods. As discussed throughout this section, policy decisions, informing trade-offs, and no one approach can capture all types of water’s measuring progress. Evaluation methods can be value. Diverse methods are needed to examine applied ex-ante, during policy or project planning monetary and non-monetary values across or ex post, to inform policy adaptation and ecological, cultural, economic, and social domains. improved decisions in future. Steps toward more Participatory and collective methods that seek and greater evaluation of water’s values can be input from stakeholders can help in capturing this made in technical capacity, data and accounting, diversity. and application of diverse methods across the policy cycle (box 3.6). Evaluation approaches can be applied throughout the policy cycle from initial Robust water measurement, modeling, and conceptualization to implementation. While accounting are essential as the foundation for many of the approaches discussed in this section evaluating water’s diverse values. The data that are targeted toward upstream research and policy underpin evaluation include water quantity and design, evaluation is relevant at all stages in policy quality, economic and ecological outcomes, and making, capturing both the impact of policies and public opinion data. Water evaluation has high projects on diverse values as well as changing data needs given water’s spatial and temporal awareness and attitudes of people affected. variability, which necessitates repeated local assessment rather than approximation based on results elsewhere. Where possible, collection of natural resource data in ecosystems accounts and metrics will help mainstream and standardize evaluation. EVALUATING THE VALUES OF WATER 67 Box 3.6 Recommendations for Evaluating the Value of Water Measurement and Modelling • Enhance capacity in revealed and stated preference non-market valuation, natural capital accounting, and stakeholder consultation. Technical capacity for undertaking valuation need not reside within each implementing agency (particularly at local government levels); however, the capacity to commission, interpret, integrate, and utilize evaluations undertaken by third parties is needed, plus a broad understanding of the purpose and role of evaluation. • Establish a publicly accessible and integrated national water information sharing platform. This would integrate information from the River and Lake Chief systems and characterize key basins at aggregated and disaggregated temporal and spatial scales. Among other forms of data, it could include ecological water allocation data and the allocation criteria. • Incorporate natural resources into traditional national economic accounting. Water has multiple ecosystem service values that contribute to the economy. Physical and monetary value assessments of natural resources could be further incorporated into the national economic accounting system, including through the routine publication of gross ecological product. • Develop a set of standard climate and socio-economic scenarios that can be downscaled and adapted for use in benefit-cost analysis. These would be used to evaluate the value of a water project and the suitability of investment under standardized scenarios covering climate, economic development, and other sources of uncertainty. Use of Diverse Methods • Combine quantitative and qualitative, monetary, and non-monetary methods for each evaluation target. Selection of methods should be informed by the key identified values (see chapter 2). • Expand the use of participatory methods. These include surveys of stakeholder values, participatory mapping (where participants nominate areas of high water value on maps in consultation exercises), stated preference valuation exercises, and collective values elicitation (through focus groups that use deliberative processes to reveal communal preferences regarding water). • Promote third-party evaluation. Encourage the involvement of independent third-party intermediaries to participate in evaluation work. This helps improve the independence and objectivity of the evaluation, and can be encouraged by making program and policy data available to academics and research institutes. Evaluation across the Policy Cycle • Consider the full range of monetary and non-monetary costs and benefits in ex-ante projects and policy evaluation, and broaden the range of values routinely incorporated into benefit- cost analysis. Consider economic, environmental, and social parameters. Where multiple projects are planned, consider the need for and appropriate scope of cumulative impact assessment. • Embed broadly framed ex-post projects and policy evaluation as a routine part of the policy process. Conduct evaluations of past interventions (projects and policies) encompassing monetary and non-monetary costs and benefits at appropriate scales and time frames. The evaluation approach should allow for attribution of impacts to the intervention. • Systematically incorporate the findings of evaluations into the policy process. New projects and programs should demonstrate the incorporation of pilot project evaluations in their designs. Adapt pilots to reflect evaluations and changing conditions when these are replicated or scaled. Source: Authors’ elaboration. 68 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION 70 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Chapter 4 | Realizing the Values of Water Objective: This chapter presents tools and approaches for realizing the multiple and diverse values of water, that is, optimizing the use of water across economic, environmental, and socio-cultural purposes, and protecting water’s intrinsic values. This chapter presents experience with notable tools and approaches to date, and makes recommendations for their further use in China and internationally. Key Points: • To ensure that the values of water are realized o Infrastructure has played the central role in in practice, changes are needed in the water management in China to date. There approach to policy making, as well as in the is an increasing need to improve operational policies themselves. Rapidly changing social, efficiency, ensure cost sustainability, and environmental, and economic conditions, strategically target remaining gaps in and wide variation across regions, requires coverage and capacity. approaches that are principled, participatory, o Incentives, including prices, are critical for flexible, and future orientated. driving efficiency. The price of water in China • A range of tools and approaches can be is generally low by international standards, used to realize water’s values. These include reducing efficiency and cost recovery, institutions, incentives (including prices), although reforms have been addressing infrastructure, and information: pricing challenges over the past decade. o Institutions are fundamental to how water is o Information, education, and communication managed, and can be mandated to explicitly have great potential to improve water policy protect environmental and cultural values of by deepening public understanding of the water, as well as economic values. value of water, easing acceptance of trade- offs, and encouraging conservation behaviors. 71 4.1 | Underlying Approach To ensure that the values of water are realized differentiated, and future oriented (UN Water in practice, changes are needed in the approach 2021). Explicitly articulating a policy-making to policy making, as well as in the policies approach can help ensure that the policies and themselves. The recommendations provided in outcomes seen over time are consistently sensitive the previous chapters provide decision-makers to the multiple and diverse values of water. While with the means to identify and evaluate social, these are not the only characteristics that a value- cultural, economic, and ecological values of water. sensitive water policy process may benefit from, This understanding should be incorporated into they are seen in more advanced policy processes policies covering all stages of the water cycle, around the world. This sub-section describes each with an approach that is principled, participatory, of these characteristics in turn. 4.1.1 | A Values-based Foundation A set of core values should guide the underlying efficient, that is, designed to achieve objectives policy approach toward realizing the value of while minimizing cost; and (4) equitable, paying water. That is, policies should be: (1) Consistent particular attention to their impacts on vulnerable with society’s values, including non-monetary groups and affordability. Articulating these values identified using the techniques presented principles explicitly is a small step, but one that in chapter 2; (2) effective, that is, able to achieve helps focus attention on the goal of water policies clearly articulated goals and objectives; (3) that meet society’s values and expectations. 4.1.2 | Stakeholder Participation Stakeholder participation is an integral element of the process, even when the decisions require of realizing value, and helps build broad policy them to bear costs. Stakeholder engagement support. Participation means providing a forum provides water users with the opportunity to argue for the communication of values, priorities, and for the values of water that are relevant to them, complex trade-offs. By taking part in a rules-based, and for decision-makers to communicate the fair, and transparent decision-making process, complex and necessary trade-offs between uses stakeholders are more likely to accept the outcomes and users of water. 72 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Participatory mechanisms also help to ensure Practical examples of concerted stakeholder that policy responds to transitions in values engagement in water resource management over time. As described in chapter 2, these include are seen internationally. Prominent examples the aspirations of an increasingly prosperous include the Colorado River in the United States (see population, which may shift relative priorities box 3.4 in chapter 3), where a water resource model away from basic needs (once satisfied) toward was developed and shared with stakeholders— recreation, amenity, and ecological values. There allowing them to run their own allocation scenarios, may also be increased demand for preservation understand the collective challenges and express of historical, cultural, and spiritual values. While preferences, and better understand the decisions these values may well be timeless—particularly in that resulted. Other examples include the Murray- China, where water’s cultural significance has been Darling Basin in Australia, where water reform has recognized for centuries, such values are becoming been highly contested (see box 4.3). Key lessons increasingly prioritized as basic needs are met. from these efforts include the need to manage stakeholder expectations about the process and outcomes, and demonstrate how the information is being used in decisions. 4.1.3 | Flexible and Differentiated Policy Making Policy responses need to take account of wide government in less developed regions; varying variation in socio-economic conditions locally, levels of sophistication in market mechanisms within a consistent basin-wide framework. and stringency in monitoring mechanisms; Wide variation in conditions can be found within and adjustment in priorities from preserving a single basin. Policies appropriate to highly upstream ecology to restoring degraded ecologies developed downstream regions will differ from downstream (figure 4.1). those required in upstream regions with lesser economic development and more pristine environmental conditions. At the same time, it is essential to ensure coherency and consistency to ensure that cross-jurisdictional externalities are fully internalized across regions. The European Union Water Framework Directive (WFD) provides one example of how water environment policy can provide local flexibility within a consistent framework (box 4.1). In China, differentiated policy may involve different sources of funding with greater reliance on transfers from central REALIZING THE VALUES OF WATER 73 Box 4.1 The EU Water Framework Directive (WFD): Flexibility and Differentiation in Policy Implementation The WFD, adopted in 2000, sets the goal of While the WFD sets a single common “good status” for all 110,000 water bodies objective of “good status,” it is deliberately across the 27 European Union Member non-prescriptive in terms of the measures States. “Good status” of surface water has two that Member States must adopt to reach this components—ecological and chemical. Good objective. Instead, the WFD specifies governance ecological status is defined in terms of the quality structures and processes that governments of the biological community, the hydrological should use to establish a set of measures that characteristics, and the chemical characteristics is appropriate and cost effective. The Directive of the water body. The WFD recognizes that no requires Member States to establish a river basin absolute standards for biological quality can be management plan for each river basin district, set that could apply across the entire European including those which cross national borders, Union because of ecological variability, so and to update this plan every six years. A recent the objective is specified as the biological review of the WFD by the European Commission community which would be expected in concluded that the flexibility provided in the conditions of minimal anthropogenic impact. A WFD was necessary to enable Member States set of procedures for identifying that point for a to adopt and implement the most cost-effective given body of water is provided, together with measures but found that it also created greater a system for ensuring that each Member State complexity, which led to challenges in effective interprets the procedure in a consistent way. enforcement (Environment under European Good chemical status is defined in standard Commission 2020). regulatory terms as compliance with all the quality standards for chemical substances in place at the European level. The Directive also provides a mechanism for renewing these standards and establishing new ones to ensure at least minimum environmental water quality throughout the European Union. Source: Authors’ elaboration. 74 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Figure 4.1 Policy Differentiation across Administrative and Development Levels Low development level Intermediate High development level Central Fiscal transfers from central Frameworks and Frameworks and government to sub-national levels guidelines guidelines Ecosystem payments from Strengthen monitoring Stringent monitoring Basin downstream to upstream mechanisms mechanisms Fit-for-purpose monitoring Province Programs and projects to preserve Programs and large-scale projects Programs and large-scale projects ecosystems to prevent ecosystem degradation to restore ecosystems Projects to preserve Projects to prevent ecosystem Projects to restore Local ecosystems degradation ecosystems Source: Authors’ elaboration. 4.1.4 | Future-Orientated Policy Making “Future-orientated”policy processes are needed Practical tools for future-orientated policy to account for the pace of change in socio- making include robust decision-making (RDM), economic and environmental conditions, shifts scenario-based planning, and adaptation in societal values, and pervasive uncertainty. pathways. RDM methods involve identifying The goal is an approach to policy making that decisions that lead to satisfactory outcomes over anticipates rather than reacts to new challenges. many plausible future scenarios (Hall et al. 2012). This is conceptually simple but difficult in practice; RDM has been used in relation to long-term nevertheless, adaptative policy approaches, in water management in the western United States which decisions are regularly and systematically (Groves and Lempert 2010) and flood risk in the updated, have been developed. These approaches United Kingdom (Hine and Hall 2010). Scenario- conceive policy making as a continuous loop in based planning employs hydro-climatic and which water management decisions derive from, socio-economic scenarios to inform investment and ultimately feed back into, an updated vision and other policy decisions. Adaptation pathways and set of values (figure 4.2). seek to identify the points at which a policy would become inadequate (Kwadijk et al. 2010), and have been used in the Netherlands Delta Plan (Walker, Haasnoot, and Kwakkel 2013) and in flood and drought planning (Swanson et al. 2010). REALIZING THE VALUES OF WATER 75 Figure 4.2 A Conceptual Example of a Continuous Approach to Water Policy Making Confirm a vision for water Understand changing water Ensure effective management and the availability and demand water policies and 1 2 4 value of water over time institutions 6 Pursue increasingly efficient water 5 Develop resilient water infrastructure and 3 Allocate water between different management and use services uses Source: Aither 2018. Future-orientated policies place a higher These four characteristics—value based, priority on preserving ecosystems and participatory, differentiated, and future irreplaceable cultural and social values. orientated—provide the foundation for Experience in China and internationally an improved water policy-making process. demonstrates that it is less costly to preserve Development of such a policy approach can help the quality of the environment than to restore it ensure that the policies and outcomes seen over after degradation, which is often impossible to time are consistently sensitive to the multiple any equivalent quality. With China’s continued and diverse values of water, rather than relying on socio-economic development, growing desire for any one policy intervention. In practice, countries environmental quality (as explored in chapter 1), have found that this means changes in policy- and expectation of renewed emphasis on cultural making procedures and culture, through actions values, policy-making processes need to take such such as systematic strengthening of consultation value trends into account. requirements, requirements for certain types of analysis to be complete before decisions are taken, or requirements for systematic regular review of policies (box 4.2). Of course, these are not the only characteristics that can shape an improved water policy-making process, but they are common in adaptive and inclusive water policy-making processes globally. 76 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Box 4.2 Recommendations for an Improved Underlying Approach to Water Policy Making • Explicitly articulate the multiple and diverse values of water during the policy-making process. Policy-making processes should be guided by principles that are consistent with society’s values, along with general principles of efficiency, equity, and effectiveness. Articulating these principles explicitly is a small step, but one that helps focus attention on the goal of water policies that meet society’s values and expectations. • Strengthen standard requirements for consultation and public participation. Requirements may apply to both policy development, and review processes at regular intervals. Provide feedback to communities about how their input is being used in decisions. • Develop frameworks for water policy that take account of wide variation in socio-economic conditions within a consistent basin-wide framework. Local flexibility within regional or national frameworks is a strength of Chinese public policy, as seen in large-scale eco-compensation programs for land management. In water management, this will require basin-level modelling and policy development that allows for local differentiation in implementation, provided that implementation contributes to basin-wide needs. • Systematically apply adaptive, “future-orientated” policy-making approaches that account for the rapid pace of social and environmental change. This includes the standard application, where appropriate, of tools such as robust decision-making, scenario-based planning, and adaptation pathways with tipping points analysis. REALIZING THE VALUES OF WATER 77 4.2 | Institutions 4.2.1 | Adaptive Institutions for Dynamic Value Contexts Realizing the multiple and diverse values of More broadly, institutional development water fundamentally requires institutions that should take a long-term vision, with capacities recognize and respond to those values. Progress informed by the envisioned needs of the has been made by China in strengthening water future. Experience internationally shows that management institutions, including through water resources often become fully allocated for the significant 2018 ministerial reforms. Further economic uses before institutions are developed refinement will help delineate responsibilities that can manage the allocation process, or that clearly and close the remaining gaps. A priority can protect environmental and cultural values will be to develop further coordination structures that become increasingly threatened. Institutional between government bodies responsible for development can thus be reactive (used to bring water quality, water quantity, service delivery, and order to basin allocation processes, and restore environmental protection, to ensure coordination damaged environmental and cultural values), or be of actions across basins, including data sharing. proactive (developing the tools and readiness to More broadly, institutions will need to adjust their manage for multiple and diverse values in advance capacities in line with China’s gradual transition of demand growth) (figure 4.3). from a focus on new infrastructure provision toward optimization of existing infrastructure, water conservation measures, and pollution control. Figure 4.3 Two Possible Pathways for Institutional Development in Response to Increasing Water Demand Investment: Early development of institutions that recognize and manage for Prominent values: private water value Prominent values: public total value in advance of demand growth efficiently and dynamically allocated, high goods (environmental, cultural) public good values realized Low demand, low scarcity: INCREASING WATER DEMAND Managed demand, managed relatively undeveloped basin scarcity: high total value Unmanaged demand, high scarcity: Depletion: No investment in reduced total value Rehabilitation and restoration: institutions that recognize and late investment in institutions manage for total value Prominent values: private water value inefficiently allocated, public good values damaged Source: Authors’ elaboration. 78 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION 4.2.2 | Institutions for Realizing Environmental Values International experience provides examples of ecological flows shifting from static minimum of institutions designed for the realization flows to more dynamic flow components. and legal protection of environmental values. However, standards are typically limited to simple One such institution is exemplified in the US hydrological indices based on 10 percent minimum Wild and Scenic Rivers Act (WSRA), which gives flow and expert judgement (Chen and Wu 2019). legal recognition to environmental values. The There are opportunities to refine this system and WSRA established the first national protected move toward dynamic and ecology-based criteria river system in 1968 and established a process to for more comprehensive protection of ecological continuously add rivers for protection. The system values. now covers 208 major rivers managed for a diverse set of values, covering approximately 20,920 km. Although wild and scenic rivers are becoming scarcer, much of their environmental value is not reflected in the marketplace and remains unknown. This tendency can be countered through legal requirements, such as the WSRA, to consider and respect environmental values (Bowker and Bergstrom 2017). Institutions with independent, statutory responsibility for ecological water allocations can be used to safeguard environmental values. Ecological water allocations are typically set based on indices relating flow regime to biophysical attributes. These indices can be used to establish a baseline and to show how changes in the flow regime due to diversions affect ecological status, thus informing sustainable diversion limits. Typically, assessment of diversion limits is made at the level of a single catchment within a basin (reflecting local ecological values), yet within a basin-wide framework (as described in section 4.1). In Australia, a dedicated entity is responsible for safeguarding ecological allocations, the Commonwealth Environmental Water Holder (box 4.3). China has also started developing rules and institutions for ecological flows, with the definition REALIZING THE VALUES OF WATER 79 Box 4.3 Realizing Environmental Values in the Murray-Darling Basin in Australia Australia’s Murray-Darling Basin supports Environmental water holdings are a wide variety of aquatic, riparian, and tradeable water rights used to realize public terrestrial ecosystems. It is home to environmental values. These rights are internationally and nationally significant granted by the respective state governments, species and has 16 wetlands listed under the with Commonwealth environmental water Ramsar Convention. These environmental managed under the same trading and carryover values of the basin have come into conflict with rules as other water rights, and charged economic development. The Murray-Darling the same fees. The water rights held by the Basin is one of the most important agricultural Commonwealth Environmental Water Holder regions in the country and land clearing, are used to meet identified environmental irrigation infrastructure, and dams for storage demands, including demands across years and hydroelectricity have altered water tables that are met through carryover provisions. and caused salinization. By 1980, the southern Environmental entitlements make up a relatively basin contained some of the most extensively small proportion of the total water available in engineered rivers in the world and although the basin (figure B4.2.1), but nevertheless play water diversion limits were first introduced in a critical role in realizing and protecting the parts of the basin in 1968, the environmental environmental values of water. There are also value of the region declined dramatically, seen significant volumes of environmental water in low flows, and ultimately the closing of the managed by state governments through the River Murray mouth in 1981, toxic algal blooms, rules in water resource plans. and widespread fish kills in the 1980s and early 1990s. Further protection and environmental values were institutionally encoded with In response to ecological damage and the establishment of the Murray-Darling shifting public values, water for the Basin Authority (in 2008) and the Basin Plan environment became a higher policy priority (in 2012). Environmental values were further and institutions were adapted to take this embedded in broader water resources planning into account. A basin-wide cap on diversions via Long-Term Environmental Watering Plans, was introduced in 1995. In 2000, legal reforms to supported by dedicated budget allocations unbundle land and water rights allowed for the and monitoring mechanisms. The first five- deepening of the water market. The 2007 Water yearly assessment of the effectiveness of Act established a basin-wide governance model implementation of the Basin Plan and Water and created the Commonwealth Environmental Resources Plan was conducted in 2019, as Water Holder, an independent government body stipulated by the Water Act. with a mandate to manage the water holdings of the national government specifically on behalf of the environment. 80 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Figure B4.2.1 Commonwealth Environmental Water Holdings Registered Commonwealth environmental water holdings (culmulative MCM) 3,000 2,500 2,000 1,500 1,000 500 0 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018 2018/2019 2019/2020 Registered Entitlement Holdings New South Wales Queensland South Australia Victoria Long term average annual yield Source: CEWO 2021. Notes: The difference between water holdings (registered entitlements) and the long-term average annual yield is because entitlements are granted an allocation depending on the total available water in each year. Thus, the yield of the entitlement varies as some fraction of the entitlement, an important feature of water rights definitions in a highly variable system. MCM is million cubic meters (one gigaliter). These changes have been contentious, with environmental use, established the environment agricultural water users often expressing as a legitimate water user, and developed antipathy to environmental water. While strong institutional arrangements to manage such disputes are not unusual, they highlight environmental water. Further steps will be how water is a question of social and political required as the ecological health of parts of judgement. Despite these challenges, Australia the basin remains poor and climate change is has, over the last decade, transferred around expected to exacerbate this. one-fifth of previous consumptive flows to Source: Australian Water Partnership and World Bank 2022c. 4.2.3 | Institutions for Realizing Cultural Values Legal recognition, along with independent flows, managed by a dedicated authority and institutions, can also help protect social and used to realize cultural values of water, including cultural values of water. An example of a legal indigenous uses. These mechanisms seek to realize mechanism that explicitly considers cultural values cultural value through culturally sensitive water is New Zealand’s Resource Management Act (box management and protection. 4.4). Other jurisdictions have introduced “cultural flows,” an equivalent concept to environmental REALIZING THE VALUES OF WATER 81 Other mechanisms, such as water cultural is vast on account of the city’s 4,000-year-old heritage systems, can be used to protect history of water-related cultural heritage including values associated with water-related sites and irrigation systems, water-related architecture, ceremonies. An example of such a system is seen relics, and literature. A guideline was developed for in Zhengzhou, Henan Province, on the Yellow the Recognition and Evaluation of Water Cultural River. In 2019, the Water Conservancy Bureau Heritage, which has informed new rules for the started a process of systematic evaluation of the protection of identified sites.1 local water cultural heritage in Zhengzhou, which Box 4.4 Safeguarding the Cultural Significance of Water in New Zealand Water has enormous cultural importance for The relationship between the Māori, their the Māori in New Zealand. In their system of culture and traditions, and their ancestral thought, water is the essence of all life, akin to lands, water, sites, and sacred places; and the blood of Papatuanuuku (Earth mother) who other taonga (treasures) is recognized legally supports all people, plants, and wildlife. Māori in New Zealand’s Resource Management Act assert their tribal identity in relation to rivers, 1991. This requires that water be managed in a and particular waterways have a role in tribal way that: creation stories. Rivers are valued as a source of • Recognizes and provides for “the mahinga kai (natural resources that support life), relationship of Māori and their culture hāngi (oven) stones, and cultural materials, as and traditions with their ancestral lands, access routes and a means of travel; and for their water, sites, waahi tapi, and other taonga proximity to important wāhi tapu (sacred sites), (treasures)” [Section 6(e)] and “the settlements, or other historic sites. The well- protection of protected customary rights” being of an iwi (tribe) is linked to the condition of [Section 6(g)] . the water in its rohe (territory). Indicators of the health of a river system (such as uncontaminated • Gives regard to “kaitiakitanga (guardian- water and species gathered for food, continuity ship)” [Section 7(a)]. of flow from mountain source to the sea) can provide a tangible representation of its mauri • Accounts for the principles of the Treaty of (life essence). Waitangi [Section 8], including the principles of partnership and active protection. Source: New Zealand Conservation Authority 2011; Jacobson et al. 2016. 1 Opinions on Strengthening the Protection and Inheritance of Water-Related Cultural Heritage by the Zhengzhou Municipal Government. 82 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION 4.2.4 | Coordination and Cooperation between Institutions Significant value can be realized through platforms that help create a unified view of the improving institutional coordination and basin (see box 1.3 in chapter 1). The ministerial cooperation in water management. Realizing reform of 2018 and the ministries that resulted are the value of water requires collective action at also important steps forward, with complementary a meaningful scale, typically at the level of the responsibilities for water management brought river basin, but also at sub-basin and local scales. together. There are opportunities to deepen However, river basins and sub-basins often cross implementation in each of these cases. multiple administrative jurisdictions, creating a potential “tragedy of the commons” in terms of International examples of cooperation for value water extraction and pollutant emissions. Optimal sharing are seen in transboundary agreements outcomes on basin scales require cooperation and institutions that govern water sharing. For mechanisms, ensuring agencies involved in water example, the Lesotho Highlands Water Project is resource quantity, quality, and services provision governed by a treaty between Lesotho and South work toward common goals and with shared Africa, and allows both countries to benefit from information. the economic value of water resources in the Lesotho Highlands (box 4.5). Such opportunities Recent institutional reforms in China are for realizing value can be informed through shared facilitating improved coordination and basin modelling exercises. This is seen in the cooperation. For example, the Yangtze River Lancang-Mekong River Basin Integrated Hydro- Protection Law, passed in 2020, provides a legal Economic Optimization Model (box 4.6), which foundation for basin-specific coordination in aims to facilitate joint investments and coordinated China, and could be eventually transposed to operations across national boundaries that can other major river basins. It is the first legislation for realize values to multiple countries. Investment a specific river basin in China, and infers specific in joint institutions, including shared data, obligations on the national agencies and provinces, modelling, and knowledge exchange to develop delineating responsibilities and requiring systems a common vision, trust, and understanding of for information sharing and establishing forums trade-offs between values, is fundamental to such for knowledge exchange and decision-making cooperative outcomes. between jurisdictions. The river chiefs system, implemented nationwide in 2016, is another example of an institution that facilitates inter- jurisdictional cooperation: the system is formed by a network of officials, each responsible for their own section of river, but coordinated through subnational and national forums and data-sharing REALIZING THE VALUES OF WATER 83 Box 4.5 Minimizing Costs and Maximizing Value through Joint Development of the Lesotho Highlands Water Project (LHWP) The LHWP is one of the world’s most The costs savings between those of the LHWP ambitious and innovative water transfer and the Orange Vaal Transfer Scheme (OVTS), projects. Governed by a treaty between the the next least-cost option in South Africa, are Kingdom of Lesotho and the Republic of South split between Lesotho (56 percent) and South Africa that was signed in October 1986, the Africa (44 percent), with South Africa saving on project allows Lesotho to capitalize on high- the lower cost and Lesotho benefitting from quality water in the mountainous areas of the royalties, as well as the associated ancillary country to provide the least-cost solution for benefits and hydropower development (figure securing water for more than 12 million people B4.5.1). Royalties are calculated in accordance in the Gauteng Province of South Africa, which with the treaty and computed based on generates more than 40 percent of South Africa’s procedures set out in a royalty manual. The gross national product. sharing of benefits has also allowed Lesotho to realize the value of its water resources and direct The treaty envisaged four phases of the revenues toward poverty reduction and development, ultimately enabling the delivery economic stabilization. of 70 cubic meters of water per second to South Africa and the concomitant development of hydro-electric power in Lesotho. Water is Figure B4.5.1 Benefit Shares from transferred within the Orange-Senqu River the LHWP Basin through a series of dams, transfer tunnels, and associated infrastructure, and provides 3500 RSA Share opportunities to supply electricity to Lesotho 44% through the development of hydropower. 3000 of Net Lesotho Benefit & RSA to Share Net 2500 Benefit Lesotho Share 56% 2000 of Net Cost of Benefit OVTS 1500 1000 Cost of LHWP 500 0 Note: OVTS: Orange Vaal Transfer Scheme; RSA: Republic of South Africa; LHWP: Lesotho Highlands Source: Authors’ elaboration. Water Project. 84 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Box 4.6 Increasing the Value of Water Resources Development in the Lancang-Mekong River The Lancang-Mekong River is the largest mitigate up to 30 percent of crop loss. Reservoirs transboundary river in Southeast Asia. The are to prioritize irrigation over hydropower Lancang-Mekong River Basin (LMRB) drains by releasing more water in months with high an area of 810,000 square kilometers across irrigation demand (April and December). Cambodia, China, Lao, Myanmar, Thailand, Fisheries yield is estimated to increase up to and Vietnam (see figure B4.6.1). Its waterways 75 percent through ecofriendly management. provide services to more than 70 million people However, this brings significant trade-offs and sustain some of the world’s most diverse and in losses to irrigation (−48 percent) and productive ecosystems. The mainstem and its hydropower production (−17 percent). Flood tributaries hold around 235,000 gigawatt-hours releases for environmental purposes can create per year in hydroelectric potential, making the uncertainties for these sectors, indicating the region one of the most active in the world for trade-offs in environmental and economic value hydropower development (MRC 2019; Williams realization that exist in this context. 2019). Within the Lower Mekong Basin, fisheries, including aquaculture, constitute the largest Cooperative and coordinated development economic sector, closely followed by lowland can yield significant increases in the total agriculture, based mainly on rice and maize value of services provided by water. Data (MRC 2019). sharing can improve operations, sustaining intersectoral synergies and improving economic Balancing the complex trade-offs requires development outcomes. Clearly communicating an understanding of the different values of the opportunities for increased benefits and water within the basin and the ways these the distribution of these among stakeholders values interact. The use of an Integrated can drive increased efficiency in policy making Hydro-Economic Optimization Model for the and implementation. Transparency of hydro- LMRB helps to quantify and convey the effects economic and other models can help to engage of different operating rules on hydropower the public in decision-making processes by generation, irrigated crop production, and facilitating informed and practical decision- fishery yield. This multi-objective model can making while broadening the dialogue among inform optimal value realization by modeling countries and sectors. Involving the private different flow regimes and water use scenarios. sector and looking at the allocation of risks associated with joint operations can help Modelling shows that optimizing reservoir manage potential risks, facilitate trade, and help operation can increase irrigated crop output optimize hydropower generation as well as other by 49 percent and hydropower generation uses in the LMRB. by 1 percent. During droughts, reservoirs can Source: Authors’ elaboration. REALIZING THE VALUES OF WATER 85 Figure B4.6.1 The Lancang-Mekong River Basin Basin area: 795,000 km² | Mainstream length: 4,909 km | Annual discharge: 475 km³ 95° E 100° E 105° E 110° E MEKONG RIVER (referred to as Lancang in China) BASIN BOUNDARY UPPER LANCANG BASIN 30° N 30° N RIVERS n% PERCENT FLOW CONTRIBUTION NATIONAL CAPITALS INTERNATIONAL BOUNDARIES 0 100 200 300 400 500 KILOMETERS 25° N 25° N CHINA 16% MYANMAR 2% HANOI NAYPYIDAW LAO PDR 20° N Gulf of 20° N Tonkin 35% VIENTANE THAILAND VIETNAM 18% 15° N 15° N BANGKOK CAMBODIA Tonle 18% Sap 11% Andaman PHNOM Sea PENH The boundaries, colors, denominations and any other information shown on 10° N this map do not imply, on the part of Gulf of 10° N lt ng The World Bank Group, any judgment Thailand ko a on the legal status of any territory, or e any endorsement or acceptance of M De such boundaries. 95° E 100° E 105° E 110° E 86 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Box 4.7 Recommendations for Realizing the Value of Water: Institutions • Build institutional capacities and mandates that preempt future basin development challenges. International experience shows that in contexts of rapid socio-economic change, water resource use tends to outstrip institutional management capacities. Build institutions with the tools and readiness to manage for multiple and diverse values in advance of demand growth. • Accelerate the implementation of recently mandated coordination mechanisms. Implementation includes development of forums, data-sharing mechanisms, protocols, and guidelines, and harmonize regulations across borders, required under national plans and laws (such as the Yangtze River Protection Law). These processes are underway, but will require further consultation and investment. • Strengthen the role of river basin organizations in carrying out coordination functions. River basin commissions, which typically serve advisory rather than implementation roles, could be strengthened through institutional mechanisms that bring provincial governments and ministries together for coordination around investments, basin-wide planning, infrastructure operation, and service delivery. • Realize environmental and cultural values by setting and enforcing flow requirements. Mechanisms used internationally include sustainable diversion limits and discharge limits at the basin level, as well as independent bodies with the mandate to conduct water trades specifically for environmental purposes. Similar principles have been successfully applied for the realization of cultural values. • Provide legal recognition for environmental and social and cultural values of water. Many countries have granted legal rights to water bodies, in recognition of their environmental and cultural values, allowing for stronger protection. Other mechanisms include a national water cultural heritage system with associated certification and regulations. REALIZING THE VALUES OF WATER 87 4.3 | Infrastructure China has the world’s largest stock of water Continued realization of water value will infrastructure but may face declining marginal increasingly be found in optimized use of returns to additional infrastructure. As is the existing infrastructure, as well as continued case in all growing economies, the marginal value strategic investments in those areas of of additional infrastructure is declining as, for infrastructure that remain under-developed. example—the best locations for dams are taken, The value of future infrastructure projects can be and easier opportunities for extending water maximized by considering complementarities services are completed. These trends are apparent with existing infrastructure, for example, through across the capital stock economywide: China’s coordinated placement of dams across watersheds incremental capital-output ratio, which measures that maximizes total (basin wide) values rather the efficiency with which a country’s capital stock than local values, assessed in broader terms. delivers economic returns, has risen sharply (i.e., Similarly, investment in sewerage networks will deteriorated) over the past decade (figure 4.4). extend access to safe sanitation while raising the China currently generates 50 percent less GDP utilization rates (and thus the operating efficiency) for each new unit of capital than it did in 2007. of wastewater treatment plants. This is not unexpected: China has made massive investments in its physical capital, including water Future capital expenditure will result in infrastructure, over the past four decades, and less noticeable gains in access and quality diminishing returns are typically seen in rapidly of service than those in the past. Directing accumulated factors of production. capital investments efficiently will take on Figure 4.4 Incremental Capital-output Ratio in Infrastructure, Government, and Housing (Increasing Quantities of Capital Must Be Used to Generate Economic Output) 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 1991 1996 2001 2006 2011 2016 Source: Herd 2020. Note: Four-year moving average. 88 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION greater significance, requiring more efficient negative externalities such as pollution costs. The prioritization processes to allocate funds to new use of the unit reference value in water planning projects. Investment will still be required: to close in South Africa provides an example of analysis the gap in last-mile water supply and sanitation that can optimize investment decisions in such services, improve irrigation efficiency, expand contexts (box 4.8). The nature of investments will hydropower generation, and enhance flood also need to change to take account of future protection in small- and medium-sized rivers, and uncertainty, favoring investments in water source adapt to climate change among other targeted diversification, groundwater banking, stormwater areas. Optimization of investments will require capture, and efficiency improvements over scaling increasingly sophisticated approaches that can up existing water transport, storage, and treatment account for the full range of water values, including infrastructure (Groves and Lempert 2010). Box 4.8 Unit Reference Value of Water Resources for Infrastructure Planning in South Africa The unit reference value is a cost- scheme, divided by the discounted incremental effectiveness measure developed for use in increase in water supply. While the use of unit the pre-planning stages of water resource reference values is informative for the general management and development projects. comparison of options and easy to understand, It assists decision-makers in allocating scarce it can be strongly influenced by the growth in resources by comparing water development future water requirements as well as the sizing schemes within a consistent framework. It is and scheduling of a development option, and it typically calculated as the net present value often omits indirect costs, particularly social and of the total (capital and operating) life-cycle environmental costs. costs of a water augmentation or management Source: DWA 2010; van Niekerk and du Plessis 2013; Bester et al. 2020. Values-based approaches can also inform opportunities to improve ecology, recreational, decisions on the future uses of China’s large and aesthetic values through alternative dam dams. There were more than 550 large dams and operation. As dams age, decommissioning will more than 87,000 medium and smaller dams in need to be weighed systematically against the 2011 (Miao et al. 2015), constituting approximately economic value of the dam and the direct costs 40 percent of the world’s large dams. Many of of rehabilitation and decommissioning. While these are approaching 50 years of age (Perera et these questions are not yet critical, given China’s al. 2021). While dam infrastructure will remain relatively young dam stock, they will become critical for flood prevention and realizing economic increasingly important as infrastructure ages. The values of water, societal values shift toward social valuation techniques described in chapter 3 can and environmental outcomes imply potential support these decisions. REALIZING THE VALUES OF WATER 89 Transboundary conveyance infrastructure in key northern areas. Institutions to govern water means that the economic value of water transfers are being developed such as water trade in China is increasingly realized outside agreements.2 These are themselves promoting natural catchment areas. A growing number of concepts of paid transfers with prices set through catchments are connected through inter-basin market negotiation, helping to set legal and transfer, notably the North South Water Transfer. institutional foundations for greater reliance on This project ultimately aims to divert 44.8 billion pricing in China. However, such transfers also cubic meters of fresh water annually from the introduce the risk of future lock-out and lock-in Yangtze River to the more arid and industrialized effects, with recipient areas becoming increasingly north through three canal systems: a central, dependent on inter-basin transfers at the expense eastern, and western route. These transfers are of efficiency improvements or gradual rebalancing allowing the realization of substantial economic of industrial growth in line with natural conditions. value, with water shortages substantially alleviated Box 4.9 Recommendations for Realizing the Value of Water: Infrastructure • Shift capacity and focus toward infrastructure operations improvements. As the incremental gains from newly built infrastructure declines, greater value may be realized through optimized use of existing infrastructure, along with highly targeted investments in areas of remaining infrastructure need (such as rural wastewater infrastructure). • Evaluate the expansion, decommissioning, or rehabilitation of infrastructure through a broad value-based lens. Changes in social values implies shifts in the way infrastructure is best used over time. For example, expansive benefit-cost analysis that considers multiple and diverse values can indicate ways in which value can be maximized through adjustments in infrastructure operating procedures. • Consider the economic geography of large-scale infrastructure investments, and the extent to which the resulting patterns are consistent with the vision of ecological civilization. The structure of China’s economy and society will be defined and profoundly affected by water availability. Major new water infrastructure will influence development patterns likely to persist for centuries. 2 An example is seen in the 2015 agreement signed between Xinmi City and Pingdingshan City, Henan Province. Pingdingshan City agreed to transfer up to 22 MCM annually of planned water consumption to Xinmi via the middle route of the South to North Water Diversion Project, at a price of CNY 0.87 per cubic meter determined through negotiation, for a period of 20 years. 90 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION 4.4 | Incentives Realizing the value of water will increasingly the ability to realize economic value, yet they rely on economic incentives. Water pricing, have important roles to play in the realization through tariffs or markets, play a critical role in of environmental and socio-cultural values also. driving water toward its most efficient use. Taxes, Economic instruments are widely used in China, subsidies, and transfers further contribute to yet opportunities exist for refinements of existing this goal and help ensure equitable access. Such instruments and expansions in new areas. incentives are usually considered in relation to 4.4.1 | Prices, Tariffs, and Taxes Prices are the fundamental tool for efficient and China’s water prices have evolved over time, productive resource use in a market economy, but remain relatively low by international yet efficient water prices are surprisingly standards. Volumetric charges now typical on uncommon. Prices in China and internationally urban domestic water, industrial water, and to tend not to reflect water’s economic value (let a lesser extent, agricultural water. Over the past alone its broader values), and rarely cover the cost 30 years, the extent of water pricing in China has of provision (Grafton, Chu, and Wyrwoll 2020). expanded, with the 2016 Water Law requiring Governments grappling with physical water that water pricing should reflect principles of scarcity have tended to opt for increased provision cost recovery, provision for profits by utilities, and through infrastructure (driving up the cost of rewarding quality of service delivery. Since 2013, provision) rather than driving more efficient use most cities have implemented increasing block through prices. As the remaining opportunities for tariffs (IBTs).3 The overall water price for urban productive new supply infrastructure decreases in residents has been rising; however in the face of China, setting efficient prices—prices that reflect rising incomes, the share of water expenditure is on the value of water, and ensure that costs of supply average, falling, and remains low by international are covered—will become more critical. standards (figure 4.5). Price reforms continue, such as the move from water resource fees to taxes (box 4.7) which will help with free recovery. 3 Most cities have adopted a three-block tariff structure, with average water supply prices of the three blocks being CNY 2.31 per cubic meter, CNY 3.45 per cubic meter, and CNY 5.72 per cubic meter. REALIZING THE VALUES OF WATER 91 There is a need to ensure that water pricing to achieve multiple policy goals (affordability and impacts on affordability and equity are efficiency incentives) through the same policy mitigated. While water fees in China are mostly instrument.4 An alternative approach to IBTs are waived for those households with extreme flat volumetric charges coupled with customer poverty, most poor households pay the same price assistance programs, which provide rebates to for water use as wealthier households despite the poor and middle-class households for utility bills. IBT structure. International experience suggests The size of the rebate is dependent on income that IBTs often fail to target subsidies effectively to or household size, allowing for water pricing at poor households due to the challenges of trying efficient levels while offsetting inequities. Box 4.10 Water Resource Fee-to-Tax Reform The Government launched reforms in 2016 and pay a volumetric water resource charge. The to improve the collection of water resource water resource fee is limited to industrial and revenues. The fee-to-tax reform aims to increase urban water supplies, with no fee charged for the collection rates for water withdrawals by agricultural water usage. Reform of agricultural leveraging the legal basis of the tax code for water pricing has been initiated, with the goals enforcement. This followed recognition of of promoting use efficiency and resource challenges in implementing water resource fee conservation. Fees vary widely nationwide. policies, including low collection rates, lack of a Beijing’s water resource charge is the highest, unified calculation method, lack of enforcement with residential water charged at CNY 1.57 per mechanisms, and no progressive pricing system cubic meter and industrial water charged at CNY for water resource fees in most regions. 2.3 per cubic meter. The principles for water resource charges Initial evidence suggests that the reforms were introduced into the Water Law in 2002. were successful in increasing incentives to Users who draw water directly from rivers, conserve water. Eighteen months after the first lakes, or underground are required to apply trial was launched in Hebei Province in 2016 non- for a license from the water administrative agricultural water use dropped by 180 MCM. department or watershed management agency, Source: MOF, STA, and MWR 2016; State Taxation Bureau 2017. 4 There are a range of challenges in the design of IBTs that have led to underwhelming equity outcomes in practice. These include: (1) poorer households are more likely than wealthy households to share a metered connection to the piped water system, pushing the group of households into the higher block; (2) the correlation between income and water use is low, typically due to poorer households having more household members; (3) the blocks of IBTs tend to be large, and the price of water in the upper blocks of IBTs too low, to materially impact equity outcomes; and (4) IBTs are often difficult to understand, reducing their incentive value. See Nauges and Whittington (2017). 92 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Figure 4.5 A Comparison of Water Tariffs between Countries (top) and Cities (bottom) Globally Average water tariff for 15 m3 (US$ per m3) Low Income Economies (0.50) High Income Economies (1.69) Lower Middle Income Economies (0.60) Average Water Tariff in China (0.34) Higher Middle Income Economies (0.82) Chinese Cities 5 Maldives 4 Cabo Verde Bahamas Luxembourg Water tariff (US$ per m3) Denmark 3 Malta Belgium Germany Switzerland Norway 2 Jamaica Namibia Nepal Malawi Uganda Zimbabwe Ghana 1 Brazil Russia Tianjin Tanzania Beijing India Shanghai 0 Burundi Tajikistan China Egypt Bhutan Iraq Low Income Lower Middle Higher Middle High Income Economies Income Economies Income Economies Economies 60 50 San Diego 40 Orange City Water tariff (US$ per m3) Dubai Windhoek Perth 30 Los Angeles Cape Town London DC Sydney 20 Jerusalem New York Tokyo Fortaleza Singapore Kampala Harare Luanda Johannesburg Sao Paulo Auckland 10 Lilongwe Dodoma Lusaka Djibouti Amman Gabarone Seoul Lome Abu Dhabi Maputo Dakar Nairobi Marrakech Arequipa Bangkok Bangalore Banjul Chennai Cairo Bagdad Beirut Tianjin 0 Addis Ababa Dhaka Beijing Cities in Cities in Lower Cities in Higher Cities in Low Income Middle Income Middle Income High Income Economies Economies Economies Economies Source: Water tariffs in Chinese cities are from China Water Net (h20-china.com); global water tariffs are from the International Benchmarking Network; cities in other countries are selected based on World Bank (2018b) and other online news reports. REALIZING THE VALUES OF WATER 93 4.4.2 | Transfers Transfers are essential for realizing public Eco-compensation will be an increasingly good values of water. Transfers between levels important economic instrument in the future of government are commonly used for achieving to align incentives and achieve equitable national water and environment priorities, as outcomes. Eco-compensation is a conceptual seen in China’s extensive eco-compensation approach to environmental management programs. Transfers from central to sub-national rooted in the use of fiscal transfers to reduce governments are needed to ensure that progress environmental externalities, and is well established is made nationwide, across provinces at all levels in China. While there are many forms of eco- of economic development, and to move toward compensation, a model in which payments are equitable outcomes in which polluters pay but made from one jurisdiction to another in return the interests of vulnerable groups are protected. for improved water quality at their shared border The Cubango-Okavango River Basin Fund, has become increasingly prominent in China over established in 2020, provides an example of how the past decade. An increasing proportion of eco- transfer financing can be mobilized for ecosystem compensation programs are focused specifically resilience projects through a hybrid fund structure on water quality and quantity management (box 4.11). challenges, with water-management-related Box 4.11 Valuing Global Environmental Benefits: An Endowment Fund for the Cubango-Okavango Basin The Cubango-Okavango River Basin (CORB) Persistent poverty across the basin, coupled holds one of the world’s most unique, near with changes in climate, have driven pristine free-flowing rivers. Its resources are unsustainable land use practices. In response, central to sustainable economic development the member states of Angola, Botswana, and within the arid landscapes of southern Africa. Namibia established the Permanent Okavango The complex flood cycle provides important River Basin Water Commission (OKACOM). A services for local communities while supporting CORB Fund was established in 2020 as a vehicle a rich and unique biodiversity within wetlands of for mobilizing long-term resources that will international importance and a World Heritage enable the basin countries to provide more site. coordinated support to local livelihoods and sustainable resource use. The CORB Fund has a hybrid structure incorporating a sinking fund and endowment to finance interventions that improve the resilience of critical ecosystem services in the basin to climate change and increasing resource demands. Source: CIWA Program 2018; OKACOM 2018. 94 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION programs increasing from 2 in 1999 to an Public-private partnerships, project financing, estimated 67 in 2020 (World Bank 2021). While and green bonds mobilize additional financing large national programs focused on reforestation streams and provide efficiency incentives for or ecological protection remain dominant in terms water-quality-related capital investments. of aggregate expenditure, water quality programs These structures have been piloted for urban water are becoming increasingly common, led by sub- quality projects combining wastewater and river national governments. However, there remains rehabilitation and for urban flood risk management considerable scope to scale up and replicate eco- which can be replicated and scaled up. Box 4.12 compensation projects across China and to align provides an example of China’s “sponge cities,” incentives with ecological outcomes by shifting an integrated project structure which combines from input-based to outcome-based performance traditional gray infrastructure with blue and green metrics. infrastructure to address urban flood risks. Figure 4.6 Growth in Eco-Compensation Programs by Type of Program 140 Conservation 120 Soil Erosion Agriculture 100 Wetland Grassland Number of Programs Watershed 80 Water Source Protection Cross-border 60 Forestry 40 20 0 1999 2002 2005 2008 2011 2014 2017 2020 Source: World Bank 2021. Note: The number of programs should be considered indicative rather than definitive given challenges in determining the precise “boundaries” of some programs. REALIZING THE VALUES OF WATER 95 Box 4.12 Realizing the Value of Nature-Based Solutions for Urban Flood Management Flood losses in China have more than tripled The range of financing options to support from about US$7 billion per year in the nature-based solutions for integrated urban 1980s to US$24 billion per year in the 2000s. flood management are informed by the values Rapid urbanization, shifts in land use patterns, associated with the direct and indirect benefits. sustained economic growth, and climate change Determining the appropriate mix of funding continue to increase exposure and escalate and financing depends on the affordability and the economic impacts. As part of the next collectability of revenue streams associated generation of flood management measures, the with these benefits. Where these are limited, Sponge City Program was initiated in 2014 to public funding will continue to be essential for improve urban resilience through integration of the investment in public goods associated with nature-based solutions. many of the derived benefits. Sponge cities combine structural and non- However, there are a range of options that structural solutions that leverage gray, can improve the efficiency and equity of green, and blue infrastructure to address government funding along a continuum. flooding, attenuation of peak runoff, improved These options are informed by the levels of purification of urban runoff, and enhancement development and local conditions. They include of water conservation. The aim is to have leveraging government funds through cost- 80 percent of China’s urban areas “sponge-like” sharing mechanisms, targeting performance- by 2030, with 30 pilot cities selected in 2015 and based subsidies and conditional transfers, 2016. Financing for the pilots has come mostly adopting regulatory measures to promote from government (53 percent) and feasibility market-based approaches, creating positive gap (44 percent) subsidies, with user payments investment incentives, establishing special reportedly accounting for only 3 percent. The project vehicles that can issue dedicated bonds investment needed to scale up the program marketed to institutional investors, pooling by 2030 has been estimated at US$1 trillion, investments across project beneficiaries and with financing expected to be covered by promoting new asset-backed instruments, governments and financial institutions together developing blue assets for the green bond with the private sector and local communities. market, and engaging insurance companies in developing appropriate products along with the establishment of flood risk insurance facilities to develop a nationwide flood disaster risk pool. Source: Wishart et al. 2021. 96 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION 4.4.3 | Markets Water markets are powerful mechanisms to realize It is also essential that the water system is “capped” the economic value of water and can be structured if water users can obtain more water through to support environmental and other values of other means (e.g., issuing of new licenses from water. Water resource trading includes inter-basin government) then there is little incentive to trade. trades, upstream-downstream trades within a river A large pool of users and connectivity between basin, inter-sectoral trades, and trades between users are needed to ensure that the market is water users within the same sector (box 4.13). All sufficiently liquid. Variation in water availability are based on the same principle: markets signal the over time as well as across different geographic marginal economic value of water, incentivizing areas, along with heterogeneous demands from actors to use water efficiently (i.e., use only when different crop or industry types will contribute to its marginal product exceeds the price). Well- incentives for water users to trade with others and functioning markets require clear and secure water thus drive efficiency (Australian Water Partnership rights, a water entitlement and trade register, and and World Bank 2022b). effective regulation, monitoring, and enforcement. Box 4.13 Potential Application of Water Markets for Value Realization Water markets take a variety of forms, including: Trade between agriculture and government— “buyback”: Governments can potentially buy Trade within agriculture: A water market can water on behalf of “public good” uses, like the be established through a “cap and trade” model, environment. For example, it could enter the which allows water to easily move between market to purchase agricultural water from different crop types in response to climate or farmers, and direct that water to environmental market factors and incentivize more efficient assets. water use. Trade within or between different water Trade between agriculture and other sectors: qualities: Markets can be created to allow trade Markets can be established that allowed trade within or between different water qualities, to between agriculture and other water sectors. ensure lower- or higher-quality water is directed For example, industry can potentially buy water to the most appropriate uses. from agricultural water users (their rights, or savings they generate from efficiencies). Town Markets for unallocated water: Where water water users can also do the same. is not fully allocated—such as a water system where supply still exceeds demand—water can be auctioned to ensure it is directed to higher- value and more-efficient uses. Source: Australian Water Partnership and World Bank 2022b. REALIZING THE VALUES OF WATER 97 Markets can also be used to reduce water pollution in cost-efficient ways. Emissions trading schemes, also known as cap-and-trade systems, allow firms with high abatement costs to purchase pollution discharge reductions from firms with lower abatement costs, allowing for efficient emissions reductions. A well-designed market will set an overall cap on emissions in line with ecosystems limits and water policy objectives. Within the cap, emitters falling within regulated categories—such as firms over a particular size within the target sector—purchase permits to cover their emissions. Total permits sum up to the value of the cap, providing environmental certainty. Firms who reduce emissions can sell unused permits to other firms, providing a dynamic financial incentive to improve efficiency, and drive emissions reductions among firms that face the lowest costs to do so. Emissions markets do not require a price of permits to be set by government; prices are determined by the demand for permits among firms and their supply (the cap). Emissions trading schemes have been piloted in China but have not yet been adopted at the provincial or national scale (box 4.14). The government has signaled strong interest in such mechanisms, for example, in the 14th Five- Year Plan, and the draft national regulation for compensation of ecological protection (NDRC 2020). There is considerable scope to scale the existing pilots with the right legal and policy settings, to achieve water quality targets more flexibly and at lower cost than traditional command and control instruments. China’s initial experience with water resource and pollution-trading markets provides an opportunity to conduct a thorough assessment of the application of these market modes to identify suitable scope and design of future markets. 98 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Box 4.14 Emissions Trading to Reduce Water Pollution Emissions trading has been piloted in China A notable example of these pilots is seen in Tai for over two decades. In 1988, the then National Lake, in the Yangtze Delta region. Deteriorating Environmental Protection Agency issued the water quality in the Tai Lake resulted in toxic Water Pollutant Emissions Permit Management algae blooms and a drinking water crisis in 2007, Provisional Measures, which stipulated that “the precipitating a pilot pollution emission permit total emission allowances for water pollutants and trading system that commenced in 2010 may be flexibly distributed among the emission and covered over 1,350 large emitters. Lessons entities in the same region” (NEPA 1988). Pilots from these and other pilots can inform efforts were subsequently developed in a range of to scale these mechanisms. Importantly, there cities. The ninth five-year plan (1995–2000) saw is a need to avoid conflicts between different the official inclusion of total emissions control elements of the water quality regulatory policy for major pollutants, and nationwide framework. The program initially laid costs of the implementation of an emission permit system permits on top of existing obligations on firms to in Chinese cities. Water pollution emissions pay discharge fees, while command and control trading was able to develop in the context of pollution measures were imposed in parallel to these reforms, at localized scales so far, with the market’s incentive, reducing firms’ flexibility a focus on large-scale industrial emitters and (Zhang and Bi 2012). An overarching policy select pollutants (chemical oxygen demand and framework that resolves such conflicts and ammonia nitrate). provides clarity to firms is crucial. Source: Authors’ elaboration. REALIZING THE VALUES OF WATER 99 Box 4.15 Recommendations for Realizing the Value of Water: Incentives Prices, Taxes, and Tariffs • Reflect the full cost of water supply (resource, capital costs, and operating costs) in water supply tariffs and employ rebates where necessary to address affordability concerns. Consider adjustments to volumetric blocks and recalibration of tariffs at each block level to strengthen incentives for efficient use. Consider rebates targeted to poorer households to ensure that they are not made worse off by pricing reforms. Implement a water resource fee tied to tax reform nationwide with reforms tailored to local conditions as necessary, in line with the principle of full recovery. • Set tariffs for general municipal use such as urban greening and street cleaning to incentivize efficient use and promote fit-for-purpose water quality use. Use price instruments to encourage non-potable water where drinking standard is not required. • Ensure consistent incentives across sectors and types of water. The relative tariffs of tap water, reused water, desalinated water, and direct abstraction of groundwater should be calibrated to ensure that efficiency incentives are maintained while internalizing the disparate environmental costs of these sources. Water prices faced by different sectors (e.g., types of industry) should be equalized where possible to encourage water use at its highest marginal value. • Set water resource taxes to reflect the multiple values of the resource. Consider seasonal adjustments to prices in areas facing seasonal scarcity and where smart metering is possible. Transfers • Promote eco-compensation schemes. Transfers between government to incentivize protection of water environment and ecology have been successful in China. Incentives within some schemes can be strengthened through greater use of output-based metrics such as those seen to work well in water-quality-type programs within basins (World Bank 2021). • Promote innovative financing structures to raise efficiency and mobilize non-governmental financing streams. These may include the involvement of the private sector under a range of public-private partnership models. Markets • Strengthen market-supporting institutions and regulations. There is a need to further strengthen the legal basis for clear and secure water rights, as well as regulations to govern trade rules, water entitlement and trade registries, and effective monitoring and enforcement. • Broaden the coverage of markets. Extend markets over larger hydrological areas and increase scope to cover trades across sectors and between different types of users and sectors to secure greater value realization from markets. • Formulate guidelines and targets at the national level to incentivize local actors to set up markets. Conduct a systematic assessment of existing market-based schemes to inform national- level regulations and frameworks for replication and scaling. 100 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION 4.5 | Information, Education, and Communication Information, Education, and Communication (Schultz, Javey, and Sorokina 2019). Short-term (IEC) interventions have been successfully reductions of energy and water use of around 2–5 used to convey and embed the value of water percent are typical (Nauges and Whittington 2019). in communities worldwide, and there is strong potential to expand this policy category in China. The scale and reach of IEC interventions varies widely. Many countries include water conservation explicitly in the school curriculum to ensure reach and consistency in messaging. In others, water efficiency labeling schemes are used to convey the value of water and promote informed consumer decisions. More elaborate and resource- intensive IEC interventions include the restoration of water bodies for leisure and recreation linked to messaging about the value of water. The Active Beautiful Clean (ABC) Waters program in Singapore provides an example of this approach (box. 4.16). Behavioral nudges have been used by utilities to encourage energy and water conservation. Studies in many locations have shown that people’s behavior is influenced by information conveying social norms and in particular peer comparisons. A pioneering study in this domain showed that providing peer consumption to households led to a reduction in consumption among households with above-average use. However, the study also found a “boomerang effect”—households consuming at a relatively low rate increased their consumption after receiving the information. Combining peer information with a signal of social approval for low users (a smiley face) or disapproval for high users (a frowny face) eliminated this boomerang effect. These findings have been replicated in large-scale field experiments for power and gas bills (Ayres, Raseman, and Shih 2013) as well as for water use REALIZING THE VALUES OF WATER 101 Box 4.16 IEC Interventions for Water Value Realization Zaragoza, Spain, implemented a multi- The Active Beautiful Clean (ABC) Waters pronged communications effort targeting Programme in Singapore illustrates how households, schools, small businesses, and water values can be promoted by bringing industry on the value of water. The program people closer to the water environment. The involved raising awareness about water initiative, launched in 2006, opens waterways scarcity by engaging users through a long- and reservoirs to the public for leisure and term, sustained information campaign. The recreation, with a view to making the public see program contained four phases, beginning with themselves as guardians of water resources. It a widespread awareness-raising campaign to aims to promote water conservation, responsible conserve water in households, public buildings, disposal of solid and liquid waste, and increase and businesses through small behavioral the public’s tolerance of non-damaging flooding changes and installation of water-efficient in urban green spaces. As of 2021, 48 ABC devices. In the second phase, water-saving projects had been completed and opened to devices were installed in public parks, gardens, the public, including the Bishan-Ang Mo Kio public buildings, and industrial facilities to park, a 3-kilometer stretch of urban river that demonstrate effectiveness. The third phase was transformed from a concrete channel into involved circulating guides to high-volume an accessible, naturalized river (PUB 2021a). The customers and activities in schools. In the final river channel itself is designed as a flood plain phase, citizens and businesses were encouraged and is linked to a network of drains in the city. to make “100,000 Commitments” to save water, During dry weather, the flow of water is confined and to present these commitments in time for to a narrow stream and visitors engage in leisure the International Expo on Water and Sustainable activities in and around the channel. In the event Development, which opened in Zaragoza in of a storm, the adjacent park area floods, acting 2008. The campaign included the launch of a as a conveyance channel to carry rainwater 1-billion-liter water-saving challenge, which downstream gradually. Soil bioengineering, achieved its goal in its first year. The reduction combining planting, natural materials, and civil in consumption in the 12-month period was engineering were introduced to soften the equivalent to over 5 percent of annual domestic edges of the waterway. ABC project sites across water consumption. Importantly, the lower Singapore are widely visited and provide a locus consumption levels have been sustained over for communicating and learning about the time (Stavenhagen, Buurman, and Tortajada values of water. 2018). Sources: Ayres, Raseman, and Shih 2013; Schultz, Javey, and Sorokina 2019; Stavenhagen, Buurman, and Tortajada 2018; PUB 2021a. 102 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Schools provide an excellent setting in which program, with specific units connecting water with to promote environmental, social, and cultural Aboriginal culture and sustainability (Government values of water in younger generations. Water of Queensland 2021). A very different approach, conservation can be incorporated into the but one based on the same principles of two- school curriculum during science lessons or as way communication and engagement, is seen a special topic in primary and middle schools. in communications portals. These aim to solicit In Singapore, a unit on water is incorporated in feedback about water and environmental the primary curriculum which includes learning issues, to not only provide policy makers about how water is supplied, how it is used in with values information, but (perhaps equally the household, and actions households can importantly), encourage the public to reflect take for water conservation, as well as a water on their connection with their surroundings. A audit exercise. In secondary schools, students creative example is seen in the city of Melbourne, learn about storm water management and Australia, where in 2018, 70,000 prominent trees water treatment (PUB 2021b). In Queensland in public spaces were given email addresses. The (Australia), water is incorporated in the science popular campaign found a surprising number of and geography curriculum and the government people willing to share their thoughts with a tree provides resources for schools under its Waterwise (Burin 2018). Box 4.17 Recommendations for Realizing the Value of Water: Information, Education, and Communication • Explore opportunities for behavioral nudges. These low-cost interventions can reduce water use and raise awareness. • Develop two-way communication portals. Portals allow stakeholders to express their values and priorities. These may be incorporated into the policy process, but also to encourage people to connect with and reflect on their environment. • Include water conservation in the school curriculum. Water resources, uses, and conservation can be integrated in science and geography curricula, or included in topic-based learning on sustainability or the environment for primary and middle school years. • Conduct information and communications campaigns. Inform the public about the values of water, using community-based programs that encourage engagement and a sense of responsibility between citizens and water resources. • Conserve water’s cultural values. This can be done by supporting community efforts to document and protect artifacts and traditions related to water, through the arts, traditional ceremony, and children’s education materials. REALIZING THE VALUES OF WATER 103 104 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Chapter 5 | Looking Forward Objective: This chapter returns to the seven SMARTER water policy priority areas, set out in chapter 1, linking each to the tools and approaches set out in chapters 2, 3, and 4. It aims to demonstrate how identification, evaluation, and realization of water’s multiple and diverse values contributes to these priority areas and thus to China’s vision of an ecological civilization. Key Points: • Constructing an ecological civilization will • Tools and approaches for identifying, require SMARTER reforms in managing the evaluating, and realizing the value of water development of water. The following needs are critical for progress toward these priorities. are highlighted: S 1. Safeguarding the environmental and cultural values of water. M 2. Managing water infrastructure for diverse values of water. A 3. Adapting policy interventions to match the values of water over time and space. R 4. Reforming and calibrating the prices of water to reflect its values. T 5. Transitioning to values-driven water management through a structured process. E 6. Establishing evaluation systems to determine the contribution of water to the construction of an ecological R civilization. 7. Realizing the construction of an ecological civilization and the role of water within this vision. 105 This report has described China’s achievements Further progress will be supported through in water management to date, many expansion and refinement of these approaches, underpinned by substantial investments founded on recognition of and management in water infrastructure. These achievements for the full range of water’s values. The include a large expansion of access to water recommendations set out in this report for services for households and industry, long-term identifying, evaluating, and realizing the values of growth in irrigated agricultural production, water will support China in pursuit of SMARTER substantial investments in water storage, and reforms, namely the seven priorities introduced significant improvements in flood management. in chapter 1: (1) Safeguarding the environmental These achievements have been central to China’s and cultural values of water; (2) Managing water economic development and poverty reduction. infrastructure for the diverse values of water; While investment in new physical infrastructure will (3) Adapting policy interventions to match the continue to be an important pillar of water policy, values of water over time and space; (4) Reforming China’s development trajectory will increasingly and calibrating the prices of water to reflect its be determined by the ability of water policy to multiple values; (5) Transitioning to values-driven respond to the changing values, aspirations, and water management through a structured process; expectations of society through other means. (6) Establishing evaluation systems to determine the contribution of water to the construction of As China pursues higher-quality and green an ecological civilization; and (7) Realizing the development, water policy will increasingly construction of an ecological civilization and the require a focus on water’s social, cultural, and role of water within this vision. environmental dimensions. Underpinned by the vision of an ecological civilization, this transition reflects changes in underlying societal values, notably a rise in concern for the environment (as explored in chapter 2). Understanding the evolving values landscape is fundamental to the transition from economically oriented policies emphasizing “when you drink water, water resources development to policies that think of its source— emphasize environmental stewardship. The shift is underway, seen in China’s adoption of policy 飲水思源” instruments that are placing caps on withdrawals, —ancient Chinese proverb increasing the efficiency of water allocation and use (including pilot water markets and cost-reflective pricing), while placing greater emphasis on equity considerations across regions and between urban and rural users. Environment-related management measures such as ecological flows and spatial zoning limits to development (ecological red lines) are becoming more prominent. 106 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION S 5.1 | Safeguarding the Environmental and Cultural Values of Water Historically, insufficient attention has been paid good example of the increased recognition that to protecting the ecological values of water. water’s cultural value is receiving in China. Further Failure to safeguard the natural environment and strengthening the legal framework for protection ecosystem services derived from rivers, lakes, of cultural values, and establishing a national wetlands, and groundwater has led to ecological water cultural heritage system with associated degradation. While water’s ecological values have certification and regulations, will safeguard gained increased prominence in policy and law (as historical, scientific and technological, artistic, and seen, for example, in the passing of the Yangtze cultural values for future generations. River Protection Law, 2021), implementation of protection measures remains challenging. One Participatory methods can help identify and reason is that water management is particularly evaluate key values of water resources, with susceptible to failures of inter-jurisdictional incentives and regulation used to protect cooperation and cross-sectoral coordination. those values. While there are a range of different Measures have been established to address such forms of participation in water governance, challenges, with some success through the river consultation is essential to develop a shared vision chief system. The enforcement of measures such as for the water environment. Such processes are also the ecological red lines (requiring the commitment important in revealing cultural and social values of local and not only higher levels of government) that might be otherwise “hidden” within diverse will help determine the extent to which the values local communities. Processes should be designed associated within water in China are safeguarded. to elicit stakeholders’ positions and preferences by revealing and reconciling values in ways that Cultural and spiritual values are also often are equitable, transparent, and inclusive. The overlooked in policy and decision-making identification of values is thus often a process well processes. China’s rich history provides an served by local levels of government within the important foundation for water policy, which broader context of integrated basin planning and has been combined with contemporary water the national planning framework. Capacity building management approaches to create a unique in new participatory consultation approaches may governance system. Within this, innovative be required for some local governments, led by frameworks are being introduced to provide central and provincial levels of government. guidance for the identification and evaluation of cultural heritage related to water (such as in Zhengzhou—see box 2.5 in chapter 2). The national strategy for protecting, inheriting, and promoting the culture of the Yellow River is another LOOKING FORWARD 107 Evaluation methods should be employed to determine broad ecological and cultural values. In the past, indirect use values of healthy catchments (such as downstream flood control and water quality and nutrient cycling) were not systematically considered in decisions on upstream development and zoning. These benefits could be evaluated through basin or catchment-wide hydro- economic models. The capacity for such modelling exists within China’s major river basin agencies, with opportunities for expanding outreach to the levels of government that must implement (and thus understand) their recommendations. Greater use of subjective valuation methods (to better understand option value, bequest value, and existence value of water resources) would be a useful complement (as discussed in chapter 3). Institutions are needed to safeguard water’s values over the long term. Environmental and cultural water requirements should be determined by the river basin agencies early in the planning process and subsequently incorporated into water allocation plans by provincial water resources departments. The intrinsic value of water resources could be further protected through legal instruments that recognize the rights of nature (see box 4.3 in chapter 4), along with independent institutions empowered with the authority to safeguard environmental and or cultural water allocations (environmental or cultural “water holders”). Those allocations should be integrated into both sectoral (e.g., water, environment, cultural) and multi-sectoral (e.g., spatial, socio- economic) planning and policy documents. 108 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION M 5.2 | Managing Water Infrastructure to Maximize Diverse Values of Water More efficient operation and optimization of South-North Water Diversion project. Efforts will existing infrastructure, and a targeted approach also need to be made to develop sub-national to future investment, are required to maximize government and third-party capacity for the use diverse values of water. China has built the world’s of such integrated modelling and other evaluation largest stock of water infrastructure, but marginal methods. returns on further investment will gradually decline as basic services provision is achieved and the most Planning for further investment in China’s accessible water resources are fully utilized. Further water infrastructure stock will increasingly gains will require optimized management, sensitive need to target “missing links,” or investments to diverse values. The prospects of a changing that complement existing parts of the system. climate may also require re-operationalization of Complementary investments might include existing infrastructure management approaches to extensions to wastewater collection systems in accommodate future hydrological uncertainty. rural areas in combination with upgrades to existing wastewater treatment plants, or to dedicated A values-driven approach to infrastructure pipe networks for the delivery of recycled water. begins with identifying and accounting for Changes to planning processes and a supportive project-impacted values across hydrological institutional framework at the local level coupled regions. Impacts will occur across administrative with higher-level monitoring will also be required boundaries, necessitating a basin- or sub- to ensure that investments are optimized spatially. basin-level approach to management decisions These efforts will enhance the positive impact that considers national planning policies and of the large existing capital stock despite higher priorities. This is challenging in the context of marginal costs of infrastructure. river basins with interacting infrastructure spread across jurisdictions. Integrated hydro-economic Investment in and management of infra- modelling can guide management and investment structure need to be informed by improved decisions across borders by highlighting synergies data and information. Information platforms, and trade-offs between users in different parts such as integration of existing data platforms of a basin. Such models can also be used to used by local and provincial River Chief offices, evaluate the merits of investments in efficiency, should be developed at the basin level. This will relative to supply augmentation, in the context of enhance cross-sectoral and interjurisdictional environmental, social, and financial costs of new sharing of data. Making these platforms infrastructure. Identifying and valuating impacts accessible to the public will support greater will be critical in major national infrastructure citizen engagement and trust in decision-making projects such as the western route of China’s processes. LOOKING FORWARD 109 A 5.3 | Adapting Policy Interventions to Match the Values of Water over Time and Space Any approach to realizing value requires In the realizing phase, targets and regulations policies that are tailored to match local should refer to outcomes and be calibrated conditions, and priorities and capacities that to the local context, rather than prescribe can adapt to changes in context. Levels of income specific interventions or set a uniform national in China have increased dramatically over the past rule. Differentiated standards and performance 40 years, and in 2021 ranged from over US$25,000 indicators linked to ecological status of water per capita in Beijing and Shanghai, to just above bodies are needed to take into account nationwide US$5,000 per capita in Gansu and Heilongjiang. variation in ecological requirements. In pricing Similar variation is seen in the natural endowment water resources and services, close attention of water, resource use efficiency, pollution, and should be paid to local affordability. Finally, policy responses, many of which are captured detailed information on local conditions is needed in the Green Development Index (box 5.1). This to guide financial transfers from higher levels of implies a complex context within which to manage government to their optimal use. water, one that requires differentiated policy responses and mechanisms that can respond to Coordination mechanisms at the basin level value changes among an increasingly prosperous will improve inter-jurisdictional and cross- population. sector alignment. While water policies need to be differentiated across space due to different socio- Differentiation is supported by tools along economic contexts and natural endowments, the entire identifying-evaluating-realizing water policies in one place have spillover effects chain. At the identification stage, consultative on other places within one river basin. For instance, approaches help reveal locally held values and realizing the economic and social values of develop a shared vision of the desired future state water in the downstream Yangtze River Basin will of local water resources. These typically reflect the depend on the protection of ecological values of local development context within the broader water in the upstream. Coordinated efforts will context of the basin characteristics and national be supported by integrated planning, data, and planning priorities. Evaluation techniques can information sharing, along with financing flows focus specifically on the values identified in a (such as eco-compensation) targeted toward specific location, with tool choices that match local priority geographic areas. The distribution of capacity to commission and employ analytical these across different provinces within a basin will findings. Central government can provide support require enhanced capacity at the basin level to by collecting and managing benefit and cost facilitate the complex negotiations and allocation evaluation information to enable valid benefit of resources among increasingly competing users transfer. and maximize the value of water. 110 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION Box 5.1 Variations in per Capita Income and Levels of Green Development in China The Green Development Index (GDI) was Organization Department of the Communist published in 2016 to provide a set of metrics Party of China’s Central Committee. The strong that could reflect both socio-economic pattern of development seen in gross domestic development and environmental protection product differs considerably from environmental for the 31 mainland provinces in China. The outcomes, resulting in a GDI score that diverges index is based on 56 indices within 6 themes from traditional gross domestic product (resource utilization, environmental governance, measurements (figure B5.1.1). Metrics such as environmental condition, ecological protection, GDI reflect a wider range of values, and when growth quality, and green lifestyle), and was used to incentivize government decisions jointly published by the Chinese National Bureau (particularly those by local officials), can result of Statistics, with the National Development in policy choices better aligned with the broader and Reform Commission, the then Ministry vision of citizens, and better aligned with local of Environmental Protection, and the Central policy needs given specific challenges. Figure B5.1.1 Gross Domestic Product and Green Development by Province 35,000 GDP per capita (2021 US$) 86 Green Development Index 84 30,000 82 Green Development Index GDP per capita (2021 US$) 25,000 80 20,000 78 15,000 76 10,000 74 5,000 72 0 70 Beijing Tianjin Hebei Liaoning Shanghai Jiangsu Zhejiang Fujian Shandong Guangdong Hainan Shanxi Jilin Heilongjiang Anhui Jiangxi Henan Hubei Hunan Inner Mongolia Guangxi Chongqing Sichuan Guizhou Yunnan Tibet Shaanxi Gansu Qinghai Ningxia Xinjiang Eastern Region Middle Region Western Region LOOKING FORWARD 111 R 5.4 | Reforming and Calibrating the Prices of Water to Reflect Its Multiple Values Prices play a central role in signaling the value governments need to approve and enforce these of water and guiding resources to their most caps. Furthermore, the caps need to be closely productive use. Water prices in China are currently monitored to identify adjustments that might be well below a level that would reflect the full value needed over time to identify reduced return flows of water as a resource, service, and sink. There is due to increasing efficiencies and consumptive wide scope to gradually adjust tariffs upward to use, or changes in the pollution carrying capacity. align price and value for efficient use decisions, Well-functioning markets send price signals and to cover the increasing costs of water supply. that represent the economic values of water; if Coherence could also be improved between the environmental institutions are also incorporated many tariffs and charges levied for water, including into market designs (such as an environmental surface and groundwater extraction fees; water water holder, or a sustainable diversion limit supply tariffs for farmers, industry, and households; based on ecological needs), prices will also signal wastewater tariffs; direct discharge fees; and the environmental values—helping to align behaviors prices of unconventional sources of water like reuse with efficient outcomes. and desalination. This in turn will require action from local governments to implement guidelines Bringing prices into line with values will mean set at higher levels. The water resource fee to tax higher prices in most contexts, which requires reform process underway is an important effort supporting measures to ensure affordability. toward this goal. Attention will need to be paid to the impacts on vulnerable groups as tariffs are adjusted upward. Water markets in China and around the world Subsidies, such as utility rebates to households are relatively underutilized, but have potential as a function of their size or income, can be used to drive greater efficiencies in conditions of to ensure the ability of users to pay a value- variation and scarcity. Although water markets reflective price. The same logic applies to many have existed in China for over two decades, their carbon tax designs, where tax incidence is offset growth in scale and scope has been constrained: with rebates, ensuring both a dynamic incentive water rights are not clearly specified, return and affordability. Fiscal transfers, such as eco- flows are mismanaged, gaps remain in trading compensation schemes, can be leveraged to regulations, institutional arrangements are unclear, balance the need to protect water’s environmental market monitoring is weak, and information is not values while harnessing water’s economic values shared transparently. For water markets to function especially in less-developed regions. effectively, basin authorities and other relevant agencies need to establish well-defined caps on resource use and/or pollution emissions. Provincial 112 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION T 5.5 | Transitioning to Values-Driven Water Management through a Structured Process The transition to values-driven water policy The transition needs to be accompanied and will be a long-term process with distributional supported by public awareness raising. Water’s consequences; attention needs to be paid to multiple values and the costs associated with managing the transition itself to elicit and water-related risks, including degradation, could retain support from stakeholders. This report has be incorporated into school curriculum and other emphasized the need for participatory mechanisms IEC activities, such as those organized under the to establish a shared vision of a desired future state River Chief system. Water museums and cultural for water resources, and for building acceptance products, such as books and songs, could be for difficult policy decisions. In addition to existing produced to not only protect water’s cultural consultation processes, the newer tools outlined values, but also increase people’s awareness in this report, such as participatory mapping and and support for water-related protection and modelling, offer ways to reveal values and build conservation activities and investments. citizen understanding. Participation requires stakeholders to have access to reliable data that can support discussions grounded in science. Feedback mechanisms, adaptive mana- gement, and information, education, and communication (IEC) interventions will be essential for a successful transition. As the systematic consideration of environmental, social, and cultural values is new to many decision-makers and citizens, education and communications interventions will be useful for conveying concepts relating to value, and for introducing the processes (e.g., stakeholder forums) that will be used to identify and evaluate value. Adaptive management processes—such as regular policy review informed by basin modelling, scenario analysis, and robust decision-making tools—will help realize value by adapting policy to China’s rapidly changing water context and the additional challenges imposed by climate change. LOOKING FORWARD 113 5.6| E Establishing Evaluation Systems to Determine the Contribution of Water to the Construction of an Ecological Civilization Water policy that is sensitive to values is built on Establishing a more comprehensive national a foundation of credible and transparent data. system for monitoring water within the An objective set of metrics is needed to evaluate transition has the potential to generate the contribution of water and the transition toward value in applications beyond those originally an ecological civilization. While indicator systems anticipated. Water-related data are typically have been proposed to measure key ecological distributed across multiple agencies at different civilization goals for the economy, society, and levels of government. As discussed in chapter 3, nature, there is a need to better measure and data are often published in disparate and hard-to- monitor the specific role of water. Indicator systems access forms, or are kept within departments or proposed typically look at simple measures of the ministries. There is a need to strengthen monitoring available resource, such as water resources per and statistical systems, with increased integration capita, or its utilization, such as value added per across sectors and jurisdictions. Actively integrating cubic meter, rather than its contributions (i.e., a wider range of stakeholders into the data life cycle water-related outcomes) to the economy, culture, and data governance structure will strengthen the and the environment. Such monitoring will require guidance that can be provided to future policy an understanding of the underlying resource, as measures, help identify institutional failures, and well as socio-economic, technical, engineering, support opportunities for improved cooperation environmental, and cultural issues. Broad types of and coordination. However, many barriers stand data will be needed. in the way, ranging from misaligned incentives for officials in the reporting of data, incompatible data systems, to a fundamental lack of trust and transparency. Such systems are integral to the SMARTER framework, and would help align water policy with the vision of an ecological civilization. 114 THE VALUE OF WATER IN THE CONSTRUCTION OF CHINA’S ECOLOGICAL CIVILIZATION 5.7 | R Realizing the Construction of an Ecological Civilization and the Role of Water within This Vision The recommendations and examples in The realization of an ecological civilization will this report show how water policy can, and continue to rely on inbound and outbound is, contributing to the construction of an transfers of knowledge. The range of social, ecological civilization. For China to move further economic, and water resource conditions in China, toward this vision, socio-cultural and ecological and the experience in identifying, evaluating, and values will need to play an increasingly prominent realizing the values of water, have the potential role in water policy. The diversity of China’s water to provide important contributions to other resources, geographies, and water users inevitably countries. The Chinese experience in managing the give rise to competing interests, underlining the governance and development of water resources, need for institutions and processes which can and extending access to water services across reveal and reconcile different values to generate regions, can inform other countries at different durable solutions. The tools presented in this stages along the development continuum. Varied report—techniques and recommendations for experience across China suggests that the costs of identifying, evaluating, and realizing these values— restoring damaged ecosystems and the services provide the practical means toward achieving they provide may be higher and ultimately less this goal. Implementing these recommendations effective than the concerted preservation of more will require significant political commitment. pristine ecosystems. The policy mix used in China, Reforms take time, particularly when they relate combining regulation with the introduction of to common pool resources like water, and require market mechanisms, national frameworks that sustained commitment to inclusive, transparent provide flexibility for local interpretation, and processes. Old precedents must be overturned, innovative incentive schemes for officials to drive and adaptations made in the service of new value- improvements in environmental performance, sensitive management approaches. provides a wealth of examples for central and sub- national governments to draw on. 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